Good day! The market went into a holding pattern after Tuesday morning as it awaited the upcoming interest rate announcement by the U.S. Federal Open Market Committee. Volume was light throughout Wednesday morning as the two-day Fed meeting drew to a conclusion and the indexes remained within a trading range on the 15-minute, all-sessions time frame. The momentum afterhours had been bearish, but based out further and was able to pull back to the upper end of the trading range on strength overseas in the early morning hours.
The indexes held the upper end of the trading range until Wednesday's opening bell, but fell back off rounded highs to retest the lows of the range at the same time as the 11:00 a.m. ET correction. The lighter volume on the selloff allowed the indices to once again hold and round off at support and the market began to inch back higher ahead of the afternoon's announcement.
Dow Jones Industrial Average
Unsurprisingly, the Fed didn't have much to say other than the expected: The central bank would be keeping its interest rates at current levels and QE2 would continue into June, at which point the Fed's $600 billion bond-buying program would conclude. This added to concerns over rising inflation and gold prices resumed their previous uptrend, ended the session higher a settlement price of $1,517.10 an ounce in electronic trade for June delivery.
Until this past year or two we've tended to see rapid swings intraday following the Fed's rate announcement, but this long-established reaction almost seems like a distant memory with newer market participants perhaps unaware of the dangers traditionally associated with trading into and immediately following the news. As you saw in yesterday's column, I did not expect the recent trend to change this time around, but as the year wears on, talk is likely to increase about rate hikes and the recent calm can easily be replaced once again. As a result, continue to tread more carefully whenever you have positions on going into these major economic announcements.
In other news on Wednesday, the government reported that new orders for durable goods increased 2.5% in March. This was higher than the 1.8% increase analysts had been anticipating.
Gold was not the only thing moving higher following the Fed. The broad market also pushed to new highs on the year. The move was not a direct reaction to the Fed, but rather the resumption around 14:30 ET of the intraday trend that began at 11:00 a.m. ET. This continuation broke the indices out of the 15 minute trading range they had been in since Tuesday morning and gained strength in the final hour of trade before striking resistance 15 minutes prior to the closing bell.
This resistance level corresponded to an equal move on the breakout as compared to the Tuesday morning rally that led into the congestion that followed. This can be seen most clearly on the 15-minute, all-sessions charts of the ES and NQ (S&P 500 and Nasdaq-100 index futures) and the index futures continued to react to this zone afterhours and into early morning trade on Thursday.
The Dow Jones Industrial Average ($DJI) ended the day a gain of 95.59 points, or 0.76%, and closed at 12,690.96 on Wednesday. Cisco Systems (CSCO) was the only index component in the Dow to post a loss. It fell 1.88%. The strongest performer was General Electric (GE) (+2.74%) after its CFO announced at its annual shareholder's meeting that its profit growth over the next several years is expected to be the fastest it has seen in a decade. Pfizer (PFE) (+2.18%), Verizon (VZ) (+1.65%), and Merck (MRK) (+1.63%) followed. Merck's gains came on the heels of plans for a $5 billion share buyback program.
The S&P 500 ($SPX) rose 8.42 points, or 0.62%, and closed at 1,355.66. Amazon.com (AMZN) outperformed the rest of the S&P 500 with a gain of 7.86%. The online retailer reported an increase in revenue of 38% following Tuesday's closing bell, but its earnings per share fell short of analysts' expectations. Devry Inc. (DV) rivaled Amazon's gains, rallying 7.21% after it reported a 14% increase it its quarterly profit. Other top performers included Moodys Corp. (MCO) (+6.74%) and JDS Uniphase (JDSU) (+6.08%). Broadcom Corp. (BRCM) (-12.27%) was the weakest performer in the index. Others posting large losses included Rockwell Automation (ROK) (-8.52%), CB Richard Ellis (CBG) (-6.30%), and Parker Hannifin Corp. (PH) (-5.09%).
The Nasdaq Composite ($COMPX) ended the session higher by 22.34 points, or 0.78%, on Wednesday and it closed at 2,869.88. The strongest performers in the Nasdaq-100 were Amazon.com (AMZN) (+7.86%), Vertex Pharmaceuticals (VRTX) (+4.95%), Altera (ALTR) (+4.10%), and Netflix (NFLX) (+3.08%). The weakest were Broadcom (BRCM) (-12.27%), Biogen Idec (BIIB) (-2.27%), Cisco (CSCO) (-1.88%), and Seagate Tech. (STX) (-0.99%).
The overall market is not yet showing a larger reversal formation on the 60-minute charts and the pace of the buying over the past week and a half is going to make a rapid correction very difficult. Nevertheless, the pace of the upside should slow into next week and even as early as Friday due to profit-taking ahead of the weekend.
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.