Profit taking pares last week's gains

Good day! This past week was definitely a happy one for the bulls. The U.S. market had its best weekly performance since last July. The Dow Jones Ind. Average ($DJI) ended the week higher by more than 3%, while the S&P 500 ($SPX) gained 2.7%, and the Nasdaq Composite ($COMPX) rose 3.7% thanks to strong advances in tech shares. After two and a half days of strong trend action, however, the market was exhausted by mid-day on Friday.

The most recent intraday trend began on Wednesday on the 15 minute time frame after a pause at the beginning of the week. Throughout the past several trading days the 15 minute 20 period moving average served as a strong support level. When this happens, it is very rare for the overall market to push higher for more than 2.5 days without at least breaking the 15 minute 20 sma support. By mid-day on Friday the indices were already pushing this typical limit.

Dow Jones Industrial Average (Figure 1)

The morning action on Friday was quite strong. The session began with a slight gap higher thanks to afterhours strength from Oracle (ORCL). The company reported fiscal third-quarter earnings result that beat estimates. It also raised its dividend by 20% to 6 cents a share. That push following the closing bell left the index futures extended and the index futures were fairly quiet overnight. The Nasdaq traded in a particularly narrow range, which kept the focus on the bulls into Friday morning. The first hour of the session, however, was spent in a smaller trading range with the 5 minute 20 sma serving as support and the catalyst for Friday morning's continuation rally.

Friday's economic data in the U.S had very little impact upon the day's price action. The Commerce Department's report on the fourth-quarter gross domestic product showed an inflation-adjusted annual growth rate of 3.1%, which was slightly better than anticipated. The GDP is the value of all goods and services produced in a country in a given period. The final reading for March's Reuters/University of Michigan's consumer sentiment survey, which was released at 9:55 a.m. ET, was 68.2. This was in line with expectations.

S&P 500 (Figure 2)


The final leg of upside on the 15 minute bull trend in the indices that began on Wednesday took place between 10:15 and 11:00 a.m. ET on Friday. This push took the S&P 500 and Nasdaq back to the center of the late-February/early-March trading range in the indices, while the Dow was able to retest the highs of that range. From 11:00 a.m. ET into 12:00 a.m. ET the pace of the market action shifted. The upside slowed as the indices crept off support. This created a Momentum ReversalTM in the S&P 500 and Dow on the 5 minute charts and a double top in the Nasdaq-100. It triggered a reversal around 12:15 ET and the market slowly corrected with a steady downtrend on the 5 minute time frame into the closing bell. Despite the late-day slide, by the end of the day, advancers still outpaced decliners on the NYSE by 1.7 to 1 and 1.4 to 1 on the Nasdaq.

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