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.
The Dow Jones Industrial Average ($DJI) ended the day with a gain of 38.82 points, or 0.31%, and closed at 12,441.58 on Friday. Twenty-three of the Dow's thirty index components ended the session in the black. The top performers were Bank of America (BAC) (+2.01%), Johnson & Johnson (JNJ) (+1.92%), Disney (DIS) (+1.29%), and Cisco Systems (CSCO) (+1.29%). The weakest were Intel (INTC) (-1.29%), Home Depot (HD) (-0.53%), and Merck (MRK) (-0.47%). Despite the gains in the second half of the week, the Dow still ended the week lower by 0.56% and is down 2.88% on the month.
Nasdaq Composite (Figure 3)
The S&P 500 ($SPX) gain of 5.41 points, or 0.41%, and closed at 1,331.10. The top percentage performer in the index on Friday was Ralph Lauren (RL), which rose 6.85% to recover a larger portion of Wednesday's post-earnings announcement selloff. Other top performers included Broadcom (BRCM) (+5.40%), F5 Networks (FFIV) (+5.30%), Pulte Group (PHM) (+4.33%), and Computer Sciences (CSC), which also worked to recover losses following earnings. Medco Health Solutions (MHS) (-8.97%) was the largest percentage decliner. It was followed by losses in Weyerhaeuser Co. (WY) (-5.44%), Aflac (AFL) (-3.21%), and Verisign (VRSN) (-2.67%). The S&P 500 ended the week lower by 0.16% and is down 2.38% so far this month.
The Nasdaq Composite ($COMPX) ended the session higher by 13.94 points, or 0.5%, on Friday and it closed at 2,796.86. Marvell Technology Group (MRVL) (+11.06%) was the strongest performer in the Nasdaq-100 ($NDX). Other top gainers included Broadcom (BRCM) (+5.40%), F5 Networks (FFIV) (+5.30%), and Millicom Intl. Cellular (MICC) (+4.57%). The weakest performers in the Nasdaq-100 were Verisign (VRSN) (-2.67%), Express Scripts (ESRX) (-1.76%), Vertex Pharmaceuticals (VRTX) (-1.36%), and Seagate Technology (STX) (-1.32%). The Nasdaq Composite finished the week lower by 0.23% and is down 2.67% month-to-date.
Although this coming week is a shortened one, it will be a busy one on the data front.
On Tuesday is the S&P Case-Shiller home price index, which is expected to continue to decline.
Wednesday is a bit busier with the ADP National Employment Index, April's construction spending, the Institute for Supply Management's manufacturing index, and May's auto sales.
Thursday will kick off with last week's initial jobless claims, followed by factory orders for April.
Then comes the doozy: Friday's jobs data. Nonfarm payrolls are expected to increase 175,000, which is not enough to really get this economy on the roll. The recent gains in jobs so far this year has struggled to keep up with the number of new workers entering the jobs market, let alone been enough to make a dent in the nation's staggering unemployment rate.
Also out on Friday is the Institute for Supply Management's nonmanufacturing index for May.
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.