European strength, positive data extend index gains

Market Snapshot for October 16, 2011 (8:37 p.m. ET):

  • Closing Prices: DOW 11,644.49 (+166.36, +1.45%), S&P 500 1,224.58 (+20.92, +1.74%), NASDAQ 2,667.85 (+47.61, +1.82%), Nikkei 225 8,882.26 (+134.30, +1.54), DAX 5,967.20 (+52.36, +0.89%), FTSE 5,466.36 (+62.98, +1.17%)
  • OIL 87.43, GOLD 1,680.50, SILVER 32.16
  • EURO 1.3856, YEN 77.26, BRITISH POUND 1.5804, U.S. DOLLAR INDEX 76.96

Last week ended on a strong note as the S&P 500 ($SPX) and Dow Jones Ind. Average ($DJI) continued to push their way into their 100-day moving averages. We've been targeting this as the next major level of resistance in the market and it's done a good job over the past week of working its way higher even though the momentum of the overall rally has slowed as anticipated when compared to the previous week.

Strength overseas combined with strong economic data to add to the market's strength heading into Friday's session. The index futures broke higher in the early morning hours from a solid consolidation late Thursday evening. This left the market extended heading into Friday morning, but solid data helped provided an additional boost in premarket trade.

According to the Commerce Department, September's retail sales jumped 1.1% to top expectations. The pace was the fastest in seven months. August growth was also upwardly revised to 0.3%. U.S. import prices were also on the rise with an unexpected 0.2% increase in September. This was primarily a result of increased fuel and food costs.

Dow Jones Industrial Average (Figure 1)

From a technical standpoint, I expected a strong possibility that we would see the indices hit highs early in the session on Friday as a result of the premarket exhaustion. This first reversal pattern of the day actually took place shortly after the open. The momentum of the premarket buying had shifted heading into the open, creating a momentum reversal around 9:50 a.m. ET. The 9:55 a.m. ET Reuters/University of Michigan consumer sentiment index helped. Economists had anticipated an increase in consumer confidence from September's reading of 59.4. Instead, it fell to 57.5. The indices reacted negatively to the news and the market continued lower throughout the morning before striking support mid-day from premarket congestion.

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