Good day! The markets were thrilled, at least initially, by news that terrorist Osama bin Laden had been declared dead over the weekend. But as skepticism rose and believers questioned the impact of such news, eyes turned away from the announcement and back towards this week's economic data.
The market's recent rally had been slowing as the weekend approached, leaving it vulnerable to further corrective action into this week. The bin Laden news flushed things out even further. Last week's disappointing GDP data and continuing concern over the jobs data have shown us that the economy is anything but roaring. The sluggish pace of the recovery is likely to be in the forefront of investors' minds throughout this week.
On Monday, the Institute for Supply Management reported that its manufacturing index fell to 60.4% in April. Meanwhile, construction spending rose 1.4% in March.
On the economic front, Friday's employment data will be the most anticipated news for the week, but factory orders are out Tuesday morning, while the ADP National Employment Index comes out on Wednesday, and the Labor Department will release last week's jobless claims on Thursday.
Dow Jones Industrial Average
After spiking on Sunday evening, the index futures slowly began to correct heading into the early-morning hours on Monday. The initial correction was gradual, but low-level bases within the initial correction kept the bias bearish and the pace of the selloff increased as the opening bell approached. Once final low-level base on the five-minute time frame gave way into the bell, creating the first intraday selloff. A series of larger bear flags followed as the session wore on. This kept the market active and created a stronger day for short-term traders than I'd initially anticipated since the increased momentum also increased opportunity. The session ended near intraday lows, but the index futures remained weak into Tuesday morning.
The Dow Jones Industrial Average ($DJI) ended the day a loss of 3.18 points, or 0.02%, and closed at 12,807.36 on Monday. Despite the overall loss on the day, over half of the Dow's thirty index components ended the session in the black. The top performers were Alcoa (AA) (+1.29%), American Express (AXP) (+1.16%), Merck (MRK) (+1.00%), and IBM (IBM) (+0.92%). The weakest performers were Chevron (CVX) (-1.15%), Exxon Mobil (XOM) (-1.15%), DuPont (DD) (-1.06%), and Intel (INTC) (-1.04%).
The S&P 500 ($SPX) fell 2.39 points, or 0.18%, and closed at 1,361.22. The strongest percentage performers in the index were Forest Labs (FRX) (+4.76%), Gilead Sciences (GILD) (+4.71%), International Paper (IP) (+4.57%), Cephalon Inc. (CEPH) (+4.01%), and Owens Ill. (OI). The weakest were Whole Foods (WFMI) (-4.97%), Helmerich & Payne (HP) (-4.81%), Tellabs (TLAB) (-4.08%), and Baker Hughes (BHI) (-4.02%).
The Nasdaq Composite ($COMPX) ended the session lower by 9.46 points, or 0.33%, on Monday and it closed at 2,864.08. The strongest performers in the Nasdaq-100 were Gilead Sciences (GILD) (+4.71%), Cephalon Inc. (CEPH) (+4.01%), Teva Pharmaceutical (TEVA) (+3.37%), and Amazon.com (AMZN) (+2.75%). The weakest were Whole Foods (WFMI) (-4.97%), Applied Materials (AMAT) (-3.44%), eBay (EBAY) (-2.18%), and Citrix Systems (CTXS) (-2.11%).
On the 15-minute time frame heading into Tuesday morning, the overall pace of the downtrend has slowed and the index futures have been establishing a series of slightly lower lows. This will make it possible for the market to correct off the short-term lows this morning, but price action to begin with will favor the day traders since the momentum of the smaller price shifts on the 5 minute time frame will play a large role in the overall direction of the day's action.
Some of the major earnings reports to keep an eye on this week are Pfizer (PFE), Avon (AVP), Legg Mason (MA), and MasterCard (MA) on Tuesday; Kellogg (K), News Corp. (NWSA), and Transocean (RIG) on Wednesday; Kraft Foods (KFT) and Sara Lee (SLE) on Thursday; and Washington Post (WPO) and Weight Watchers (WTW) on Friday.
Pharmaceuticals were stand-outs on Monday. Both Forest Laboratories and Gilead Sciences (GILD) were both rated as potential takeover candidates by hedge-fund manager Bret Jensen and Cephalon (CEPH) agreed to an acquisition by Teva Pharmaceutical (TEVA) that beat out a previous offer by Valeant Pharmaceuticals (VRX).
Along with the rest of the market, oil, gold, and silver all backed off highs on Monday. Volume has been particularly strong in gold and silver ETFs over the past week as the pace of buying accelerated. Both hit equal move resistance levels on the recent rally since early April on the daily time frame as compared to the February to early-March rally. This placed both squarely at strong resistance. They also hit equal move resistance on the weekly time frame for this year's rally as compared to last fall. As a result, we should continue to see a slowdown play out over the next several weeks to several months. Slightly higher highs remain possible, but the overall mood should turn more towards a larger corrective phase on the weekly time frame.
It should also be noted that initial margin requirements for silver increased to $14,513 per silver futures contract on the Comex as of Friday's close. It had previously been $12,852. Maintenance margins increased from $9,500 to $10,750.
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.