Good day! This past week was a rather unproductive one for the markets. My advice last Sunday evening was as follows: "The trend action in all of the strongly-moving commodities from last week can expect to slow in the week ahead with greater chop once again from day to day. The added volatility in this market will keep it active, but the best time frames for trading it at present will be intraday using five to 15-minute time frames for pattern development." Indeed, the range last week was decent, with some strong moves on shorter, intraday trends as the indexes chopped along the 20-day simple moving averages. The result by week's end, however, left investors without much satisfaction.
Dow Jones Industrial Average
Friday's session swung the markets back from the upper end of the 60-minute trading channel back to its lows, thus wiping out the gain made in the previous session and taking the market back to the level that it closed at just a week earlier. The Dow Jones Industrial Average ($DJI) ended the week down 0.3%, while the S&P 500 ($SPX) was lower by 0.2%, and the Nasdaq finished the week unchanged.
The indices had paused after Thursday's sharp ascent and fallen into a period of congestion in the afternoon, but they found support around midnight on Thursday evening and attempted another push higher. That continuation, however, struggled at the upper channel of the 60-minute range and the momentum shifted into the early morning hours. There wasn't an immediate reaction to Friday's morning data, but it did mark the turning point in the indices and within 10 minutes of the 8:30 a.m. ET release of April's Consumer Price Index the index futures were heading sharply lower.
Friday's selloff continued throughout the morning, finally striking the lower end of the 60-minute trading channel shortly after noon. Volume spiked, indicating exhaustion, but the pace of the selloff meant that any rapid recovery was nearly impossible. Typically, the only time the market can manage to reverse quickly from such a drop is when the overall pace of the downtrend shifts. This often happens by the indices forming a series of slightly lower lows, such as seen on the 11th and into the morning of the 12th on the 30 minute charts. This allowed the market to pop on Thursday despite sharp selling Wednesday morning. As a result of this bias, the market was stuck in a narrow range into the closing bell with volume dropping off heavily compared to morning trade.
The Dow Jones Industrial Average ($DJI) ended the day with a loss of 100.17 points, or 0.79%, and closed at 12,595.75 on Friday. Only four of the Dow's thirty index components posted a gain on the day. They were all fractional. The top performers were Kraft Foods (KFT) (+0.40%), Pfizer (PFE) (+0.14%), McDonalds (MCD) (+0.10%), and Proctor & Gamble (PG) (+0.03%). The weakest performers were Travelers (TRV) (-2.38%), Bank of America (BAC) (-2.21%), JP Morgan (JPM) (-2.13%), and Caterpillar (CAT) (-2.12%).
The S&P 500 ($SPX) fell 10.88 points, or 0.81%, and closed at 1,337.77. Dean Foods (DF) (+9.20%) was the strongest percentage performer in the index on Friday following an upgrade from Goldman Sachs to a buy. Other top percentage performers were Agilent Technologies (A) (+4.47%), Electronic Arts (ERTS) (+3.58%), and Gamestop Corp. (GME) (+3.05%). The weakest percentage performer was NVIDIA (NVDA) (-10.93%). Other top percentage decliners included CA Inc. (CA) (-8.62%), First Solar (FSLR) (-4.86%), and Janus Cap. Group (JNS) (-4.47%).
The Nasdaq Composite ($COMPX) ended the session lower by 34.57 points, or 01.21%, on Friday and it closed at 2,828.47. Only 9 of the index components in the Nasdaq-100 posted a gain. The top three were Electronic Arts (ERTS) (+3.58%), Illumina (ILMN) (+1.37%), and Amgen (AMGN) (+1.36%). NVIDIA (NVDA), which reported earnings after Thursday's close, was the biggest loser. It's earnings beat expectations for the first quarter, but it's outlook for the current quarter disappointed investors. CA Inc. (CA) (-8.62%), Baidu (BIDU) (-5.01%), and First Solar (FSLR) (-4.86%) followed.
Earnings season is starting to wind down, but there are still a number of big players set to release their quarterly results this week. Among them are several major retailers, including Wal-Mart (WMT), Target (TGT), and J.C. Penney (JCP). Lowes (LOW) and Home Depot (HD) also report early this week. Others to watch will include Dell (DELL), Hewlett-Packard (HPQ), Deere (DE), Salesforce.com (CRM), and Yingli Green Energy (YGE).
Economic data will be lighter this week, but the focus will be on housing. April's housing starts, due out on Tuesday, are expected to rise to 565,000 from 549,000 in March. Thursday's existing home sales report is projected to show an increase to 5.22 million in April from 5.10 million in March.
Also keep an eye on Monday morning's Empire Manufacturing Survey for May, Wednesday's Federal Reserve meeting minutes, and Thursday's jobless claims, Philadelphia Federal Reserve survey, and Leading Indicators Index.
The market will be kicking off on Monday morning still holding the support from the lower end of that larger 60-minute range from last week. Slightly lower lows in premarket trade do lend some strength to favor greater price correction off the support zone, but the daily charts are still showing greater weakness. This is create a tricky environment for the bulls without any major catalyst to bring them back in. The larger daily draw for support remains the 100 day moving averages in the three major indices.
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.