THURSDAY'S MARKET WRAP-UP
Good day! Most of the focus for the market over this past week has been on developments in Greece. On Thursday Greece's parliament passed an implementation plan for its five-year austerity plan, which was approved the day before. The market has been viewing this in a very positive light and it's created a much stronger recovery off the month's lows than I had anticipated based purely on the technicals.
Dow Jones Industrial Average (Figure 1)
Thursday's economic data also helped provide the market with another boost. The Chicago Purchasing Managers index rose from 56.6 in May to 61.1 in June, which was sharply higher than the 54 level analysts had been anticipating. This level of increased manufacturing activity in the Midwest was welcome news in this economy where talks of a double-dip recession are still widespread. On that note, the Federal Reserve's second round of quantitative easing (QE2) came to an end on Thursday. Another similar measure is unlikely.
Not all news was good news though. According to the Labor Department, initial jobless claims, while lower last week by 1,000 at 428,000, were still higher than the 420,000 economist were expecting. This news did little to faze the bulls.
As I mentioned in yesterday's column, the 50 and 100-day moving averages were strong magnets for price action in the indices still ahead of the open. All three of the major indices hit these moving averages very quickly on Thursday morning following the opening bell after the index futures broke sharply higher out of yet another narrow premarket trading range.
I had initially anticipated greater intraday swings as this level hit, but the momentum of the upside move erased a lot of the potential for the remainder of the session. Stronger-than-average price swings rarely correct quickly unless the pace of the buying slows and rounds off at highs. In order be substantial enough on the 60-minute charts, this would take more than the time left in the session and the result was another period of congestion with very narrow price moves into the close.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day with a gain of 152.92 points, or 1.25%, and closed at 12,414.34 on Thursday. Twenty-six of the Dow's thirty index components posted a gain. The top performers were Intel (INTC) (+3.60%), Caterpillar (CAT) (+3.00%), Hewlett-Packard (HPQ) (+2.39%), and United Technologies (UTX) (+2.36%). The weakest performers were Bank of America (BAC) (-1.62%), Pfizer (PFE) (-0.34%), Travelers (TRV) (-0.32%), and McDonalds (MCD) (-0.30%). The Dow managed to post a quarterly gain of 0.8%.
The S&P 500 ($SPX) gain of 13.23 points, or 1.01%, and closed at 1,320.64. The strongest percentage performers in the index were Joy Global (JOYG) (+5.69%), Netapp (NTAP) (+5.64%), eBay (EBAY) (+4.57%), and Broadcom (BRCM) (+4.05%). The weakest were CF Inds. Holdings (CF) (-5.14%), McCormick & Co. (MKC) (-2.80%), Mastercard (MA) (-2.70%), and Visa (V) (-2.67%).
Nasdaq Composite (Figure 3)
The Nasdaq Composite ($COMPX) ended the session higher by 33.03 points, or 1.21%, on Thursday and it closed at 2,773.52. The strongest performers in the Nasdaq-100 were Joy Global (JOYG) (+5.69%), Netapp (NTAP) (+5.64%), eBay (EBAY) (+4.57%), and Broadcom (BRCM) (+4.05%). The weakest were Virgin Media (VMED) (-4.04%), Biogen Idec (BIIB) (-1.89%), and Netflix (NFLX) (-0.85%).
With the crucial Greek votes behind us and a three-day weekend looming ahead, a lot of the focus in Friday's session is likely to be upon profit-taking. Four-day rallies of the magnitude we've seen so far this week are quite rare and it's unlikely that many short-term traders will be willing to risk seeing their gains erode over the holiday. This should create the slowdown we've been expecting heading into the weekend and will make for a choppier session on Friday with more of the back and forth intraday action we're used to on the 5 minute time frame as opposed to the stronger trend moves that have been followed by narrow ranges with little daytrading opportunity.
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.