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.
Given the current price action in the markets, I am expecting the indices to trade primarily within a larger trading range over the next several weeks. There is the potential for a slightly higher high, but this is the most likely in the Dow. Gold, silver, and oil all have similar price action.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 50.03 points, or 0.41%, and closed at 12,220.59 on Friday. Slightly more than half of the Dow's thirty index components posted a gain on the day. The top performers were IBM (IBM) (+1.34%), Chevron (CVX) (+1.33%), Caterpillar Inc. (CAT) (+1.21%), and AT&T (T) (+1.09%). The weakest performers were Hewlett-Packard (HPQ) (-1.32%), Bank of America (BAC) (-1.04%), Microsoft (MSFT) (-0.74%), and Cisco Systems (CSCO) (-0.46%).
The S&P 500 ($SPX) rose 4.14 points, or 0.32%, and closed at 1,313.80.The strongest percentage performers on Friday were CF Inds. Holding (CF) (+4.99%), Newfield Expl. Co. (NFX) (+4.00%), Xerox Corp. (XRX) (+4.00%), Valero Energy (VLO) (+3.96%), and Western Digital Corp. (WDC) (+3.60%). The weakest percentage performers were Darden Restaurants Inc. (DRI) (-4.96%), NVIDIA (NVDA) (-3.12%), Best Buy (BBY) (-3.02%), and JDS Uniphase (JDSU) (-2.80%). Darden Restaurants (DRI), which operates Red Lobster and Olive Garden, beat earnings estimates, but indicated that rising food costs could hinder its forecast. Best Buy (BBY) continued to be hit by downgrades following its disappointing earnings report on Thursday morning, which touched on rising operating costs and decreases in same-store sales.
The Nasdaq Composite ($COMPX) ended the session higher by 6.64 points, or 0.24%, on Friday and it closed at 2,743.06. The top performers in the Nasdaq-100 were Nii Holdings (NIHD) (+3.25%), Priceline.com (PCLN) (+2.31%), Altera Corp. (ALTR) (+2.29%), Wynn Resorts (WYNN) (+2.25%), and Apple (AAPL) (+1.90%). The weakest performer was Research In Motion (RIMM), which fell -11.23% after it gave a lower-than-expected guidance for the fiscal first quarter. It was also downgraded by a number of brokerages on the heels of the news. NVIDIA (NVDA) (-3.12%), Starbucks (SBUX) (-1.81%), and Qualcomm (QCOM) (-1.81%) were the other top losers.
This is going to be a busy week on the economic data front. This week's highlighted data will be Friday's jobs report. Although the national unemployment rate fell to 8.9% last month, bets are high that it will not be able to hold that level, let alone improve, this month. The "real unemployment rate" came in at 15.9%, off 2% from its peak in February 2010. Nonfarm payrolls are expected to rise between 160,000-225,000 for March.
The week's data will kick off, however, with February's personal income and personal spending on Monday. The National Association of Realtors pending home sales report is also due out and is expected to show continuing declines. Then on Tuesday watch for more housing data with the Case-Shiller home-price index. The Conference Board's consumer confidence data is also due out on Tuesday.
Earnings are once again light this week as fourth-quarter reports wind down. First-quarter earnings season kicks off on April 11 when Alcoa (AA) releases its quarterly earnings. A few to watch this week will be Apollo Group (APOL) on Tuesday and Family Dollar Stores (FDO) on Wednesday.
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.
