Good day! The market has struggled this week after taking a large hit over heading into Monday morning. The pace of the selloff has kept the bulls on uneasy ground, leading to continued movement on the downside afterhours on Tuesday. We should expect to continue to see added choppiness in the market as the week progresses since the pace of the selling should slow as the Dow approaches its 100 day moving average.
Dow Jones Industrial Average
While the overall market has fallen, commodities have continued to hold the support levels I wrote about several weeks ago. Recovery action in gold, silver, and oil have all been slow as anticipated, but they all popped slightly on Tuesday with gold and silver breaking out of 30-minute trading channels. Gold settled at $1,523.30, while silver settled at $36.128 on the session. Gold is down 2.13% this month, while silver is still down 25.66%. Crude oil is down 12.59% this month and settled at $99.59 on Tuesday.
There are a lot of things weighing on the market this month that have put pressure on the bulls. Earnings season has wound down for one thing, which often leads to a corrective phase in the markets. Summer is also fast approaching, along with the end of QE2 this June. The European debt situation continues to make headlines. And our own debt limit has those in Washington scrambling for a solution to our home-grown problems. Top this off with rather lack-luster economic data, and little to no real jobs growth, and some would wonder how the market has held on as long as it did.
The current daily correction over the past month has been just that: a daily correction. It has brought the indexes into comparable corrective levels as the correction in late February to mid-March, leaving it testing weekly support levels this week. Many are speculating that the market still has another run in it and I have to admit that the potential is definitely there.
The weekly S&P 500 is one place to look to for guidance (see chart below). Since last fall, it had two major swings higher with a minor correction in November. It hit resistance on these waves of buying in February and established a larger correction, followed by a 2-wave push to the highs this month. it is very common for a third push to follow, but unfortunately for the bulls things tend to get very sketchy after that point. A third high essentially creates a Momentum Reversal pattern on the weekly time frame. While the length of the channel shift at highs will be shorter than ideal for a strong trend reversal, it can easily take the market into a longer congestive phase on the monthly time frame.
S&P 500 Weekly
The Dow Jones Industrial Average ($DJI) ended the day with a loss of 25.05 points, or 0.2%, and closed at 12,356.21 on Tuesday. Nine of the Dow's thirty index components posted a gain for the day, but none of them gained more than 1%. The top performers were Chevron (CVX) (+0.89%), Alcoa (AA) (+0.81%), Exxon Mobil (XOM) (+0.77%), and Hewlett-Packard (HPQ) (+0.47%). The weakest performers were General Electric (GE) (-1.50%), American Express (AXP) (-1.10%), Intel (INTC) (-1.09%), and Boeing (BA) (-0.93%).
The S&P 500 ($SPX) fell 1.90 points, or 0.08% and closed at 1,316.28. The top percentage performers in the index were El Paso Corp. (EP) (+6.53%), Autozone Inc. (AZO) (+5.97%), Sprint Nextel (S) (+4.85%), and Devry Inc. (DVY) (+4.47%). The weakest performers wee Discover Financial Services (DFS) (-3.60%), Juniper Networks (JNPR) (-3.28%), Goodyear Tire & Rubber (GT) (+3.13%), and Gap Inc. (GPS) (-2.85%).
The Nasdaq Composite ($COMPX) ended the session lower by 12.74 points, or 0.46%, on Tuesday and it closed at 2,746.16. The top percentage performers in the Nasdaq-100 ($NDX) were Apollo Group (APOL) (+2.35%), NII Holdings (NIHD) (+1.57%), Staples (SPLS) (+1.50%), and Warner Chilcott (WCRX) (+0.99%). The weakest were Alexion Pharmaceuticals (ALXN) (-2.83%), Check Point Software (CHKP) (-2.79%), eBay (EBAY) (-2.56%), and Netapp (NTAP) (-2.56%).
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.