MONDAY'S MARKET WRAP-UP
Debt Ceiling Deal Leaves Market Unsatisfied
Good day traders! The euphoria that brought about a strong open in the indices on Monday was short-lived. Although Obama announced on Sunday that an agreement had been reached regarding the highly debated debt ceiling, the obvious fact that this did little to solve ongoing budget concerns remained. The futures were already beginning to give back Sunday evening's gains before the regular weekday trade began. That move, however, escalated with the release of the latest manufacturing data.
Dow Jones Industrial Average (Figure 1)
ISM Manufacturing Data Disappoints
According to the Institute for Supply Management, manufacturing activity in July fell despite the expectation of little change. The ISM's index went from 55.3 in June to 50.9 in July. Readings over 50 indicate expansion, which means that very little growth was seen in July. The market had already began to sell off out of the opening bell on Monday and the indices were striking five minute 20 simple moving average support at the time of the data release. The news shoved the market through this support level for its strongest intraday move of the session with the indices taking back the remaining premarket gains in a matter of seconds and quickly returning the market to Friday's lows.
Friday's lows did serve as price support in the indices, but the escalating pace of the selloff meant that recovery efforts would be extremely limited to begin with. Instead, a common two-wave continuation pattern developed on the 2-5 minute charts that brought the indices to the lower end of the 60 minute trend channel by noon. Continuation moves such as this one following unexpected news are quite common. It allowed the momentum to slow into mid-day and the market held the 60 minute and daily support throughout the remainder of the session. On the daily charts all three of the major indices had landed a more solid test of moving average support with the 200-day sma hitting in the Dow ($DJI) and S&P 500 ($SPX) and the 50-day moving average holding in the Nasdaq ($COMPX).
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Monday down slightly at 12,132.49. Despite a strong lead heading into the opening bell, only nine of the Dow's thirty index components managed to end the session in the black. The top performers were Caterpillar (CAT) (+1.95%), Verizon (VZ) (+1.64%), Chevron (CVX) (+1.31%), and Bank of America (BAC) (+1.03%). The weakest were Merck (MRK) (-2.02%), Home Depot (HD) (-1.95%), Pfizer (PFE) (-1.25%), and Travelers (TRV) (-0.94%).
The S&P 500 ($SPX) fell to 1286.94. The top percentage gainers in the S&P 500 on Monday were NVIDIA (NVDA) (+5.35%), Abercrombie & Fitch (ANF) (+2.95%), Marathon Pete (MPC) (+2.69%), and American Electric Power Co. (AEP) (+2.69%). The weakest performers were Health Care Reit (HCN) (-8.47%), HCP Inc. (-5.69%), Staples (SPLS) (-4.86%), and DaVita Inc. (DVA) (-4.63%).
The Nasdaq Composite ($COMPX) ended the session lower at 2,744.61. The strongest performers in the Nasdaq-100 ($NDX) were NVIDIA (NVDA) (+5.35%), Green Mountain Coffee (GMCR) (+3.82%), Infosys Ltd. (INFY) (+1.66%), and Apple (AAPL) (+1.61%). The weakest were Teva Pharmaceuticals (TEVA) (-6.17%), Warner Chilcott (WRCX) (-5.33%), Staples (SPLS) (-4.86%), and Mylan (MYL) (-2.81%).
Nasdaq Composite (Figure 3)
Premarket Support Provides Relief From Selling Pressures
Although the market managed to recovery slightly throughout Monday afternoon, a two-wave continuation pattern on the short side took place on the 5 minute time frame that triggered around 21:00 ET. This selloff returned the index futures to Monday's intraday lows, but the pace of the selling was substantially slower than Monday morning's sharp descent. This shift in momentum also corresponds to another test of the daily moving average support levels and offers a chance for further recovery intraday on Tuesday. Overall, however, we should expect more of a daytrading environment than one with a strong upswing on the daily time frame over the next several days.
Focus Shifts to Employment
A key area to watch for this week will be the latest employment data. Friday's nonfarm payrolls will soon be on everyone's minds. This data has been disappointing lately, particularly in June when nonfarm job growth amounted to a mere 18,000 jobs. This is substantially less than is needed to even keep up with population growth and the number of new workers entering the job market every day. Few are expecting the numbers to be strong in July either, but economists are looking for an increase of about 85,000 with the unemployment rate remaining steady at 9.2%.
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.Market Snapshot for July 9, 2012 (12:32 am ET).