Markets Plunge After S&P Cuts U.S. Debt Outlook
Good day! The week kicked off to a rocky start on Monday after the correctional bias of the past two weeks picked up steam thanks to news that Standard and Poor's cut its long-term outlook on U.S. debt to negative. The index futures had already been pulling back off Friday's highs after having established an equal move on the 15-minute time frame into Friday afternoon. They were testing support at the time the news hit the wires. Then the bottom dropped out.
Dow Jones Industrial Average
The breakdown of the indices continued many of the reversal (sell) setups we'd seen trigger over the past week and a half and many securities had their strongest losses in months on Monday. Nearly all of those losses took place by 11:15 a.m. ET. By that point the momentum was slowing as the selloff exhausted itself. Reversal patterns (buys) began to form and the market managed a fairly strong recovery throughout the afternoon, but by the time the session ended it was still the largest loss in the Dow Jones Ind. Average ($DJI) since the March 16th reaction to Japan's earthquake and tsunami.
It could have been much worse. Although all three of the major indexes still closed in negative territory on Monday, the Nasdaq-100 broke above the opening highs by the end of the session and both the S&P 500 and Dow ended the day about where it began at 9:30 a.m. ET.
Gold and silver both benefited from the morning's news. Gold for June delivery settled at $1,492.90 an ounce at the Comex on the NYSE. It had traded as high as $1,498.60, but fell short of the $1,500 mark. The highs, as well as the settlement price, were both records. Meanwhile, silver for May delivery settled at $42.96. The U.S. dollar also received a boost, rising 1.4% versus the euro and 0.4% against the British pound.
In other news, the National Association of Home Builders' Housing Market Index fell to 16 in April. It was expected to remain unchanged at 17 points.
The Dow Jones Industrial Average ($DJI) had a loss of 140.24 points, or 1.14%, and closed at 12,201.59 on Monday. The index only managed one gainer for the day: Boeing (BA), which rose +0.26%. The biggest losers were Bank of America (BAC) (-3.12%), Caterpillar (CAT) (-3.09%), Alcoa (AA) (-2.36%), and United Technologies (UTX) (-2.10%).
The S&P 500 ($SPX) fell 14.54 points, or 1.1%, and closed at 1,305.14. The strongest percentage performers in the index were Akamai Technologies (AKAM) (+4.31%), Gannett Inc. (GCI) (+3.99%), CF Inds. Holdings (CF) (+2.29%), and Marriott Intl. (MAR) (+2.29%). The weakest were Monster Worldwide (MWW) (-4.53%), Anadarko Pete Corp. (APC) (-3.78%), MEMC Electronic Materials (WFR) (-3.72%), and Joy Global (JOYG) (-3.67%).
The Nasdaq Composite ($COMPX) ended the session lower by 29.27 points, or 1.06%, on Monday and it closed at 2,735.38. Only twelve of the Nasdaq-100 index components posted a gain. The strongest performers were Akamai Tech. (AKAM) (+4.31%), Research In Motion (RIMM) (+2.68%), Wynn Resorts (WYNN) (+1.47%), and Apple Inc. (AAPL) (+1.34%). The weakest performers were Millicom Intl. Cellular (MICC) (-4.75%), Marvell Technology Group (MRVL) (-4.57%), and Lam Research (LRCX) (-3.80%).
The market continues to be in corrective mode as the week continues and is struggling with resistance prior to Tuesday's open. The daily charts still have room to move on the downside, although the rapid flushes to the upside are making things a bit more tricky than usual for swingtraders hoping to keep tight stops. The next major support level for the indices are the 100 day moving averages in the Dow and S&P 500.
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.