Housing data, FOMC will shake stocks this week


Good day! As we headed into the new trading week, the markets remained under pressure. Six weeks of downside broke by the end of last week in the Dow Jones Ind. Average ($DJI) and S&P 500 ($SPX), but the break was hardly conclusive. The bears remained strongly entrenched as economic worries continued to keep the bulls at bay. Nevertheless, we had been starting to see some signs of relief going into Sunday. The Dow and S&P 500 were showing a slowdown in the momentum of their selling on the daily charts, even though the Nasdaq was not. All three of the major indices, however, were showing this on the 15 minute charts coming off Friday's highs.

Dow Jones Industrial Average (Figure 1)

The first trigger for a reversal in the short term took place early on Monday morning. It took some time to continue to develop a shift in momentum at the lows, but the buyers came in quickly once the opening bell rang. Although the overall volume in the market was light on Monday, the indices established a strong uptrend on the 5 minute charts throughout the morning in the S&P 500 and Dow. The weakest Nasdaq created a two-wave continuation pattern as a buy that triggered at the 11:15 ET correction period. The upside remained strong into the 12:00 ET correction period before the pace slowed.

By noon, the S&P 500 and Dow had each established three waves of buying on the 5 minute time frame. The periods of correction between each wave were comparable in terms of how long they developed and this exhausted the uptrend by the time that correction period hit. As I mentioned on Facebook going into the early afternoon, I didn't expect to see further buying throughout the remainder of the session. Given the extent of the upside and the strong resistance at the upper end of the 60-minute trading channel, afternoons following this type of action will typically be plagued by congestion or even reversal action. Attempts at higher highs typically result in bull traps that easily flush out stops. An early attempt at a breakout afterhours shows one such example around 20:00 ET.

S&P 500 (Figure 2)

The Dow Jones Industrial Average ($DJI) ended the day with a gain of 76.02 points, or 0.63%, and closed at 12,080.38 on Monday. The Dow's top percentage gainers included Caterpillar (CAT) (+2.32%), DuPont (DD) (+1.65%), United Technologies (UTX) (+1.15%), and Cisco Systems (CSCO) (+1.14%). Only a handful of the Dow's thirty index components posted a loss. They were led by banking shares. Bank of America (BAC) fell 0.75%, while JP Morgan Chase (JPM) ended the session lower by 0.78%. also posted losses.

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