Market putters ahead of jobs data

WEDNESDAY'S MARKET WRAP-UP

Market Snapshot for July 6, 2012 (9:05 pm ET):

  • Closing Prices: DOW 12,626.02 (+56.15, +0.45%), S&P 500 1,339.22 (+1.34, +0.1%), NASDAQ 2,834.02 (+8.25, +0.29%), Nikkei 225 10,074.94 (-7.54, -0.07%), DAX 7,431.19 (-8.25, -0.11%), FTSE 6,002.92 (-21.11, -0.35%)
  • OIL 97.18, GOLD 1,526.00, SILVER 35.911
  • EURO 1.4321, YEN 80.93, BRITISH POUND 1.6001, U.S. DOLLAR INDEX 75.355

Exhaustion Shows Its Face After a Week of Strong Buying

Following last week's stellar upside move that ranked the week as the strongest in approximately two years, things have finally started to slow as this shortened trading week wears on, giving the indices a chance to catch their breath. Volume has dropped off, which is typical following such a run, and the indices are currently dealing with a strong price resistance zone at prior daily highs from the start of June.

The Impact of Momentum

As I discussed last week, it's quite uncommon to see a move like the one we just experienced have a strong and lasting reversal. Instead, the pace of the buying tends to shift, creating a slowdown in the upside momentum as opposed to a dead stop. Even when a sharp pivot off highs does appear to begin, the correction itself will have a difficult time sustaining the strong reversal pace and a much more gradual start to a pullback will begin. The selloff in June was a good example of slowing pace. The downside began quickly, but the pace of the downtrend channel shifted as the indices neared support. Similar action occurred heading into both April and May on the daily charts, albeit at highs.

Dow Jones Industrial Average (Figure 1)

ISM Non-Manufacturing Data Disappoints

When combined with the trend exhaustion and overhead resistance, along with the correctional bias due to the start of a new trading month and new quarter, the light data so far this week has been unable to strongly sway the intraday action. At 10:00 a.m. ET the ISM non-manufacturing index for June was released. The index fell from 54.6 in May to 53.3, which was less than the 54.0 analysts had been anticipating. The market pulled lower immediately following the data, creating a continuation of 15:30 ET pivot off Tuesday's intraday highs.

The selloff was short-lived, however, and support at the lower end of the 30-minute trading channel held, along with the 10:15 a.m. ET correction period. A three-wave rally followed, which led the indices higher into the early afternoon. The smoothest trend was in the stronger-performing Nasdaq, which managed to end the session with its seventh straight day of gains on Wednesday. Both the S&P 500 ($SPX) and Dow Jones Ind. Ave. ($DJI) were helpful in timing the mid-day reversal, however, due to the slowdown in the pace of the buying on their final 5-minute run into 13:00 ET highs. This was also another major intraday correction period where strong reversals are common.

The remainder of Wednesday's session was rather slow. Two waves of selling into 14:30 ET were followed by a choppy PhoenixTM into the closing bell, but the price action was on the sloppy side although the overall pattern between 13:00 ET and the closing bell was that of a Reverse Head & Shoulders on the 5 minute time frame. The follow-through on this buy strategy took place afterhours, coming out of the 5 minute PhoenixTM (which also corresponded to the creation of the right shoulder in the Head & Shoulders setup).

S&P 500 (Figure 2)

Next page: Index results

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