WEDNESDAY'S MARKET WRAP-UP
Good day! The market spent most of the session on Wednesday in a holding pattern. After two strong days of buying with little left to move the markets ahead of the afternoon FOMC announcement, the indices wavered between positive and negative territory until the afternoon release of the Fed's current stance on interest rates and outlook.
The futures were lower in premarket trade after pulling back off highs on Tuesday afternoon. This path had continued into the early morning hours on Wednesday, forming three clear-cut moves lower on the 15 minute charts, although the overall pace of the correction was substantially slower than the rally on Tuesday morning. This pullback ended at support at 6:00 a.m. ET and buying began to creep back in. The corrective channel broke soon after the opening bell.
As I mentioned in yesterday's outlook, a false attempt to push higher was quite possible on the 15 minute charts heading into Wednesday, but we were unlikely to see a strong move. This was indeed the case. Even though the market made an attempt at Tuesday's highs, the zone of resistance at that level held extremely well. This was also that 20-day moving average zone that we've been watching for larger daily resistance.
Dow Jones Industrial Average (Figure 1)
The attempt at prior highs created a reversal pattern on the 15 minute charts as a type of double top, but the pace of the buying was still strong compared to the correction afterhours on Tuesday and into the early morning on Wednesday. This allowed the market to form a smaller double top intraday just prior to the Fed announcement, which left the market poised for selling even before the news was released.
The market didn't have a sharp reaction to the Fed's unanimous decision to leave interest rates unchanged at 0%-0.25%, but investors seemed to want a bit more encouragement than the Fed was willing to offer as QE2 winds down in the days ahead. Essentially, Fed Chairman Ben Bernanke admitted that they really don't know what to expect in terms of economic growth from this point forward due to weakness across so many sectors of the economy. He stressed that time will tell and keeping an eye on current developments as the year progresses will help determine further policy decisions. Right now they are basically in "wait and see" mode.
The market has never really been fond of this type of uncertainty, and even though it was slow to begin with, the bearish bias heading into the announcement gained momentum following Bernanke's commentary. A clear-cut Avalanche on the 5 minute time frame really got the move going around 14:30 ET, but the selloff continued with a strong downtrend into the closing bell before finally slowing afterhours at earlier price congestion levels from this week.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day with a loss of 80.34 points, or 0.6%, and closed at 12,109.67 on Wednesday.Out of the Dow's thirty index components, only American Express (AXP) (+0.61%) and Coca-Cola (KO) (+0.21%) posted a gain. The worst performers were Boeing (BA) (-2.51%), Home Depot (HD) (-1.41%), General Electric (GE) (-1.33%), and Travelers Companies (TRV) (-1.31%).
The S&P 500 ($SPX) loss of 8.38 points, or 0.65%, and closed at 1,287.14. The top percentage performer in the S&P 500 on Wednesday was Carmax (KMX) (+7.01%). It was followed by L-3 Communications (LLL) (+4.65%), Jabil Circuit (JBL) (+3.18%), and Fedex Corp. (FDX) (+2.59%). The weakest performers were Adobe Sys. (ADBE) (-6.25%), Gannett Inc. (GCI) (-3.88%), Monster Worldwide (MWW) (-3.76%), and Gamestop Corp. (GME) (-3.53%).
Nasdaq Composite (Figure 3)
The Nasdaq Composite ($COMPX) ended the session lower by 18.07 points, or 0.67%, on Wednesday and it closed at 2,669.19. The top performers in the Nasdaq-100 were Warner Chilcott (WCRX) (+3.20%), Vertex Pharmaceuticals (VRTX) (+2.97%), Dentsply Intl. (XRAY) (+1.89%), and Liberty Media Corp. (LINTA) (+1.88%). The weakest were Adobe Sys. (ADBE) (-6.25%), Sears Holdings (SHLD) (-3.40%), Baidu Inc. (BIDU) (-2.22%), and Urban Outfitters (URBN) (-2.22%).
THURSDAY'S OUTLOOK
Mortgage applications were down again last week with a drop in refinances and an increase in interest rates. Even though this news was overshadowed by the Fed on Wednesday, the focus will again be on housing data on Thursday with the release of May's new home sales at 10:00 am ET.
The overall market is favoring congestive action on the 60-minute charts as the week continues, and I'm not seeing much incentive to invest heavily on the bullish nor bearish side at this point. The resistance from this week's highs-to-date should hold well on Thursday, but the overall pace of the buying this week will also add strength to the lower end of the trading channel on this time frame. Slightly lower lows, as discussed over the past several days, continue to be quite possible in many securities and the overall market on the 60-minute charts before a larger daily correction off lows takes place. This will leave the favor still in the hands of the shorter-term daytraders with higher risk remaining on those positioning for longer-term holds.
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.
