Good day! Eurozone sovereign debt concerns and continued signs of a slowing economic recovery weighed on the market in Monday's session. The indices were already showing the vulnerability of the bulls in Friday's session and turned their focus towards the next level of support at 100 day moving averages. Headlines abroad merely reinforced this sentiment.
France and Greece both announced pullbacks in their PMI Manufacturings readings, as did the overall eurozone. This created weakness heading into Monday morning in the indices, while at the same time gave the U.S. dollar another lift. The dollar has been pulling strongly off this month's lows over the past several weeks while the overall market has retreated. As I mentioned in yesterday's column, a drop such as the one which occurred on Monday will have very little chance of offering up a strong recovery off support. Instead, expect either rounded lows, creating a shift in the momentum, before the market can bounce, or a period of daily congestion with gradual price correction within the channel. The latter is currently the most likely outcome.
Dow Jones Industrial Average (Figure 1)
It is fairly common for the market to shift gears as earnings season winds down. This is particularly true if earnings do little to offer hope for the current quarter. We've seen a number of top names report decent earnings for the first quarter, but coupled their announcement with diminished forecasts. Although this is a slower week for earnings as the season winds down, some other names to watch are Autozone (AZN) and Applied Materials (AMAT) on Tuesday, Costco (COST) and Polo Ralph Lauren (RL) on Wednesday, and H.J. Heinz (HNZ) and Tiffany (TIF) on Thursday.
Every single one of the S&P 500's industry groups took a hit on Monday. Due to the large gap on Monday morning, the market struggled throughout the first half of the session. Action was choppy, making even daytrading more difficult. An intraday shift in momentum mid-day helped pull the market into a more favorable direction for the bulls, which was confirmed with the 14:00 ET correction period and the trigger for a buy out of a five minute PhoenixTM. A slowdown into the final hour of trading, however, showed continued uneasiness from buyers.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day with a loss of 130.78 points, or 1.05%, and closed at 12,381.26 on Monday. Only McDonalds (MCD) managed to end the session in positive territory, and it did so only barely with a gain of 0.21%. The top decliners in the index were Caterpillar )(CAT) (-2.34%), DuPont (DD) (-2.16%), Alcoa (AA) (-1.72%), and United Technologies (UTX) (-1.61%).
The S&P 500 ($SPX) fell 15.90 points, or 1.19%, and closed at 1,317.37. The top percentage performer in the index was CF Inds. Holdings (CF) (+6.25%). Only 34 of the index's 500 components ended the session in the black. Other top performers on Monday were Staples (SPLS) (+2.08%), O'Reilly Automotive (ORLY) (+1.05%), and Sprint Nextel (S) (+1.83%). The weakest percentage performers were Compuware Corp. (CPWR) (-3.96%), Textron Inc. (TXT) (-3.87%), International Paper (IP) (-3.86%), and AES Corp. (AES) (-3.84%).
Nasdaq Composite (Figure 3)
The Nasdaq Composite ($COMPX) ended the session lower by 44.42 points, or 1.58%, on Monday and it closed at 2,758.90. The top performers in the Nasdaq-100 ($NDX) were Staples (SPLS) (+2.08%), O'Reilly Auto. (ORLY) (+1.95%), and Vertex Pharmaceuticals (VRTX). Only five index components posted a gain. Ctrip.com (CTRP) (-4.26%), Baidu (BIDU) (-3.88%), Intuit (INTU) (-3.73%), and Priceline (PCLN) (-3.54%) were the weakest performers.
This week is a busy week for real estate data. Watch for new home sales on Tuesday. They are expected to remain unchanged for April. Pending home sales are due out 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.
