Good day! On Friday the market gave the bulls something to worry about. The weekly expansion on the upside already has me a bit nervous on the long side, but the indexes have had a two-wave correction comparable to the one which took place in early April that has brought it into 50-day moving average support. This is often an area for another potential push to the upside. It wasn't quite ready on as Friday, as I mentioned in my list of stocks to watch, but it created a lot of speculation heading into the weekend.
Dow Jones Industrial Average
Most of the individual securities in the S&P 500 were not forming reversal patterns for strong daily downside into Friday, but they were showing extension on the intraday time frames that needed to be dealt with in order to trigger a favorable upside continuation pattern. This trend extension can be seen on the 15-minute charts of the ES and YM shown in Figures 1 and 2 in blue where each of the index futures contracts established the three waves of upside we followed in the second half of last week.
This 15-minute trend placement left most of the individual stocks in the indices confined to a choppy session on Friday, but the action in the overall market caused even greater jitters. The indices not only stalled at the upper end of their 60-minute channels from the correction this month, but they also teased the bulls by recovering from early losses by mid-day before giving back all of the gains once again by the closing bell.
This shift in momentum on Friday leaves the market feeling vulnerable into Monday as well. Futures trading on Sunday evening and throughout premarket trade has the indices once again aiming for 100 day moving average support level in the S&P 500. It had fallen just short of testing this zone last week, which is a stronger level than the 50. The chances of a strong recovery off that level when it does hit, however, will be difficult.
The Dow Jones Industrial Average ($DJI) ended the day with a loss of 93.28 points, or 0.74%, and closed at 12,512.04 on Friday. Only two of the Dow's thirty index components posted a gain. They were Kraft Foods (KFT) (+0.69%) and Disney (DIS) (+0.29%). The weakest performers were Alcoa (AA) (-2.46%), JP Morgan Chase (JPM) (-1.98%), General Electric (GE) (-1.70%), and Pfizer (PFE) (-1.62%). The Dow ended the week lower by 0.66%.
The S&P 500 ($SPX) fell 10.33 points, or 0.77%, and closed at 1,333.27. The top percentage performer in the index was Salesforce.com (CRM) (+7.95%). It was followed by Akamai Tech. (AKAM) (+4.75%), Anadarko Pete. Corp. (APC) (+4.10%), and Range Res. Corp. (RRC) (+3.41%). Gap Inc. (GPS) (-17.48%) was the weakest performer following disappointing earnings. Other leading decliners included J.C. Penney (JCP) (-4.90%), SuperValu (SVU) (-4.82%), and VF Corp. (VFC) (-4.65%). The S&P 500 ended the week lower by 0.34%.
The Nasdaq Composite ($COMPX) ended the session lower by 19.99 points, or 0.71%, on Friday and it closed at 2,803.32. The top performers in the Nasdaq-100 ($NDX) were Akamai Tech. (AKAM) (+4.75%), Seagate Tech. (STX) (+2.17%), Gilead Sciences (GILD) (+1.99%), and NVIDIA (NVDA) (+1.74%). The weakest were Autodesk (ADSK) (-4.60%), Urban Outfitters (URBN) (-3.17%), Sears Holdings (SHLD) (-2.46%), and Dentsply Intl. (XRAY) (-2.02%). The Nasdaq Composite ended the week lower by 0.89%.
After Gap's (GPS) disappointing earnings, other retailers will be closely watched this week. High cotton prices have been cited as being one of the problems weighing on the clothing retailers. Earnings from Polo Ralph Lauren are due out on Wednesday.
Although this is a lower week for earnings as the season winds down, some other names to watch are Campbell Soup (CPB) on Monday, Autozone (AZN) and Applied Materials (AMAT) on Tuesday, Costco (COST) on Wednesday, and H.J. Heinz (HNZ) and Tiffany (TIF) on Thursday.
This week is also a busy week for real estate data, including new home sales on Tuesday and pending home sales on Friday.
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.