Market Snapshot for October 12, 2011 (1:45 a.m. ET):
- Closing Prices: DOW 11,416.30 (-16.18, -0.15%), S&P 500 1,195.54 (+0.65, +0.05%), NASDAQ 2,583.03 (+16.98, +0.66%), Nikkei 225 8,754.40 (-19.28, -0.22), DAX 5,865.01 (+17.72, +0.3%), FTSE 5,395.70 (-3.30, -0.06%)
- OIL 85.60, GOLD 1,669.80, SILVER 32.22
- EURO 1.3632, YEN 76.70, BRITISH POUND 1.5582, U.S. DOLLAR INDEX 77.99
Bulls Hold Their Breath
The market has been on a roar since putting in a short-term bottom on October 4th, but the indices have struggled since late Monday morning to make further head-way. Tuesday's session ended up being a rather mellow one. Volume was light compared to the average of the past several months and the day's trading range was also a lot narrower. The index futures were trading lower ahead of the open, but rallied to push through Monday's closing high within the first hour and fifteen minutes of the regular trading session on Tuesday.
Technology shares led the morning rally in the indices. This gave the Nasdaq a lead over the Dow and S&P 500. The morning rally in the Nasdaq took it to equal move resistance on the 15 minute time frame at 10:45 a.m. ET. This is a typical correction period intraday and morning highs (and lows) are often made at this time of the day. The market did not fully reverse at this point, but the Dow also struck resistance at Monday's highs and a brief retracement of the day's gains followed.
Dow Jones Industrial Average (Figure 1)
After 10:45 a.m. ET the range for the session narrowed. Support and resistance levels held quite well and there were clear-cut reversal patterns (such as 2 minute Momentum Reversals) on the 5 minute time frame off the upper and lower end of the trading range, but reward to risk ratios were diminished due to continued volatility as seen by the high degree of overlap from one bar to the next on the 5 and 15 minute time frames. A lesser degree of overlap in price means that there is a better chance to select correct entry, stop, and target/exit levels with reduced risk of mismanaging a trade.
S&P 500 (Figure 2)
Index Wrap Up
The Dow Jones Industrial Average ($DJI) ended the day on Tuesday with a gain of 330.06 points, or 2.97%, and closed at 11,433.18. Just over a third of the Dow's thirty index components posted a gain. The top performers were Alcoa (AA) (+2.08%), Caterpillar (CAT) (+1.93%), and Bank of America (BAC) (+1.43%). AT&T (T) (-1.37%), Travelers Companies (TRV) (-1.33%), and Merck (MRK) (-1.30%).
The S&P 500 ($SPX) finished the session with a gain of 39.43 points, or 3.41%, and closed at 1,194.89. The top percentage performers in the index were Sprint Nextel Corp. (S) (+7.21%), Citrix Systems (CTXS) (+5.50%), Citigroup (C) (+5.10%), and Goodyear Tire & Rubber (GT) (+4.67%). The weakest were First Solar (FSLR) (-6.47%), CME Group (CME) (-3.41%), and Kohls Corp. (KSS) (-3.21%).
The Nasdaq Composite ($COMPX) ended the session higher by 86.70 points, or 3.5%, on Tuesday and it closed at 2,566.05. The strongest performers in the Nasdaq-100 ($NDX) were Citrix Systems (CTXS) (+5.50%), Research In Motion (RIMM) (+5.08%), and Baidu (BIDU) (+3.96%). The weakest were First Solar (FSLR) (-6.47%), Netflix (NFLX) (-2.65%), and Gilead (GILD) (-2.34%).
Nasdaq Composite (Figure 3)
Earnings Season Kicks Off
Over the past several weeks the market has been focusing heavily upon the European debt crisis and the employment situation in the States, but this week brings another focus: earnings. Alcoa (AA)kicked off earnings season with revenue that beat expectations, but it fell short on its reported earnings of 15 cents a share. This week will still be light on the number of companies reporting earnings, but among the top names reporting this week are PepsiCo (PEP) on Wednesday morning, JP Morgan (JPM) Thursday morning, and Google (GOOG) following the close on Thursday afternoon. Over the course of this earnings season, companies in the S&P 500 are expected to have risen between 12-13% for Q3 2011 with revenue up 10% (according to Thomson Reuters).
Wednesday will be a session where it will be necessary to pay attention to smaller, intraday trends for direction. The market is at a strong resistance zone on the daily charts short-term, but there is room for both the S&P 500 and Dow Jones Ind. Average to push through it to their 100 day moving averages before offering up a larger correction from this recent rally than a pull back to 60-minute 20 period moving averages, which is the support zone from last week's correction. Momentum in the early morning hours heading into Wednesday is more supportive of the bears on the 5-15 minute time frames, but this could easily shift as Wednesday's open approaches to allow for a third wave of buying on the 60-minute time frame. Overall, however, we should expect the next pullback on the daily time frame to have a more gradual pace than the rally that has taken place since October's lows hit last week.
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.