Good day! Over the past two weeks the market has shrugged off all the disastrous global news that hit between mid-February and mid-March. This includes the 9.0 earthquake and tsunamis in Japan and its continuing nuclear catastrophe. It has also moved on from a focus on the civil war that has erupted in Libya following the collapse of the ruling government in Tunisia and Egypt with ongoing civil unrest throughout the North African and Middle East regions. The only real change we've seen on these fronts over the past several days is that there has not been much of a change. Perhaps for this reason alone we have seen the market breathe a sigh of relief.
Dow Jones Industrial Average
After striking 100-day moving average support in the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX) in mid-March, the market has been in recovery mode. In fact, the pace of the recovery has been quite astounding. On Wednesday the Dow managed to retake the zone of its high-to-date this year and it's done so on momentum that was twice as strong as the overall retracement off those highs. This is one of the reasons I feel that of all the indices, it has the strongest chance of testing a slightly higher high, but we should start to see the pace of the recovery stall as we head into next week.
One thing to be aware of on this recovery is just how light the volume has been. We saw volume spike as the indices struck support earlier this month, but as the market climbed, it had fewer and fewer participants. This is once sign that the current rally off this month's support is nearing an end.
Over the past week the commodities have not even participated in the recovery effort. They has struck resistance at highs last week and have been congesting on lighter volume ever since. These include oil, silver, and gold, which have all gained a lot of focus over the past month. Despite the correction, the bias still remains in favor of the bulls.
Heading into Wednesday morning, we began to see confirmation of a slowdown in the momentum of upside action. This created a higher chance for a choppier intraday session. It was not quite as difficult as when this same type of action took place a week earlier, however, and the market managed some decent intraday moves throughout the morning before the struggle became more difficult into the afternoon.
The market corrected off premarket highs into around 10:30 a.m. ET. This took it back into support at the lower end of the larger 15 minute uptrend. The Nasdaq had the steepest retracement, but the price action was smooth and the reversal off morning lows allowed for strong daytrade action on the upside. The Nasdaq is currently the least extended of the three major indices on the daily time frame, so we could easily see it take over as the market's leading index heading into the weekend as it plays "catch-up" while the S&P and Dow struggle at prior highs.
Both the S&P 500 and Dow Jones Ind. Average futures had struck resistance once again at the upper end of the 15 minute channel in the early afternoon and this is the third strike (seen most clearly in the Dow futures) on the 15 minute time frame on the third leg up on the 60-minute time frame. This leaves the index's trend very extended and in favor of a reversal within the next several days, although it can still round off some at highs before there is a larger price correction once again on the daily charts.
The Dow Jones Industrial Average ($DJI) had a gain of 71.60 points, or 0.58%, and closed at 12,350.61 on Wednesday. Twenty-six of the Dow's thirty index components posted a gain. The top performers were AT&T (T) (+2.20%), Merck (MRK) (+1.59%), Exxon Mobil (XOM) (+1.49%), and DuPont (DD) (+1.43%). The losers were Cisco Systems (CSCO) (-0.63%), 3M (MMM) (-0.40%), Home Depot (HD) (-0.34%), and Pfizer (PFE) (-0.20%).
The S&P 500 ($SPX) rose 8.82 points, or 0.67%, and closed at 1,328.26. The top percentage performer in the index was Cephalon Inc. (CEPH) (+28.41%). Other top performers included PPG Inds. (PPG) (+5.89%), Salesforce.com (CRM) (+5.57%), Cabot Oil & Gas (COG) (+5.26%), and Fores Labs (FRX) (+4.34%). The top decliners were Lennar Corp. (LEN) (-4.20%), NVIDIA (NVDA) (-3.76%), Motorola Mobility Holdings (MMI) (-3.14%).
The Nasdaq Composite ($COMPX) ended the session higher by 19.90 points, or 0.72%, on Wednesday and it closed at 2,776.79. Expedia (EXPE) (+3.82%), Sears Holdings (SHLD) (+3.79%), and F5 Networks (FFIV) (+3.39%) followed Cephalon (CEPH) at the top of the Nasdaq-100. The weakest of the Nasdaq-100 index components were NVIDIA (NVDA) (-3.76%), Micron Technologies (MU) (-1.53%), and Sandisk (SNDK) (-0.98%).
On Wednesday, the ADP employment change for March showed that private sector employment rose 201,000, which was slightly under forecast, but employers also announced that they planned fewer job cuts in March. 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.
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.