Market Snapshot for October 3, 2011:
- Closing Prices: DOW 10,655.30 (-258.08, -2.36%),S&P 500 1,099.23 (-32.19, -2.85%), NASDAQ 2,335.83 (-79.57, -3.29%), Nikkei 225 8,545.48 (-, -), DAX 5,376.70 (-125.32, -2.28%), FTSE 5,075.50 (-52.98, -1.03%)
- OIL 76.16, GOLD 1,670.00, SILVER 30.90
- EURO 1.3189, YEN 76.68, BRITISH POUND 1.5429, U.S. DOLLAR INDEX 79.935
Market Logs New 52-Week Closing Lows
The top headlines in recent months have focused upon several core topics: dire state of the U.S. economy (particularly housing and unemployment), the European sovereign debt crisis (focusing currently on news that Greece is expected to fall short of deficit targets for this year and next), and the potential slowdown of the Chinese economy. By the end of the quarter, the Dow Jones Industrial Average ($DJI), S&P 500 ($SPX), and Nasdaq Composite ($COMPX) all posted quarterly losses over 12%.
The third quarter of 2011 did not get off to a much better start. In fact, both the Dow and S&P 500 ended the session on Monday at new 52-week closing lows.
The Dow Jones Industrial Average ($DJI) ended the day on Monday with a loss of 258.08 points, or 2.36%, and closed at 10,655.30. Wal-Mart (WMT) (+0.12%) was the only gainer in the index. The weakest performers were Bank of America (BAC) (-9.64%), Alcoa (AA) (-7.00%), JP Morgan Chase (JPM) (-4.88%), and Caterpillar (CAT) (-4.46%).
The S&P 500 ($SPX) finished the session with a loss of 32.19 points, or 2.85%, and closed at 1,099.23 with a minor breech of the 1,100 price point. Only twelve of the components in the index posted a gain. Yahoo (YHOO) (+2.73%) and Lorillard Inc. (LO) (+2.03%) were the only ones to post a gain over 1%. Out of the S&P 500's 10 industry groups, none posted a gain. The top declining sectors were financials (-4.5%), energy (-3.3%), and health care (-3.2%). The weakest individual percentage performers in the index were Micron Technology (MU) (-14.09%), Tenet Healthcare Corp. (THC) (-12.65%), AK Steel Holding (AKS) (-11.77%), and Advanced Micro Devices (AMD) (-10.83%).
The Nasdaq Composite ($COMPX) ended the session lower by 79.57 points, or 3.29%, on Monday and it closed at 2,335.83. The strongest performers in the Nasdaq-100 ($NDX) were Yahoo (YHOO) (+2.73%) and Research In Motion (RIMM) (+0.99%). Only 4 of the 100 posted a gain. The top percentage decliners were Micron Technology (MU) (-14.09%), Vertex Pharmaceuticals (VRTX) (-8.93%), Autodesk (ADSK) (-8.42%), and First Solar (FSLR) (-8.40%).
Dow Jones Industrial Average (Figure 1)
Keep Your Eyes Open
This week is a busy one on the economic front. The European finance ministers meet Monday and Tuesday, while the European Central Bank will hold its rates meeting on Thursday. Recent speculation suggested that the bank could cut rates once again, but sentiment has once again shifted in favor of them holding steady.
In the U.S. on Tuesday morning, Fed Chairman Ben Bernanke will appear before the Congressional Joint Economic Committee to discuss the economy and recent monetary policy.
Jobs growth will remain on center stage in the week ahead. On Friday the government will release September's nonfarm payrolls data, along with the most recent unemployment rate, hourly earnings, and the average work week. The unemployment rate is expected to remain unchanged at 9.1% with very little net gain in the real employment data.
Although earnings season doesn't really kick off until next week with the release of Alcoa's quarterly earnings, there are still a few names to keep an eye on this week. They include Yum Brands (YUM) on Tuesday; Costo (COST), Marriott Intl. (MAR), and Monsanto (MON) on Wednesday; and Constellation Brands (STZ) on Thursday.
S&P 500 (Figure 2)
Although the day ended with the markets sharply lower, Monday's data offered a glimmer of hope that pushed prices higher intraday with a strong, albeit short-lived, burst of buying. The index futures had sold off ahead of Monday and the market opened trade with a gap to the downside in the three major indices. This gap closed, however, following the release of September's manufacturing reading by the Institute for Supply Management. The index rose from 50.6 in August to 51.6, whereas economists had been expecting it to edge lower. Any reading above 50 indicates expansion and September marks the 26th straight month that it has managed to hold above that level.
At the same time, the latest data for construction spending in the U.S. rose unexpectedly in August after falling in July. It was up 1.4% to hit an annual rate of $799.15 billion, but most of those gains were in public construction on the state and local level. Federal construction spending fell 0.5%, while private construction spending was up only 0.4%.
Nasdaq Composite (Figure 3)
It tends to take the market about 15 minutes to digest data coming out at 10:00 a.m. ET. This leaves 10:15 a.m. ET as one of the morning's strongest correction periods. Morning highs or lows often take place at this point on 5-15 minute charts. On Monday it marked a high that ended up holding throughout the remainder of the session. At first, however, the indices did try to hold onto those gains and tried to keep from breaking morning lows. The market corrected gradually off the 10:15 highs and held support at the morning lows going into the 11:00 ET correction period.
The pace of the selling off the 10:15 high was slower than the rally into it, taking about three times as long. This suggested another reversal to the upside into noon, but the pace of the buying shifted the second time around and volume dropped as the market made an attempt at the prior highs. The pace also slowed on the upside between 11:00 and 12:00 ET. By the time the 12:00 ET correction period had hit, the market had taken four times as long as the 10:00-10:15 rally and not even tagged the earlier highs. This made it easy for the sellers to return with confidence in the afternoon (or rather for the bulls to give up theirs).
The pace of the afternoon selloff was steady without taking a break to even test 5 minute 20 sma resistance between 12:00-14:00 ET. This limited opportunities for lower risk continuation strategies once the trend was underway for daytraders and the final two hours were also more difficult due to strong overlap within the trading channel on the 15 minute time frame into the closing bell. It was the fourth day that the market has held the resistance zone of the 15 minute 20 sma. This rarely happens past day three, although in this case there were some minor breaks in that resistance. Nevertheless, we should see this trend channel break as we head into mid-week to offer a bit of a reprieve from the selling pressure. Due to the mounting momentum of the selloff though, another flush to the downside is still possible on Tuesday and the upside pace of recovery moves will be more gradual than Monday's decline.
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.