Good day! The most highly anticipated economic report for the week has been Thursday's rate announcement by the European Central Bank. It 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.
Gold and silver were both up strongly on Wednesday and so were interest rates. The 10-year Treasury yields rose from 3.483% on Tuesday to 3.549% Wednesday afternoon. This is its highest level in a month. Meanwhile, gold made yet another record high by hitting $1,463.70 an ounce in New York and settled at $1,45.50. Silver settled at $39.387 after hitting another 31-year high of $39.785. The next FOMC meeting will be held April 26-27th.
Oil was also making headlines on Wednesday. Crude oil is up 19.1% year-to-date and hit a new high for the year in morning trade. After striking intraday highs of $109.14, it settled at $108.83 a barrel.
Dow Jones Industrial Average (Figure 1)
Wednesday's session got off to a strong start thanks to overseas strength, which drove the index futures higher. As I mentioned in yesterday's column, the extreme pace of the buying would make it difficult for the market to establish further intraday gains. Slightly higher highs were possible, however, as we saw on Tuesday. This would shift the momentum to allow for a larger price correction, but without it we were looking at a choppier, trading range environment.
As it happened, the indices did manage slightly higher highs. They took place in the S&P 500 and Dow Jones Ind. Average futures ahead of the opening bell and soon after it in the Nasdaq-100. The premarket rally in the S&Ps and Dow equaled the rally on Tuesday morning on the 15 minute time frame and left the indices extended by the time regular trade began on Wednesday. This meant that the market was favoring a correction intraday on Wednesday. The slightly higher highs allowed for a greater price correction than we would have likely seen without that trap.
S&P 500 (Figure 2)
The Dow was the strongest of the three major indices, while the Nasdaq was the weakest. Following the opening bell, both the S&Ps and Nasdaq futures hugged their 5 minute 20 period moving averages from approximately 10:15 a.m. ET into 11:00 a.m. ET. This created an AvalancheTM short setup on the 5 minute time frame, which resulted in a strong move to new intraday lows in the second half of the morning. In the meantime, slightly higher intraday highs in the Dow into 11:00 a.m. ET created a 2T reversal in that index off morning highs and also led to a correction throughout the latter half of the morning.
The pace of the selloff slowed rather quickly and within 15 minutes the indices were striking support, but since the initial drop out of the AvalancheTM was rapid, a series of slightly lower lows followed until noon. By that point the Nasdaq-100 was retesting Tuesday's premarket lows and the Dow futures were striking their 15 minute 200 period moving average. The slowing momentum created a Momentum ReversalTM in the S&P 500 and Dow and the support levels, combined with the noon reversal period, all helped the indices turn higher once again into the close. Nevertheless, the pace remained slow compared to the earlier selloff and the index futures fell quickly off highs once again in afterhours trade.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) had a gain of 32.85 points, or 0.26%, and closed at 12,426.75 on Wednesday. Twenty-one of the Dow's thirty index components posted a gain. The top performers were Cisco Systems (CSCO) (+4.94%), American Express (AXP) (+2.30%), JP Morgan Chase (JPM) (+2.28%), and Hewlett-Packard (HPQ). The weakest were Caterpillar (CAT) (-1.17%), Pfizer (PFE) (-0.78%), Chevron Corp. (CVX) (-0.61%), and Disney (DIS) (-0.38%).
The S&P 500 ($SPX) rose 2.91 points, or 0.22%, and closed at 1,335.54. The leaders were the semiconductors, computer hardware, financials, and the utilities. The strongest percentage performers in the index on Wednesday were Cisco Systems (CSCO) (+4.94%), Hudson City Bancorp (HCBK) (+4.27%), Advanced Micro Devices (AMD) (+3.95%), Broadcom Corp. (BRCM) (+3.90%), and Best Buy (BBY) (+3.88%). Energy, metals, and airlines were all lower. The weakest individual performer was Monsanto (MON) (-5.67%). Monsanto (MON) posted earnings on Wednesday, but it missed estimates and announced that it would not be raising prices despite increased costs. Corn prices alone have more than doubled over the course of the past year. Peabody Energy Corp. (BTU) (-3.70%), Massey Energy Co. (MEE) (-3.53%), and Cablevision Sys. (CVC) (-3.27%) were other top losers.
The Nasdaq Composite ($COMPX) ended the session higher by 8.63 points, or 0.31%, on Tuesday and it closed at 2,799.82.The strongest performers were Cisco Systems (CSCO) (+4.94%), Broadcom (BRCM) (+3.90%), Intuitive Surgical (ISRG) (+3.84%), and Activision Blizzard (ATVI) (+3.46%). Cisco (CSCO) and Microsoft (MSFT) will both gain weigh in the Nasdaq-100 as of May 1st, whereas Apple's (AAPL) influence will diminish. The weakest performers in the index were Citrix Systems (CTXS) (-3.27%), Baidu (BIDU) (-3.11%), and Whole Foods (WFMI) (-2.92%).
As we head into Thursday's session, the market is still slowing on the 60-minute charts like it was as the week began. This has been favorable for many reversal strategies off highs on that time frame. I'm continuing to favor this action into the weekend, although a number of individual securities are still displaying strength, which has created a very mixed market that is likely to remain so over the next several days.
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.