Good day! Monday was an interesting day for the market. The Nasdaq-100 ($NDX) diverged from the S&P 500 ($SPX) and Dow Jones Ind. Average ($DJI) early in the session before falling back in sync mid-day. Prior to the open, the index futures were mixed without a strong directional bias. They chopped around Sunday evening and throughout the early morning hours on Monday.
Monday morning's economic data had little impact on the day's price action. According to the New York Federal Reserve, the Empire State Manufacturing Index fell from 21.7 in April to 11.88 this month. It is the lowest level since December.
This is a busy week for housing data. At 10:00 a.m. ET the National Association of Home Builders reported that the NAHB/Wells Fargo Housing Market Index was unchanged this month at 16. Readings under 50 mean that more builders view conditions as poor rather than favorable. It has not been over 50 since April 2006. On Tuesday April's housing starts report comes out. They are expected to rise to 565,000 from 549,000 in March. Then, Thursday's existing home sales report is projected to show an increase to 5.22 million in April from 5.10 million in March.
Other economic reports to keep an eye on this week will be Wednesday's Federal Reserve meeting minutes, and Thursday's jobless claims, Philadelphia Federal Reserve survey, and Leading Indicators Index.
Dow Jones Industrial Average (Figure 1)
Earning's season has been winding down, but we're still seeing some strong news-driven reactions. On Monday, the home improvement retailer Lowes (LOW) disappointed investors with weaker-than-expected earnings. Its main competitor, Home Depot (HD) reports Tuesday morning.
Eyes will also be on the retailers this week. Wal-Mart (WMT) also reports Tuesday morning before the bell, while Target (TGT) reports Wednesday morning. J.C. Penney (JCP) announced its earnings on Monday morning and beat expectations. At the same time it also raised its full-year forecast. The result was a strong upside gap into the open, but it failed to hold onto those gains intraday.
Other key earnings reports to watch this week will include Dell (DELL) on Tuesday afternoon, Hewlett-Packard (HPQ) Wednesday afternoon, Deere (DE) Wednesday morning, Salesforce.com (CRM) Thursday afternoon, and Yingli Green Energy (YGE) Friday morning.
S&P 500 (Figure 2)
Technology shares accounted for the bulk of Monday's divergence between the major indices. Although there was no driving news force behind the move, the Nasdaq struggled to get off the ground on Monday morning. The S&P 500 and Dow both pulled higher following the opening bell and continued to push higher into the 11:15 a.m. ET correction period. They easily closed their morning gaps and even recovered a large portion of Friday's losses before hitting resistance and trend exhaustion by late morning. Meanwhile, the Nasdaq congested. By 11:45 ET this congestion broke lower and the rest of the market followed.
The indices held a steady downtrend on the 5 minute time frame throughout Monday afternoon with the 5 minute 20 period moving average zone serving as resistance. The corrections off afternoon lows into this zone made it an ideal environment for daytraders looking to capitalize on continuation patterns within the trend move. The Nasdaq continued to be the weakest of the three indices, but even the stronger Dow gave back its morning gains by the time the closing bell rang. By that point, both the Nasdaq and S&P 500 futures were testing their 50-day moving averages.
The stronger Dow has a way to go before it hits that same level, but a breakdown in the Dow will leave the S&P 500 and Nasdaq-100 aiming for their 100-day moving averages as discussed in yesterday's column. This week still has a lot of potential for whip-saw action though due to the lack of a strong second high within the 60-minute trading range, so treat swingtrades with greater caution.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) ended the day with a loss of 47.38 points, or 0.38%, and closed at 12,548.37 on Monday. Nine of the Dow's thirty index components posted a gain. The top performers were American Express (AXP) (+1.17%), Intel (INTC) (+0.98%), Travelers (TRV) (+0.98%), and WalMart (WMT) (+0.61%). The weakest performers were Microsoft (MSFT) (-1.84%), Cisco Systems (CSCO) (-1.66%), Boeing (BA) (-1.59%), and Hewlett-Packard (HPQ) (-1.51%).
The S&P 500 ($SPX) fell 8.30 points, or 0.62%, and closed at 1,329.47. The top percentage performers in the index on Monday were FirstEnergy (FE) (+4.59%), Discover Financial Services (DFS) (+3.42%), IntercontinentalExchange (ICE) (+3.30%), and SanDisk (SNDK) (+3.14%). NYSE Euronext (NYX) was the weakest performer, falling 12.62% after the NASDAQ OMX Group (NDAQ) and IntercontinentalExchange (ICE) announced that they are withdrawing their bid to aquire NYSE Euronext. Other top percentage decliners included Monster Worldwide (MWW) (-8.26%), Amazon.com (AMZN) (-4.96%), and Yahoo (YHOO) (-4.47%).
The Nasdaq Composite ($COMPX) ended the session lower by 46.16 points, or -1.63%, on Monday and it closed at 2,782.31. Only eight stocks in the Nasdaq-100 ended the session in the black. The top performers were SanDisk (SNDK) (+3.14%), Micron Technology (MU) (+1.44%), Dentsply Intl. Inc. (XRAY) (+1.24%), and Joy Global (JOYG) (+1.01%). The weakest stocks in the Nasdaq-100 were Amazon.com (AMZN) (-4.96%), Yahoo (YHOO) (-4.47%), Wynn Resorts (WYNN) (-3.92%), and Netflix (NFLX) (-3.83%).
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.