Good day! Tuesday was a nice day for day traders with strong intraday swings from morning lows to mid-day highs and back again into the close. When all was said and done, however, the session ended with the major U.S. indexes relatively unchanged.
The strongest action came in precious metals, particularly gold, which had been congesting over the past several weeks. The range broke sharply to the upside early in the session and it remained strong throughout the day with one of its strongest intraday moves of the year. The action came after Moody's downgraded Portugal’s debt and China raised its interest rates to stem inflationary pressures. Gold topped $1,450 an ounce with a high of $1,455.50 before closing at $1,452.60. Silver hit $39.245, its highest level since 1980, before closing at $39.15. The action also sent interest rates higher.
One of the few economic reports released this week was the Institute for Supply Management’s Services Index on Tuesday morning. It was expected to show continuing strength in manufacturing, but while the service industry did expand in March, the pace was slower than in February and the ISM's Non-Manufacturing Index fell from 59.7 to 57.3. Readings over 50 indicate expansion. The news did not have a negative impact upon price action. Instead, the indices broke sharply higher and continued to remain very strong throughout the morning, although the pace of the upside slowed dramatically by mid-day.
Dow Jones Industrial Average
By 13:30 ET a series of slightly higher highs that took place on the five- and 15-minute charts throughout the morning had culminated in the creation of a strong Momentum Reversal pattern for a short off the prior ES (S&P 500) highs and the NQ's (Nasdaq-100) 15 minute 200 simple moving average. The trigger coincided with the release of the FOMC Minutes, in which there was obvious dissent over inflationary pressures and concern by several members that rates should be raised prior to the end of 2011. While the shift in the momentum intraday had already favored a correction off highs for the afternoon, this news jump-started the selloff, which lasted into the closing bell.
The index futures did find support at the end of the day and rolled over afterhours, but the recovery was a slow one to begin with. It gained momentum after 5:00 a.m. ET on Wednesday and by 6:30 a.m. the three major index futures were already pushing through Tuesday's highs. This extreme extension on the 15 minute charts will mean a large gap open into Wednesday morning if it holds, which it looks like it will. It will also mean that the market will struggle to make further gains. Although slightly higher highs will be possible, this type of a move will typically create a choppier trading environment throughout the session unless another Momentum Reversal forms like it did on Tuesday.
The Dow Jones Industrial Average ($DJI) had a loss of 6.13 points, or 0.05%, and closed at 12,393.90 on Tuesday. Nearly half of the Dow's thirty index components posted a gain. The top performers were Alcoa (AA) (+2.79%), Intel (INTC) (+1.13%), Chevron (CVX) (+1.02%), and Cisco Systems (CSCO) (+0.94%). The weakest were General Electric (GE) (-0.97%), Boeing (BA) (-0.97%), Procter & Gamble (PG) (-0.95%), and Caterpillar (CAT) (-0.94%).
The S&P 500 ($SPX) fell 0.24 points, or 0.03%, and closed at 1,332.63. National Semiconductor (NSM) was the strongest performer by a long shot after Texas Instruments (TXN) announced that it intended to acquire the company for a premium of roughly four times sales. Abercrombie & Fitch (ANF) was the second-strongest gainer, up 10.82% after announcing a strong forecast at an analyst meeting. Other top performers were Dean Foods Co. (DF) (+5.17%), and Radioshack (RSH) (+5.15%).
The Nasdaq Composite ($COMPX) ended the session higher by 2.00 points, or 0.07%, on Tuesday and it closed at 2,791.19. The strongest performers in the Nasdaq-100 were Ctrip.com (CTRP) (+4.44%), Alexion Pharmaceuticals (ALXN) (+3.57%), Liberty Media Corp. (LINTA) (+2.34%), and Sandisk (SNDK) (+2.23%). The weakest were Google (GOOG) (-3.16%), Millicom Intl. Cellular (MICC) (-2.36%), and Gilead Sciences (GILD) (-2.27%).
Earnings season unofficially kicks off on April 11th with Alcoa's (AA) first quarter report. A couple to still keep an eye on on Wednesday will be Monsanto (MON) prior to the open and Bed Bath & Beyond following the close. 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.
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.