Third Push Higher Underway on 30 Minute Charts
Good day! This is a busy week on the economic data front. On Tuesday the report that had the most impact on the day was the Conference Board's consumer confidence index, which fell from a revised 72.0 in February to 63.4 in March. Even though this was the largest drop in over a year, it served as the catalyst to reverse the premarket weakness we had seen following Monday's close.
As I was writing yesterday's column, the market was still stuck early in the congestive phase following a strong late-day selloff into the closing bell. Despite a rapid bounce into the early-morning hours, the potential was still high that an inverted-V could form that would lead the index futures back to lows.
A slow reaction to those lows would then have led to further selling into Tuesday or Wednesday. As I noted, however, a shift in the momentum into that low would shift the outcome and this is what ended up developing. The overall pace of the move off 3:00 a.m. ET highs began strongly, but slowed as it reached previous lows. Despite rapid bursts of selling on a five-minute time frame, the overall channel for the selloff was slower than the previous uptrend channel out of midnight.
Dow Jones Industrial Average
Within minutes of the release of the stronger-than-expected consumer confidence data, the indices were breaking through the highs of the premarket downtrend channel. This negated the potential for an easy continuation of Monday's weakness and confirmed the bias from late last week that favored another push higher on the 30 minute charts that had weakened as a result of the rounded highs into Monday evening.
This latest break higher will be the third push to the upside on the 30-60 minute charts, so we should expect a larger daily correction to begin before the end of the week. The Dow continues to have the potential for a slightly higher high on the daily time frame before such a correction, whereas the Nasdaq will be unlikely to break those highs before it pulls back once again. Intraday on Wednesday we should also expect a bit of difficult with the rally. The stronger momentum off Tuesday's lows will slow the pace in today's session and create a choppier trading environment overall, particularly on the upside.
On Thursday the data releases pick up again with the Commerce Department's report on factory orders, the Chicago Purchasing Managers Index, and last week's jobless claims. This week's highlighted data, however, 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 Dow Jones Industrial Average ($DJI) had a gain of 81.13 points, or 0.67%, and closed at 12,279.01 on Tuesday. Twenty-four of the Dow's thirty index components posted a gain. The top performers were Home Depot (HD) (+2.86%), AT&T (T) (+2.35%), Cisco Systems (CSCO) (+1.81%), and Alcoa (AA) (+1.45%). Home Depot (HD) announced a $1 billion stock buyback, boosting its share price. The only component to post a loss greater than 0.3% was Hewlett-Packard (HPQ) (-2.44%).
The S&P 500 ($SPX) rose 9.25 points, or 0.71%, and closed at 1,319.44. The top percentage performers in the index were Rowan Cos. (RDC) (+5.20%), AK Steel (AKS) (+5.19%), International Paper Co. (IP) (+4.71%), and Schlumberger Ltd. (SLB) (+4.35%). The weakest performers were Apollo Group (APOL) (-4.25%), Lennar Corp. (LEN) (-3.44%), Sprint Nextel Corp. (S) (-3.35%), and Frontier Communications Corp. (FTR) (-3.31%).
The Nasdaq Composite ($COMPX) ended the session higher by 26.21 points, or 0.96%, on Tuesday and it closed at 2,756.89. The top performers in the Nasdaq-100 were F5 Networks (FFIV) (+3.88%), Qualcomm (QCOM) (+3.32%), Vertex Pharmaceuticals (VRTX) (+3.30%), and Amazon.com (AMZN) (+3.11%). Amazon.com (AMZN) rose on news of the introduction of its cloud music service ahead of both Apple (AAPL) and Google (GOOG). The only Nasdaq 100 shares that fell more than 0.5% on Tuesday were Apollo Group (APOL) (-4.25%), Staples (SPLS) (-1.26%), and NVIDIA (NVDA) (-0.78%).
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.