Market Snapshot for September 26, 2011 (6:43 pm ET):
- Closing Prices: DOW 11,043.86 (+272.38, +2.53%),S&P 500 1,162.95 (+26.52, +2.53%), NASDAQ 2,516.69 (+33.46, +1.35%), Nikkei 225 8,374.13 (-, -), DAX 5,345.56 (+149, +2.87%), FTSE 5,089.37 (+22.56, 0.45%)
- OIL 81.30, GOLD 1,630.50, SILVER 30.725
- EURO 1.3515, YEN 76.33, BRITISH POUND 1.5548, U.S. DOLLAR INDEX 79.065
The Dow Jones Industrial Average ($DJI) ended the day on Monday with a gain of 272.38 points, or 2.53%, and closed at 11,043.86. All of the Dow's thirty index components ended the session in the black. The top performers were JP Morgan Chase (JPM) (+6.96%), Bank of America (BAC) (+4.60%), Boeing (BA) (+4.20%), and Caterpillar (CAT) (+4.05%). The banks led the Dow following speculation that the European Central Bank could be cutting interest rates next month and expanding its own financial bailout plan known as the European Financial Stability Facility.
The S&P 500 ($SPX) gain of 26.52 points, or 2.33%, and closed at 1,162.95. The top percentage performers in the index were Consol Energy (CNX) (+9.03%), Berkshire Hathaway (BARK.B) (+8.62%), Huntington Bancshares (HBAN) (+8.26%), and Suntrust (STI) (+8.01%). CNX shares were higher after announcing that it sold its royalty interest in the Marcellus Shale in Pennsylvania and West Virginia. The weakest were Clorox Co. (CLX) (-4.27%), Sprint Nextel (S) (-2.83%), MEMC Electr. Materials (WFR) (-2.78%), and Applied Materials (AMAT) (-1.98%).
The Nasdaq Composite ($COMPX) ended the session higher by 33.46 points, or 1.35%, on Monday and it closed at 2,516.69. The top gainers in the Nasdaq-100 ($NDX) were KLA-Tencor (KLAC) (+5.19%), Whole Foods Market (WFM) (+4.94%), Expedia (EXPE) (+4.67%), and Citrix Systems (CTXS) (+4.63%). Only 16 posted a loss. The weakest were Vertex Pharmaceuticals (VRTX) (-3.65%), Sirius XM Radio (SIRI) (-2.34%), and Applied Materials (AMAT) (-1.98%).
Dow Jones Industrial Average (Figure 1)
Europe Scrambles to Find Stability
After a week of selling, the market took Friday's foothold and ran with it, leading to the biggest gain the Dow Jones Ind. Average had experienced in a month. The rally had several points of ignition. The first one is the one I wrote about in yesterday's column and was purely technical. The indices had established two lows on the 15 minute charts last week. The second was slightly lower than the first, which created a type of bear trap known as a 2B.
A 2B typically leads to a multi-day correction when taking place on this time frame. This can take the form of a longer trading range with a slight upwards trend channel, or it can lead to a more substantial reversal. The second is more common when the momentum into the second low is slower than the first or when a secondary strategy shifts the momentum. In this case, the pace of the selling into the second low was actually faster than the pace of the move into the first low, meaning that the upside momentum that follows tends to be more limited.
The market held these technical expectations quite well on Monday. The overall pace of the rally off last week's lows has continued to be more gradual than the selloff of the previous week, but at the same time we still experienced rapid upside moves within the channel like I discussed yesterday. These wider swings on the 15 minute time frame are the most lucrative to daytraders and can increase concerns for swingtraders who hold for several days on end since positions can quickly turn from positive to negative and back again. This not only increases the risk of getting flushed out and stopped on a position, but can also increase the chances for a trader to make a mistake such as over thinking the trade and bailing too early or too late.
S&P 500 (Figure 2)
The global scene was a second point of ignition for the market's intraday recovery on Monday. The European Central Bank's proposed plan to assist in the stabilization of European banks involves funding through bonds sales. One of the market's biggest concerns at present is how Europe will cope with a Greek debt default, which appears imminent, and the continuing weakness spreading through its member nations. Any plan at this point elicits positive reactions in the market, although the longer term market stability will rest upon results.
Commodities Find Support
Although the market has been experiencing sharp declines recently, commodities have taken a back seat to cash this month and have taken a strong hit themselves. This pressure continued into Monday morning, but as expected, it soon began to abate. Gold and silver both began the regular trading session with strong downside gaps. These moves served as a flush for the larger selloff and intraday lows held with the 10:15 a.m. ET correction period. Gold settled at $1,594.80 in New York after hitting a low of $1,535 in overnight trade. Silver settled at $29.98 an ounce. We should continue to see this selloff find a footing this week with choppier trade on the 60 minute time frame and a move away from "free fall mode".
Nasdaq Composite (Figure 3)
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.