Good day! Trading was mixed on Thursday with lighter volume than throughout the first half of the week, but from a technical standpoint it was a very good day to be a daytrader. The intraday action was very smooth with nearly textbook style movements throughout the session.
As Thursday began, we were initially looking at the premarket trade. The index futures in the Dow Jones Ind. Average (YM) and S&P 500 (ES) had already formed two strong waves of buying on Tuesday and Wednesday and two periods of congestion afterhours following each of the rallies. This left the market poised for a potential third move to the upside into Thursday morning. The breakout confirmed shortly before 6:00 a.m. ET and continued further on the early-morning jobs data, which was stronger-than-expected.
Dow Jones Industrial Average (Figure 1)
According to the Labor Department, first-time unemployment claims last week fell by 29,000 to 409,000. Continuing claims fell 81,000 to 3.711 million from 3.792 million. Claims had been rising in recent weeks and the initial reaction to Thursday's report was positive, although hesitation began to appear even before the opening bell.
It wasn't until the 10:00 ET existing home sales report hit that the market really began to show its unease. The opening highs in the market were already dealing with resistance on the 15 minute time frame from earlier in the week. The Nasdaq-100 (NQ) was even pushing into its 200 sma. The housing report was projected to show an increase to 5.22-5.23 million in April in existing home sales from 5.10 million in March. Instead, existing home sales fell 0.8% to 5.05 million from a revised 5.09 million in March. The indices fell immediately.
The initial wave of selling off morning highs found support at the 5 minute 20 sma and the closure of the day's opening gap in the indices. This hit at the 10:15 a.m. ET correction period. A second wave of selling followed, which is typical after a market-moving news event intraday. This time, however, the pace of the selloff was more gradual than the initial downside reaction. This shift in momentum wllowed the market to hold its lower trend channel on the 15 minute charts intraday, although the intial reaction to support was minor.
S&P 500 (Figure 2)
A continued shift in momentum throughout the remainder of the morning set the market up for a larger recovery into the early afternoon. After breaking the channel on the 5 minute charts from the second wave of selling into 11:15 ET, the indices hugged the 5 minute 20 period moving averages. As they did so, volume declined. This created a strong PhoenixTM buy strategy that triggered into the 12:00 (noon) correction period.