Good day! The market has been in "pause mode" for a couple of days after strong buying into the new week, but the bullish bias on the 60-minute charts remained intact despite continued selling into Tuesday's close. The market rallied for three days into the Dow Jones Ind. Ave. and S&P 500's 20 day moving averages, making it difficult for the rally to continue without pausing to catch its breath. This has led us to favor a correction from the rally for a couple of days, but without any strong bearish bias past the short-term due to the strength of the rally just several days earlier.
Dow Jones Industrial Average (Figure 1)
On Wednesday we continued to see this struggle play out. The index futures were lower heading into the early-morning hours, but popped suddenly after 5:00 a.m. ET. The rally took the futures sharply higher, but didn't last. By 7:00 a.m. ET the futures were rounding off and beginning a steep decline that continued past Wednesday's opening bell and into 10:00 a.m. ET.
Japan's recovery efforts and the turmoil in North Africa and the Middle East have remained the center of attention and commodity prices continued to rise. Gold even struck a new record high and settled at $1,438 an ounce, while silver closed at $37.20 an ounce. This was its highest close in more then 30 years.
With the larger daily strength still in mind, the market did manage to hold morning lows and a recovery was soon underway. The pace was very comparable to the selloff heading into the opening bell. The trend, however, was more orderly. While the premarket selloff came in two waves with a lot of overlap in the middle, the recovery intraday took place with a number of wave of upside whereby each correction was a slow, gradual pullback into the 5 minute 20 sma support. This made it easier to time and allowed for tighter stop placement for daytraders taking advantage of the trend. The indices managed to return to prior 15 minute highs before finally holding highs into the final 30 minutes of trade. Congestion continued afterhours with the index futures hugging the highs of the 60-minute range into midnight. This type of action remains favorable for the bulls this week.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) had a gain of 67.39 points, or 0.156%, and closed at 12,086.02 on Wednesday. Twenty-three of the Dow's thirty index components posted a gain on the day. The top performers were Alcoa (AA) (+3.04%), Disney (DIS) (+1.93%), 3M (MMM) (+1.59%), and United Technologies (UTX) (+1.21%). The weakest performer was Bank of America, which fell 1.66% after the Federal Reserve denied its request to increase its dividends. It was followed by losses in WalMart (WMT) (-0.69%) and DuPont (DD) (-0.39%).
Nasdaq Composite (Figure 3)
The S&P 500 ($SPX) rose 3.77 points, or 0.29%, and closed at 1,297.54. The strongest percentage performer in the index was Jabil Circuit (JBL) (+10.88%). Other top performers included Cintas Corp. (CTAS) (+5.72%), Iron Mountain Inc. (IRM) (+5.35%), and Discover Financial Services (DFS) (+5.35%). The biggest losers were Adobe Systems Inc. (ADBE) (-3.65%), Newfield Exploration Co. (NFX) (-3.10%), Zions Bancorporation (ZION) (-2.48%), and Medco Health Solutions (MHS) (-2.21%).
The Nasdaq Composite ($COMPX) ended the session higher by 14.43 points, or 0.54, on Wednesday and it closed at 2,698.30. The strongest performers in the Nasdaq-100 were Starbucks (SBUX) (+4.98%), F5 Networks (FFIV) (+4.36%), Baidu (BIDU) (+4.32%), and Lam Research (LRCX) (+4.03%). The weakest performers were Adobe Systems Inc. (ADBE) (-3.65%), Yahoo (YHOO) (-1.41%), and Flir Systems (FLIR) (0.95%). For those who trade the ETFs, be sure to note that on Wednesday the NASDAQ OMX Group, Inc.'s (NDAQ) symbol for the PowerShares QQQ Trust Series 1 changed from QQQQ to QQQ.
On the data front, new home sales hit a record low last month, casting yet another dismal eye on real estate. Sales fell 16.9% in February to an annual rate of 250,000 from an adjusted 301,000 in January. Existing home sales on Monday had fallen 9.6% month-over-month. On Thursday watch for the latest unemployment numbers and durable goods orders.
Earnings to keep an eye on throughout the remainder of the week are Best Buy (BBY), GameStop (GME), Lennar (LEN), Oracle (ORCL), and Research In Motion (RIMM) on Thursday and KBHome (KBH) on Friday.
Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.
Toni Hansen is president and co-founder of the Bastiat Group Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.