Good day! The market has been in recovery mode after falling sharply on Monday morning when Standard and Poor's cut its long-term outlook on U.S. debt to negative. The S&P 500 and Dow Jones Ind. Average diverged from the Nasdaq in how that recovery took place, however. The S&P 500 and Dow futures both sold off afterhours on Monday to a much larger degree than the Nasdaq. After striking support just prior to midnight, the futures market once again turned higher. This kicked off two steady waves of upside on the 15 minute time frame in the S&P 500 and Dow, but the Nasdaq, which had been stronger on Monday afternoon, was more gradual as the correction continued in the early morning hours.
Dow Jones Industrial Average (Figure 1)
The morning recovery slowed into Tuesday's opening bell. The market gradually corrected off highs, closing the morning gap. This pace weakened further into noon and initial reversal triggers began out of 11:30 a.m. ET lows for a continuation of the larger 60-minute recovery. The pace increased following the 13:00 ET correction period when the indices broke higher out of 5 minute congestion that formed on light volume, triggering a PhoenixTM. The indices continued to climb throughout the remainder of the session.
Gold also continued to push higher on Tuesday. Although the pace slowed compared to the past several days, it once again hit a new record highs after crossing $1,500 an ounce. It settled at $1,495.10. Silver was also higher and settled at $43.913 an ounce.
The Dow Jones Industrial Average ($DJI) had a gain of 65.16 points, or 0.53%, and closed at 12,266.75 on Tuesday. Two-thirds of the Dow's index components posted a gain. The top performers were Johnson & Johnson (JNJ) (+3.69%), Caterpillar (CAT) (+2.12%), Alcoa (AA) (+1.92%), and DuPont (DD) (+1.62%). Johnson & Johnson (JNJ) outperformed the other Dow components after it posted first-quarter earnings results that topped analysts' expectations and included a stronger-than-anticipated outlook for 2011. The weakest of the Dow components were Travelers (TRV) (-1.41%), Cisco Systems (CSCO) (-0.72%), and Bank of America (BAC) (-0.64%).
S&P 500 (Figure 2)
The S&P 500 ($SPX) rose 7.48 points, or 0.57%, and closed at 1,312.62. The strongest percentage performers in the index were Tellabs Inc. (TLAB) (+5.19%), Pulte Group (PHM) (+5.10%), AK Steel Holding (AKS) (+4.48%), and United States Steel Corp. (X) (+4.46%). The weakest performers were Northern Trust Corp. (NTRS) (-5.31%), Harley Davidson (HOG) (-5.29%), DeVry Inc. (DV) (-4.12%), and The Washington Post Co. (WPO) (-3.66%).
The Nasdaq Composite ($COMPX) ended the session higher by 9.59 points, or 0.35%, on Tuesday and it closed at 2,744.97. The strongest performers in the Nasdaq-100 were Millicom Intl. Cellular (MICC) (+6.48%), Ctrip.com (CTRP) (+3.93%), Paccar Inc. (PCAR) (+3.74%), and Netflix (NFLX) (+3.52%). The weakest were Research In Motion (RIMM) (-2.94%), Teva Pharmaceutical Industries (TEVA) (-2.21%), and First Solar Inc. (FSLR) (-1.96%).
Nasdaq Composite (Figure 3)
Tuesday's U.S. economic data didn't have much of an influence on the markets, but it did bring cheer to homebuilders. Housing starts and building permits both rose more than anticipated in March. Housing starts were up 7.2% to an annual rate of 549,000, while building permits rose 11.2% to an annual rate of 594,000. Existing home sales for March are due out on Wednesday morning.
The remainder of the week is light on economic data, but earnings will remain in focus. Intel (INTC) reported its quarterly results following Tuesday's close, which extended the intraday gains. It reported profits on 59 cents a share, beating expectations. Yahoo (YHOO) also beat expectations, albeit narrowly.
Despite the continued upside heading into Wednesday, the market is going to have a difficult time continuing to push higher without another correction off highs on a 60-minute time frame that shifts the momentum away from the pace of Monday morning's selloff. Although we may see the market bounce for a few days following this type of correction, the pullback over the past two weeks is not substantial compared to the rally off March's lows into this month's highs and any attempt at a new yearly high will have a difficult time sustaining itself unless the market continues to rest for at least another week or two.
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.