Good day! Volume was light on Thursday compared to the pace of the selloff earlier this month, but the market made strong headway in its recovery efforts. We had started to see the congestion from earlier this week favor a break higher on Wednesday when prices started pulling steadily off the morning lows. By the afternoon the upper end of the 30-minute channel had broken and the indices were pushing against prior 15 minute highs with the Dow Jones Ind. Average leading the way. This breakout continued quite well into Thursday, although the intraday price action was not as strong.
Dow Jones Industrial Average (Figure 1)
At the time I was writing yesterday's column, the index futures were congesting along Wednesday's highs in afterhours trade. This is a strong pro for the bulls since upper-level trading ranges have a tendency to break higher, unless the momentum on the upside within the range is substantially slower than the downside. This was not the case on Wednesday, however, and the futures maintained the bullish bias I've written about throughout the week.
The initial trigger on this afterhours breakout came in the early-morning hours on Thursday with the 4:00 a.m. ET correction period. Although the momentum was slightly less than the rally off Wednesday's lows, it was steady and the index futures hit the pace-adjusted equivalent of an equal move compared to Wednesday's rally at 8:00 a.m. ET Thursday morning. By striking this target level in premarket trade, however, it created a choppier intraday environment that contributed to the lighter volume. Thanks to earnings strength afterhours, however, the S&P 500 index futures were able to hit an equal move on the 15 minute charts with the day's rally as compared to the push higher on the 20th-21st. This leaves the indices extended on the upside once again in the short term into Thursday evening, although the daily charts of the major indices still have more upside potential.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) had a gain of 84.54 points, or 0.7%, and closed at 12,170.56 on Thursday. Only three of the Dow's thirty index components posted a loss on the day. The top percentage performers were Hewlett-Packard (HPQ) (+2.45%), Home Depot (HD) (+2.02%), Pfizer (PFE) (+1.91%), and WalMart (WMT) (+1.84%). The losers were Cisco (CSCO) (-1.25%), Bank of America (BAC) (-1.25%), and Chevron Corp. (CVX) (-0.09%).
The S&P 500 ($SPX) rose 12.12 points, or 0.93%, and closed at 1,309.66.The strongest percentage performer in the index was Red Hat (RHT) (+11.24%) after it reported stronger-than-expected earnings and raised its forecast. Other top performers included Micron Technologies (MU) (+8.39%), NVIDIA (NVDA) (+7.97%), JDS Uniphase (JDSU) (+7.05%), and Salesforce.com (CRM) (+5.84%). Micron Tech. (MU) had also beat expectations. The weakest performers were Best Buy (BBY) (-5.40%), Paychex Inc. (PAYX) (-3.97%), Gannett Inc. (GCI) (-2.93%), and Pall Corp. (PLL) (-1.50%). Best Buy (BBY) narrowly beat earnings estimates, but it was unable to hold onto the morning gains and break the daily downtrend.
The Nasdaq Composite ($COMPX) ended the session higher by 38.12 points, or 1.41%, on Thursday and it closed at 2,736.42. The strongest performers in the Nasdaq-100 were Micron Technologies (MU) (+8.39%), NVIDIA (NVDA) (+7.97%), Autodesk (ADSK) (+5.26%), and Ctrip.com (CTRP) (+4.70%). The tech-heavy Nasdaq cheered MU's news and led the indices. Only four of the components in the Nasdaq-100 posted a loss. They were Paychex (PAYX) (-3.97%), Cisco (CSCO) (-1.25%), F5 Networks (FFIV) (-0.83%), and Urban Outfitters (URBN) (-0.69%).
Nasdaq Composite (Figure 3)
Thursday's economic data didn't have much of an impact on the day' s price action. First-time unemployment claims were in line with expectations and fell by 5,000 to 382,000 last week from a revised 387,000 the week before. The 4-week moving average of initial claims fell to 385,250, which is its lowest level since 2008. Meanwhile, new orders for durable goods fell 0.9% in February to $200 billion. An increase of 1.1% had been anticipated. The third fourth-quarter estimate for the U.S. gross domestic product the final Michigan consumer sentiment data will be released on Friday morning.
The main earnings announcement to keep an eye on for Friday will be KBHome (KBH). First quarter earnings season kicks into full swing in about two weeks. The market received a boost afterhours on Thursday when Oracle (ORCL) reported fiscal third-quarter earnings result that beat estimates. It also raised its dividend by 20% to 6 cents a share. Research In Motion (RIMM) also beat earnings estimates in its afterhours report, but shares were lower afterhours due to a disappointing forecast.
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.