Earnings season kicks off on shaky ground

Good day! The past several days have been difficult for the bulls. The resistance I wrote about heading into last week served to slow the overall upside momentum in the indices. The remainder of the week was spent adjusting to that resistance, which included prior highs from February on the S&P 500 and Dow Jones Industrial Average. Reactionary moves picked up steam as the week wound to a close and Monday's session primarily consisted of a continuation of those corrections.

Dow Jones Industrial Average (Figure 1)

The commodities that had been leading the market over the past week also took a beating on Monday. Crude oil fell $2.87 a barrel to $109.92 on the New York Mercantile Exchange. This put pressure on a number of stocks that had been holding up over the past week.

Cliffs Natural Resources (CLF) was an example of a mining and natural resources company that had been outperforming. In yesterday's column it was highlighted as a strong example of a stock poised for further downside into Tuesday. It ended up falling nearly $4 off its opening price by late afternoon. This type of action was common throughout the market. Even the market's darling Netflix (NFLX) formed a similar short setup early in the session.

Gold settled at $1,468.10 an ounce, down $6 from Friday, while silver hit a high of $41.975 an ounce before ending the session at $40.612. Most of the selling in both of these took place in the second half of the afternoon.

This overall weakness in the market is still going to be the predominant theme as the week continues. The index futures continued to retreat afterhours and this, combined with the intraday action on Monday, will leave them extended on the downside prior to Tuesday's opening bell, but the larger daily time frame still has more room that it can move. A slower recovery off the afterhours/premarket lows will favor the bears, while an increase in the volume on downside action will help confirm it. For now, volume continues to remain light.

S&P 500 (Figure 2)

The Dow Jones Industrial Average ($DJI) had a gain of 1.06 points, or 0.01%, and closed at 12,381.11 on Monday. Nineteen of the Dow's thirty index components posted a gain in this mixed session. The top performers were Travelers (TRV) (+1.41%), Kraft Foods (KFT) (+1.14%), and Pfizer (PFE) (+1.03%). The weakest were Chevron (CVX) (-1.71%), Cisco Systems (CSCO) (-1.02%), and DuPont (DD) (-0.99%).

The S&P 500 ($SPX) fell 3.71 points, or 0.28%, and closed at 1,324.46. The strongest individual performer in the index was Biogen Idec (BIIB) (+7.18%). The other top leaders were Lexmark Intl. (LXK) (+4.26%), Forest Labs (FRX) (+4.17%), and Tyco International (TYC) (+3.33%). The weakest performer was Tenet Healthcare Corp. (THC) (-14.70). Other top decliners were Denbury Res. Inc. (DNR) (-4.97%), Newfield Expl. Co. (NFX) (-4.44%), and Anadarko Pete Corp. (APC) (-4.25%).

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