Good day! On Tuesday market is struggled with the decision on whether or not to attempt to continue to hold last week's support at the 20-day moving averages in the major indices or continue to congest and break lower to larger support levels at 100 and 200 day moving averages. The initial daily support hit last Thursday and prices stabilized into the weekend as the volatile commodities also dealt with daily support levels.
Dow Jones Industrial Average (Figure 1)
The action immediately following Monday's close lent favor to the bears as the market continued to congest along the daily support, but the momentum shifted into the early-morning hours the following day. After striking support at the lower end of the 60-minute channel around 21:45 ET, the index futures bounced slightly to 15 minute 20 period moving averages. Instead of falling into a trading range, which would have maintained a bearish bias for the larger 60-minute congestion, the futures slid lower along the moving average, hugging it as it went for a retest of the afterhours lows. This is a distinctly bullish characteristic.
The smaller channel along the 15 minute 20 sma resistance had broken to the upside by 2:30 a.m. ET on Tuesday morning, triggering a buy which quickly erased Monday's afterhours losses. By 8:30 a.m. ET the index futures were testing the upper levels of the larger 60-minute channel that had been in place since last week's lows. The rally on the 5 minute time frame had slowed as this level of resistance neared, but positive earnings, the latest acquisition news, and decent economic data kept the bulls at the helm.
S&P 500 (Figure 2)
At the same time as the index futures were testing upper channel resistance, the 8:30 a.m. ET economic data came out. The U.S. Labor Department reported that imported goods increased 2.2% in April, which was greater-than-anticipated. Exports rose 1.1%. Excluding fuel, imports rose 0.6%, while exports excluding agriculture rose 1%.
The index futures moved lower following this initial report, but the move was more technical than news-driven and the indices found support heading into the opening bell. The market pulled higher following the open, regaining the losses off premarket highs and then some by the time the 10:00 data hit. According to the Commerce Department, wholesale inventories rose 1.1% in March, slightly beating expectations.
Mid-day action in the market was slow and hesitant. The indices were testing Friday's highs, which served as resistance, but weakness on the 5 minute time frame into 11:30 ET failed to continue on an Avalanche attempt on the same time frame into 13:00 ET. A longer trading range followed and a second intraday rally began between 13:50 and 14:30 ET which lasted until 15:15 ET before some late-day profit-taking hit prior to the close.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) ended the day with a gain of 75.68 points, or 0.6%, and closed at 12,760.36 on Tuesday. The top gainers in the Dow were Disney (DIS) (+1.88%), Hewlett-Packard (HPQ) (+1.34%), Pfizer (PFE) (+1.26%), and Intel (INTC) (+1.19%). Only four of the Dow's thirty index components posted a loss. Microsoft (MSFT) was the weakest performer in the Dow after it announced plans to acquire Skype for $8.5 billion. It managed to pull off opening lows, however, and closer lower by only 0.62%. The remaining losers were 3M (MMM) (-0.29%), Alcoa (AA) (-0.06%), and American Express (AXP) (-0.04%).
The S&P 500 ($SPX) rose 10.87 points, or 0.81%, and closed at 1,357.16. Dean Foods (DF) (+11.48%) topped the gainers' list on Tuesday following stronger-than-expected earnings and a raised outlook. Other top performers included Urban Outfitters (URBN) (+4.68%), Whole Foods Market (WFM) (+3.99%), and MetroPCS (PCS) (+3.76%). Boston Scientific (BSX) was the weakest percentage performer in the S&P 500, falling 8.95% after its President and Chief Executive announced plans to retire at the end of the year. Other top decliners included Cliffs Natural Resources (CLF) (-2.75%), Archer Daniels Midland (ADM) (-2.05%), and H&R Block (HRB) (-1.82%).
The Nasdaq Composite ($COMPX) ended the session higher by 28.64 points, or 1.01%, on Tuesday and it closed at 2,871.89. The strongest performers in the Nasdaq-100 were Urban Outfitters (URBN) (+4.68%), Whole Foods (WFM) (+3.99%), Wynn Resorts (WYNN) (+3.48%), and BMC Software (BMC) (+3.47%). The weakest performers were First Solar (FSLR) (-1.18%), Vertex Pharmaceuticals (VRTX) (-1.04%), Vodaphone Group (VOD) (-0.89%), and Biogen Idec (BIIB) (-0.77%).
Heading into Wednesday, the Nasdaq is the strongest of the three indices and the Nasdaq-100 index futures are favoring slightly higher highs on the daily time frame as the correction off last week's lows continue. This feat will be more difficult in the S&P 500 and Dow Jones Ind. Average. The "V" bottoms on the 60-minute time frame will tend to create larger trading ranges with previous highs serving as a resistance zone. The weaker Dow may not even make it that far before selling pressure on this time frame sets in again.
As far as economic reports go this week, a few to continue to keep an eye out for are March's U.S. trade balanceon Wednesday, April's retail sales data on Thursday, and April's consumer prices on Friday.
Disney's earnings (DIS) following Tuesday's close were disappointing and missed analysts' estimates, so expect it to open lower into Wednesday morning. It reported earnings of 49 cents a share compared to the 57 cents forecasted. Macy's (M) reports prior to Wednesday's open, while Cisco Systems (CSCO) reports after Wednesday's close.
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.