Market Snapshot for September 23, 2011 (10:00 pm ET):
- Closing Prices: DOW 10,771.48 (+37.65, +0.35%),S&P 500 1,136.43 (+6.87, +0.61%), NASDAQ 2,483.23 (+27,56, +1.12%), Nikkei 225 8,560.26 (-180.90, -2.07), DAX 5,166.56 (+32.35, +0.63%), FTSE 5,066.81 (+25.20, 0.05%)
- OIL 79.85, GOLD 1,639.80, SILVER 360.101
- EURO 1.3496, YEN 76.58, BRITISH POUND 1.5466, U.S. DOLLAR INDEX 79.23
Commodity Collapse Continues
This past week was a rough one for the markets, but particularly for precious metals. The indices were on unsteady feet as the week began, teetering at daily resistance with the latest FOMC meeting on the near horizon. It was the Fed's announcement on Wednesday afternoon that finally tipped the scale. The precious metals, however, were already moving lower for the month and had only paused as the market rallied the previous week. When the Fed stated that it continued to foresee significant economic weakness and concerns regarding the larger global economy, the selloff escalated. Even China's economy has shown signs of contraction, while Greece has inched even closer to defaulting on its debt.
Silver took one of the greatest beatings, losing about a quarter of its value over just a couple of days. Meanwhile, gold shed about 9% for the week. There is no rapid recovery likely on the horizon, although the selling pressure should begin to abate this week. The U.S. dollar has once again become somewhat of a safe haven as investors make the move to cash. It hit a seven-month high this past week.
Dow Jones Industrial Average (Figure 1)
A Hot Mess
On Friday the market took a breather from Wednesday and Thursday's plunge, but the Dow Jones Ind. Average ($DJI) still ended the week lower by 6.4%, which was the largest one week loss since October, 2008 (although that week was substantially worse with a loss of over 18%). The pace of the week's selloff was the strongest following the Fed and slowed on Thursday, but the magnitude did not diminish.
The selling pressure had resumed late Wednesday evening in the index futures and remained steady throughout most of Thursday after pausing following Wednesday's close. It only let up in the final thirty minutes of trade on Thursday, but the pace of the reprieve slowed afterhours and set the stage for another sharp decline into early Friday morning. This created a type of double bottom known as a "2B" whereby the second low on the 15 minute time frame slightly breeched Thursday's low to create bear trap. This helped the market recover into Friday afternoon and trim the week's losses, but it wasn't enough to elicit any strong sighs of relief and Friday's session was mixed.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Friday with a gain of 37.65 points, or 0.35%, and closed at 10,771.48.After the extreme losses experienced earlier in the week, nearly two-thirds of the Dow managed to post a gain on Friday as market participants repositioned themselves ahead of the weekend. The top performers were Bank of America (BAC) (+4.13%), Intel (INTC) (+2.55%), Home Depot (HD) (+2.03%), and Cisco Systems (CSCO) (+1.83%). The weakest were DuPont (DD) (-2.86%) and Hewlett Packard (HPQ) (-2.11%). The Dow's outcome for the week as a whole was a loss of 6.41%.
The S&P 500 ($SPX) gain of 6.87 points, or 0.61%, and closed at 1,136.43. The top percentage performers in the index were Hospira Inc. (HSP) (+8.62%), Gannett Inc. (GCI) (+6.32%), Sprint Nextel Corp. (S) (+5.65%), and Stanley Black & Decker (SWK) (+5.65%). The weakest performers were Range Res. Corp. (RRC) (-11.45%), Cabot Oil & Gas (COG) (-5.58%), EQT Corp. (EQT) (-4.09%), and EOG Res. Inc. (ROG) (-3.95%). The S&P 500 ended the week lower by 6.54%.
The Nasdaq Composite ($COMPX) ended the session lower by 27.56 points, or 1.12%, on Friday and it closed at 2,483.23. The top gainers in the Nasdaq-100 ($NDX) were CTrip.com Intl. (CTRP) (+6.42%), Yahoo (YHOO) (+5.15%), First Solar (FSLR) (+5.07%), and Marvell Tech. (MRVL) (+5.01%). The weakest were Express Scripts (ESRX) (-1.98%), Illumina Inc. (ILMN) (-1.81%), and Mattel Inc. (MAT) (-1.80%). The Nasdaq Composite ($COMPX) fell 5.3% for the week.
Nasdaq Composite (Figure 3)
Although Friday's action was not the most favorable, it does offer some hope for short-term bulls. The 2B that trapped bears early Friday morning is also a pattern that tends to help stabilize market selloffs. In some cases it can lead to a rapid recovery, whereas in others the typical recourse is a gradual trading channel with a slight upside path that is usually followed by another round of selling once the channel breaks. The second low on the 15 minute charts at the end of the week took place with a momentum move that was stronger than Thursday's selloff. This favors the more gradual corrective scenario as opposed to a rapid recovery, but it can still mean rapid intraday sprints on the upside that can be very favorable to daytraders. It is not, however, typically a strong price development for swingtraders who look to capitalize on multi-day trend moves since a slower and wider trading channel generally means wider stops with less reward potential.
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.