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).
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.
There is the potential for one more upside push to complete a three-wave trend, but it could just as easily hold as a two-wave correction off lows on the 15 minute time frame. This second scenario would actually be better for the bulls heading into next week since it would help create the price action necessary to round off the market more substantially on the daily and 60-minute time frame as discussed in Thursday's column. Right now price action is still favoring daytraders. A holiday weekend also looms, which is going to create a lighter-volume session as market participants head for the beaches, lakes, and hills for the Memorial Day weekend.
The Dow Jones Industrial Average ($DJI) ended the day with a gain of 8.10 points, or 0.07%, and closed at 12,402.76 on Thursday. The top performers were Microsoft (MSFT) (+1.98%), Hewlett-Packard (HPQ) (+1.50%), General Electric (GE) (+1.04%), and Caterpillar (CAT) (+0.91%). The worst performers were Home Depot (HD) (-1.20%), Merck (MRK) (-0.84%), and Intel (INTC) (-0.79%).
The S&P 500 ($SPX) gain of 5.22 points, or 0.4% and closed at 1,325.69. The top percentage performers were Tiffany & Co. (TIF) (+8.57%), Netapp (NTAP) (+6.92%), Coach (COH) (+5.01%), Starwood Hotels & Resorts (HOT) (+4.97%), and Pulte Group (PHM) (+4.94%). Tiffany & Co. (TIF) reported a 12% jump in sales and raised its quarterly dividend payment from 25 cents a share to 29 cents a share. The worst performer was Computer Sciences (CSC) (-12.95%). It was followed by strong losses in Big Lots (BIG) (-2.75%), First Solar (FSLR) (-2.21%), and Tellabs (TLAB) (-2.20%).
The Nasdaq Composite ($COMPX) ended the session higher by 21.54 points, or 0.78%, on Thursday and it closed at 2,782.92. The top performers in the Nasdaq-100 were Netapp (NTAP) (+6.92%), Citrix Systems (CTXS) (+4.79%), Broadcom (BRCM) (+4.27%), and F5 Networks (+FFIV) (+2.76%). Netapp (NTAP) reported strong quarterly results following Wednesday's close and also offered a strong outlook for the second quarter. The weakest performers in the Nasdaq-100 were Vertex Pharmaceuticals (VRTX) (-2.32%), First Solar (FSLR) (-2.21%), Applied Materials (AMAT) (-1.59%), and Yahoo (YHOO) (-1.05%).
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.