WEDNESDAY'S MARKET WRAP-UP
Good day fellow traders!!! The market had another promising start to the day on Wednesday with a breakout in early morning trade to new highs for the month following a continued focus on Greece's austerity measures. Greece's parliament approved the plan aimed at avoiding debt default and this brought cheer to European and American markets heading into Wednesday's session. On Thursday Greece's parliament will focus on the implementation measures for their plan.
By the time the opening bell rang in New York, however, the index futures were extended and already dealing with premarket resistance levels that led to a price pullback off premarket highs. This correction continued past the opening bell and into the 10:00 a.m. ET housing data.
Wednesday's housing data began prior to the open. The Mortgage Bankers Association reported that its seasonally adjusted index of mortgage application activity fell 2.7% last week. Pending home sales, on the other hand, were up. According to the National Association of Realtors, their Pending Home Sales Index rose 8.2% in May to 88.8. The West and Midwest experienced the strongest increases. It is typical to see these regions gain strength heading into summer, but there continues to be a large inventory of unsold homes on the market.
Dow Jones Industrial Average (Figure 1)
Although the market flushed lower out of 10:00 a.m. ET, this continued selling brought the indices back into the congestion zone from afterhours trade on Tuesday evening. This level served as a strong support level and prices turned higher. The indices retested premarket highs between 11 and 11:15 ET, creating a slowdown in upside momentum mid-day.
As proposed in yesterday's column, the market had a difficult time continuing higher into the afternoon. The Nasdaq even attempted a breakout from the 13:00 ET correction period, but the move quickly failed and the stronger Momentum Reversals in the Dow and S&P 500 took over, leading to a strong pullback into mid-afternoon. Even though the market attempted to recover these losses in the final hour of trade, it was unable to break the mid-day highs.
The Dow Jones Industrial Average ($DJI) ended the day with a gain of 72.73 points, or 0.6%, and closed at 12,261.42 on Wednesday. Twenty-four of the Dow's thirty index components posted a gain. The top performers were the financials. They included Bank of America (BAC) (+2.96%), American Express (AXP) (+2.58%), and JP Morgan Chase (JPM) (+2.30%). The financials rallied after a settlement was reached by Bank of America that dealt with securities purchased prior to the housing-market collapse. The weakest performers in the Dow were Microsoft (MSFT) (-0.70%) and Intel (INTC) (-0.47%).
S&P 500 (Figure 2)
The S&P 500 ($SPX) gain of 10.74 points, or 0.83%, and closed at 1,307.41. Visa (V) (+15.00%) and Mastercard (MA) (+11.31%) were the strongest performers in the S&P 500. Other top percentage gainers included eBay (EBAY) (+6.56%), United States Steel Corp. (X) (+5.86%), and AK Steel Holding Corp. (AKS) (+5.15%). The weakest were Pulte Group (PHM) (-3.93%), JDS Uniphase (JDSU) (-3.64%), and DR Horton (DHI) (-3.23%). Home builders felt pressure after KB Home (KBH) (-15.44%) reported a larger-than-expected quarterly loss.
The Nasdaq Composite ($COMPX) ended the session higher by 11.18 points, or 0.41%, on Wednesday and it closed at 2,740.49. The strongest performers in the Nasdaq-100 were eBay (EBAY) (+6.56%), Electronic Arts (ERTS) (+4.70%), First Solar (FSLR) (+3.86%), and Vertex Pharmaceuticals (VRTX) (+3.04%). The weakest were Netapp (NTAP) (-1.50%), Amgen (AMGN) (-1.48%), and Life Technologies (LIFE) (-1.43%).
Nasdaq Composite (Figure 3)
The market remains extended in the short-term heading into late Wednesday evening. The slowing pace of the rally over the past three days opens the door for strong intraday corrections off resistance. All three of the major indices have stronger levels of price resistance just overhead than those that hit on Wednesday, however, so we could easily see choppier trade take over heading into the weekend as the market flirts with 100-day and 50-day moving average resistance levels. This should create wider swings on the 15 minute time frame, but with the moving averages serving as a magnet, we're unlikely to see the bears pull the market back at the same pace as the bulls led over the past several days.
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.