TUESDAY'S MARKET WRAP-UP
Market Snapshot for August 2, 2012 (12:15 am ET):
- Closing Prices: DOW 11,866.62 (-265.62, -2.19%),S&P 500 1,254.05 (-32.89, -2.56%), NASDAQ 2,669.24 (-75.37, -2.75%), Nikkei 225 9,844.59 (-120.42, -1.21), DAX 6,796.75 (-157.23, -2.26%), FTSE 5,718.39 (-56.04, -0.97%)
- OIL 93.25, GOLD 1,659.70, SILVER 40.65
- EURO 1.4174, YEN 77.29, BRITISH POUND 1.6278, U.S. DOLLAR INDEX 74.665
Poor Data Continue to Weigh Heavily on the Market
The week began with a gap up in the index futures Sunday evening following Obama's announcement that an agreement had been reached regarding the long-debated debt ceiling. These gains were quickly eroded from that point forward despite the plan passing in the House late Monday and the Senate on Tuesday. On Tuesday afternoon it was signed by the president. By this point, however, continuing disappointment on the data front was rocking the indices and investors continued to display their worry about the larger economic outlook.
On Monday, the ISM's manufacturing index fell from 55.3 to 50.9 in July, creating sharp intraday selling. Then on Tuesday, according to the Commerce Department, consumer spending decreased in June by 0.2%, although an uptick had been anticipated. Meanwhile, personal income rose 0.1%, which was in line with expectations. The index futures had been inching higher ahead of this data despite a weak open, but the timing of the release corresponded perfectly with Tuesday's intraday highs and the market sold off throughout the remainder of the session.
Dow Jones Industrial Average (Figure 1)
Tuesday's session was so bad that it wiped out the S&P 500's ($SPX) gains year-to-date and marked the eight straight day of losses for the Dow ($DJI). The last time this occurred was nearly 4 years ago. Gold was a key beneficiary of the market's losses. It once again hit new record highs and ended the session up 1.3%. Gold for December delivery was up as much as $1,646.80 an ounce. Meanwhile, the U.S. dollar fell to record lows against the yen and Swiss franc, but were higher against the British pound and euro following concerns on global growth and the euro-zone debt crisis that led European shares to eleven-month lows.
S&P 500 (Figure 2)
Index Results
The Dow Jones Industrial Average ($DJI) ended the day on Tuesday with a loss of 265.87 points, or 2.19%, and closed at 11,866.62.All of the Dow's thirty index components finished the session in the red. The weakest performers were Pfizer (PFE) (-4.58%), General Electric (GE) (-4.23%), Home Depot (HD) (-4.18%), United Technologies (UTX) (-4.14%), and Alcoa (AA) (-4.00%).
The S&P 500 ($SPX) loss of 32.89 points, or 2.56%, and closed at 1,254.05. Only twelve stocks in the S&P 500 ended the session in the black. The top percentage gainers on Tuesday were McGraw Hill (MHP) (+7.29%), Newmont Mining (NEM) (+1.45%), Nisource (NI) (+1.39%), and Humana (HUM) (+0.98%). MetroPCS (PCS) plunged 36.59% after it missed earnings expectations and warned that things were looking even worse this quarter. Other top losers included Parker Hannifin (PH) (-8.49%), Tiffany & Co. (TIF) (-8.24%), and Starwood Hotels & Resorts (HOT) (+7.51%).
The Nasdaq Composite ($COMPX) ended the session lower by 75.37 points, or 2.75%, on Tuesday and it closed at 2,669.24. Like the Dow, every component of the Nasdaq-100 ($NDX) also posted a loss. The weakest were CTrip.com (CTRP) (-10.94%), Liberty Media Corp. (LINTA) (-7.25%), Mylan Inc. (MYL) (-5.87%), News Corp. (NWSA) (-5.03%), and Micron Technology (MU) (-4.99%).
Nasdaq Composite (Figure 3)
WEDNESDAY'S OUTLOOK
Getting Technical
Despite a day of steady losses, the market did manage to find support once again by the closing bell. All three of the major indices established equal moves on the downside on Tuesday as compared to the premarket and early morning drop that took place Monday morning. The pace of the selling was also similar, which makes it a rather significant type of support on the 15 minute time frame. Additionally, the Nasdaq-100 e-mini (NQ) struck its 200 day sma at this point, while the S&P 500 and Dow returned to price support at prior daily lows.
The pace of the selloff on Tuesday will tend to make it difficult for the market to bounce sharply and sustain a stronger rally throughout the week, but all three of the major indices should be approached as oversold in the short term heading into Wednesday and relief rallies intraday are likely over the next several days. The longer-term outlook, however, is even more sketchy for the bulls. All three indices have larger reversal patterns under way that can easily form confirmation patterns in the months ahead. Both the Dow and S&P 500 have been forming weekly Head-and-Shoulders patterns, while the Nasdaq has been creating a weekly Momentum Reversal as a result of three separate, yet slightly higher highs. Even without continuation patterns developing on these strategies, they will help keep the brakes on the market throughout the remainder of the year.
What to Watch on Wednesday
This week's jobs data kicks off on Wednesday with the 8:15 a.m. ET release of the ADP private sector employment report. Analysts are anticipating a 95,000 increase in hirings for July. This is less than the 157,000 from June and remains on the light side overall.
Also due out on Wednesday are the ISM's service sector index at 10:00 a.m. ET, which is expected to fall to 53.1, and the Commerce Department's release of June's factory orders, which are expected to have declined 1%.
On the earnings front, keep an eye on Time Warner (TWX), Clorox (CLX), MasterCard (MA), Garmin (GRMN), and Prudential (PRU). Earnings season remains in full swing. Although more of the focus lately has been upon the overall economic situation, top companies are still making waves intraday, creating strong trend days even when the overall market falters.
Employment Data Takes Center Stage
After Wednesday's ADP report, the jobs situation will remain a key area of focus for the week. The Labor Department will report on last week's initial jobless claims on Thursday, with a 405,000 increase in claims expected, which will be closely followed by the most influential data on Friday with the release of July's nonfarm payrolls. Economists are looking for an increase of about 85,000 jobs with the unemployment rate remaining steady at 9.2%, but it will not be enough to keep up with population growth and the number of new workers entering the job market.
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.
