MONDAY'S MARKET WRAP-UP
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 ($DJI) ended the day with a gain of 76.02 points, or 0.63%, and closed at 12,080.38 on Monday. The Dow's top percentage gainers included Caterpillar (CAT) (+2.32%), DuPont (DD) (+1.65%), United Technologies (UTX) (+1.15%), and Cisco Systems (CSCO) (+1.14%). Only a handful of the Dow's thirty index components posted a loss. They were led by banking shares. Bank of America (BAC) fell 0.75%, while JP Morgan Chase (JPM) ended the session lower by 0.78%. also posted losses.
The S&P 500 ($SPX) gain of 6.86 points, or 0.54%, and closed at 1,278.36. The top percentage gainers in the index were Biogen Idec (BIIB) (+4.05%), Aetna Inc. (AET) (+3.61%), Humana Inc. (HUM) (+3.55%), and International Paper (IP) (+3.27%). The weakest percentage performers were MEMC Materials (WFR) (-2.84%), Alpha Natural Resources (ANR) (-2.71%), Cablevision Sys. (CVC) (-2.05%), and Financial Services Group (PNC) (-1.96%). Nabors Industries (NBR) fell 1.83% after pulling back on its second-quarter outlook.
Nasdaq Composite (Figure 3)
The Nasdaq Composite ($COMPX) ended the session higher with a gain of 13.18 points, or 0.5%, on Monday and it closed at 2,629.66. Biogen Idec (BIIB) was the top percentage performers in the Nasdaq-100. It rose 4.05%. It was followed by gains in Celgene Corp. (CELG) (+2.97%), First Solar (FSLR) (+2.85%), Mattel (MAT) (+2.68%), and Dollar Tree (DLTR) (+2.43%). The weakest performer was once again Research In Motion (RIMM), which fell another 6.7% after announcing last week that revenue came in below its own forecast. This led to a series of downgrades and price target cuts by major brokerages. Liberty Media (LINTA) (-1.65%), Express Scripts (ESRX) (-1.60%), and Apple (APPL) (-1.54%) were also top decliners.
The economic data has been light to kick off the new week, with most of the headlines geared towards Greece, but the focus will shift in the U.S. to housing starting on Tuesday morning with existing home sales and this week's FOMC interest rate announcement on Wednesday.
Despite the rounding off at lows on the 60-minute charts in the S&P 500 and Dow, the market still risks more downside into 200 day moving averages in these two indices. The 20-day moving averages will serve as resistance and the risk is high that even attempts to push higher will fall back at these levels until that 200-day sma does hit in the Dow. This can be seen in Figure 1. As a result, continue to use added caution on multi-day holds, but also continue to use the momentum shifts for strong intraday setups like we saw on Monday.
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.