Good day! When I wrote last weekend's column, the market was struggling with support on the weekly time frame that hindered the bears, while momentum on the intraday and daily charts worked against the bulls. This created a tug-of-war throughout the week with choppy action and little follow-through from one day to the next in the vast majority of the market's major index components. Although the market managed a sloppy uptrend in the second half of the week, it still posted a loss for the week as a whole. As expected, our "recovery" off the weekly support is lacking strength. It's also lacked volume, and the two tend to go hand-in-hand.
Dow Jones Industrial Average (Figure 1)
Trade was particularly light in Friday's session thanks to the looming three-day weekend. The U.S. markets will be closed on Monday in honor of Memorial Day. U.K. markets will also be closed on Monday. Nevertheless, the indices still managed to posted a gain. Intraday trade, however, was not favorable to new bulls. A strongly negative reaction to the latest pending home sales data at 10:00 a.m. ET left the bulls without a strong continuation strategy when prices reversed higher once again at the 10:15 ET correction period.
In fact, the correction period and 5 minute 20 sma were really among just a few things the bulls had going for them. When the market first struck the 5 minute 20 sma, it could have easily hugged it and broken sharply lower for a second wave of intraday selling with a 5 minute AvalancheTM. Thus, it was no surprise that when the market hit resistance at the 11:00 ET correction period, the gears shifted once again in favor of the bears.
The closure of Monday's gap in the S&P 500 and Dow and equal move resistance on the 15 minute charts on the end-of-the-week continuation compared to Wednesday's rally were among the 15 minute resistance levels that hit at 11:00 ET. The equal move resistance is shown in blue on the Nasdaq-100 e-mini (NQ) in Figure 3. The market spent the remainder of the morning and nearly the entire afternoon correcting off these highs. Selling finally abated in the final hour of trade, but market participants remained unfocused into the closing bell.
S&P 500 (Figure 2)
Although mortgage rates are at their lowest levels of the year, pending home sales fell to a seven-month low in April. According to the National Association of Realtors, April's Pending Home Sales Index fell by 11.6% to 81.9, which is its lowest level since September and was sharply lower than the 1% decline analysts expected. Sales in the weather-beaten South were down 17.2%.
In a separate report on Friday, the government reported that personal income and spending increased 0.4% in April. This was the smallest increase in consumer spending in three months, although personal incomes have risen for seven straight months.