Good day! Friday's session was an active one for the market following the day's highly anticipated employment report. The index futures were favoring the upside in premarket trade after a long period of congestion that began on Wednesday evening. Slower downside into the early-morning hours, followed by a rapid move to the upper end of the 30-minute trading range around 2:45 a.m. ET shifted the momentum within the congestion to favor an upside breakout from the trading range. The breakout triggered shortly after 6:00 a.m. ET and gained strength with the 8:30 a.m. economic data.
Dow Jones Industrial Average (Figure 1)
According to the Bureau of Labor Statistics, nonfarm payrolls rose by a seasonally adjusted 216,000 in March. This fell into the range of anticipated gains, but was better than most estimates, which averaged an increase of 185,000. Although government payrolls fell, private sector payrolls increased 230,000. The ADP had earlier estimated a gain of 201,000 jobs. In addition to this positive report, the previous month's gains were adjusted higher by 2,000 to 194,000.
Despite the increase in positions, the number of people entering the workforce has also been growing, which means that the increase isn't enough to make much of a dent in the overall unemployment rate, which ticked lower to 8.8% (13.5 million) in March from 8.9% in February. Nearly half of those currently unemployed, however, fall into the long-term category of more than 27 weeks. The average workweek (34.3 hours) and average hourly earnings ($22.87) remained unchanged, meaning that they are not keeping up with the increased cost of living. Additionally, many of those returning to work are having to settle for wages that were lower than they had earned in their previous positions.
Following the rally out of the 8:30 a.m. ET employment data, the index futures attempted a new high into 9:15 ET. The pace of this move was slower than the data reaction and only created a slightly higher high before it began to pull back once again prior to the opening bell. This 2T reversal gained momentum following the bell. Things turned around once again, however, with the next round of data at 10:00 a.m. ET.
The Institute for Supply Management reported that its manufacturing index for March came in at 61.2, down slightly from 61.4 in February, but still one of the strongest months since 2004. Readings over 50 indicate expansion and the index has remained over 50 for 20 straight months. Nevertheless, the cost of raw materials has been on the rise and the ISM's price index climbed 3% to 85.0, which is the highest it has been since July 2008. The market shrugged off this detail, as well as the 1.4% decline in construction spending that was also released at 10:00 ET, and the indices reversed course once again to head for new highs for the week.
S&P 500 (Figure 2)
The pace of the early-morning rally began to shift as morning passed. Slower upside into noon led to only slightly higher highs on the Dow Jones Ind. Average and S&P 500, which created a 2T reversal pattern once again. The Nasdaq was stronger at this point and lacked the clear reversal pattern, but turned with the rest of the market nevertheless. The Dow had successfully managed the slightly higher daily high I'd spoken of throughout the week, while the S&Ps nearly struck February highs.
The pace of the afternoon reversal was gradual to begin with compared to what was yet to come, but on the 15 minute charts the indices created a solid inverted -V at highs. Initial support at the 15 minute 20 period moving average held for about an hour before giving way with a strong Avalanche short. The light volume during the congestion along the moving average lent favor to this selloff. Within half an hour the indices had reclaimed most of the day's gains in the S&P and Dow and all of it in the Nasdaq. Earlier congestion in the Nasdaq from Thursday and the 15 minute 200 sma in the S&P and Dow futures held at 15:15 ET and the indices slowly bounced into the closing bell.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 56.99 points, or 0.46%, and closed at 12,376.72 on Friday. Twenty-three of the Dow's thirty index components posted a gain for the day. The top performers were Caterpillar (CAT) (+1.59%), General Electric (GE) (+1.45%), Home Depot (HD) (+1.35%), and Coca-Cola (KO) (+1.33%). The only two to post a loss greater than 1% were Intel (INTC) (-2.28%), and Alcoa (AA) (-1.08%).
The S&P 500 ($SPX) rose 6.58 points, or 0.5%, and closed at 1,332.41. NYSE Euronext (NYX) (+12.60%) was the strongest percentage performer. Nasdaq OMX (NDAQ) (+9.25%) also performed strongly. These two brokerage powerhouses were up following an offer by Nasdaq OMX (NADQ) and IntercontinentalExchange (ICE) for NYSE Euronext (NYX), which has been in the middle of deal-making for a buyout by Germany's Deutsche Bank. Additional top performers included Wynn Resorts (WYNN) (+4.60%) and H&R Block (HRB) (+4.18%). The weakest performers were F5 Networks (FFIV) (-8.78%), JDS Uniphase (JDSU) (-8.30%), Amphenol Corp. (APH) (-3.64%), and Intercontinental Exchange (ICE) (-3.07%).
The Nasdaq Composite ($COMPX) ended the session higher by 8.53 points, or 0.31%, on Friday and it closed at 2,789.60. The top performers in the Nasdaq-100 were Wynn Resorts (WYNN) (+4.60%), Seagate Technologies (STX) (+3.75%), Intuitive Surgical (ISRG) (+3.41%), and Staples Inc. (SPLS) (+3.30%). The weakest were F5 Networks (FFIV) (-8.78%), Altera Corp. (ALTR) (-3.07%), Flextronics Intl. (FLEX) (-2.95%), and Broadcom Corp. (BRCM) (-2.59%).
This will be a light week for both economic and earnings data. Earnings season unofficially kicks off on April 11th with Alcoa's (AA) first quarter report. In the meantime, attention will be focused on the European Central Bank, which is expected to raise its benchmark interest rate from 1% to 1.25% to combat rising inflation. The U.S. Federal Reserve could easily take this cue to begin raising rates before the end of the year as well. The next FOMC meeting will be held April 26-27th.
The market remains extended on the upside heading into this week, which will put pressure on the bulls. Entering new swingtrade positions, particularly on the upside, at this point will be higher risk. I'll be scanning for securities that are showing relative weakness over the past week with strong daily resistance for reversals as swingtrades on the short side as the week progresses and stick primarily to a daytrade focus for any buy setups.
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.