Equity bull's stumble into the long weekend

Good day! The market regained some more of its recently lost ground on Thursday as the indices rounded off at lows on the 15 minute time frame. In the early morning hours we saw the development of a double top on this time frame that left the index futures weak as the opening bell approached. This weakness escalated on the heels of the morning's disappointing economic data.

Dow Jones Industrial Average

According to the Commerce Department, the revised reading for the U.S. first-quarter gross domestic product remained unchanged from its initial report. The GDP grew at an annualized rate of 1.8%, which was lower than the 2.0% analysts were anticipating for a revised estimate.

Meanwhile, initial jobless claims for this past week were higher-than-anticipated and rose 10,000 to 424,000 despite estimates for an increase of 400,000. Continuing claims, however, fell from 3.74 million to 2.69 million.

The weak reaction to the data left the bulls struggling, but a shift in the momentum of the selloff helped change the tide. The Dow (e-mini YM) and S&P 500 (e-mini ES) created a double bottom early in morning trade, as shown in Figures 1 and 2, which turned the index higher mid-day, while the Nasdaq outpaced it with an earlier 2B reversal pattern off lows out of the open (not shown). Both patterns formed on a 5 minute time frame.

The morning's upper resistance zone broke in all three of the major indices shortly after noon, but the price action was choppy, making it a more difficult continuation pattern for many traders to catch since it lacked a traditional breakout and the slower pace of the upside momentum initially also left it vulnerable for a stronger flush once again on the downside. It wasn't until the final hour of trade, however, that the indices finally pulled back enough in price to pierce the 5 minute 20 sma. This took place after the Dow tested a number of strong resistance levels on the 15 minute time frame (Figure 1).

S&P 500

The upside momentum continued to shift afterhours in the index futures, and even into the early morning as well. A gradual uptrend channel that created a type of Momentum Reversal broke to the downside out of 4:30 a.m. ET, but the bulls have been reluctant to offer decent continuation patterns since Thursday's data drop. This leaves the market near premarket highs heading into Friday morning, but it also leaves them on shaky ground. The uptrend since Wednesday morning has been slow and marked by strong downside flushes on the 5 minute time frame.

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