Market Snapshot for October 17, 2011 (8:45 p.m. ET):
- Closing Prices: DOW 11,397.00 (-247.49, -2.13%), S&P 500 1,200.86 (-23.73, -1.94%), NASDAQ 2,614.92 (-52.93, -1.98%), Nikkei 225 8,752.86 (-126.74, -1,43), DAX 5,859.43 (-107.77, -1.81%), FTSE 5,436.70 (-29.66, -0.54%)
- OIL 86.33, GOLD 1,674.30, SILVER 31.86
- EURO 1.3769, YEN 76.80, BRITISH POUND 1.5777, U.S. DOLLAR INDEX 77.345
Daily and Monthly Resistance Levels Put a Stop to Recovery Efforts
The market experienced its strongest day of selling on Monday since hitting new yearly lows on October 4th. The session was ripe for profit-taking with the market up 6% in the last week alone and both the S&P 500 ($SPX) and Dow Jones Ind. Average ($DJI) striking 100 day and 20 week moving average resistance levels. The stronger Nasdaq has also been flirting with larger-scale resistance at the year's highs. The reversal we were looking for off this resistance level heading into early Monday morning finally kicked off shortly after 5:00 a.m. ET after the pace of the buying in the index futures slowed to form a 5 minute Momentum Reversal between 2:30 and 5:15 a.m. ET.
The premarket selling gained strength immediately out of the Momentum Reversal pattern and the futures only paused briefly around 6:00 a.m. ET at earlier premarket lows before continuing to sell off sharply ahead of the opening bell. The move rapidly eroded Sunday evening's gains, as well as those from Friday after the 16:00 ET closing bell, and left the market in negative territory before Monday morning's opening bell even rang. Although somewhat more erratic, the premarket downtrend continued throughout Monday's session and past the closing bell. It was the most decisive downtrend day we've seen since September 30th with momentum that even outpaced that day's trend move.
Dow Jones Industrial Average (Figure 1)
New York Manufacturers See Grim Future
Monday's economic data did little to improve the mood. The Empire State (New York) manufacturing index indicated further contraction in the state for the fifth straight month in October. The reading on new orders, however, was up slightly to 0.16 from -8.0 last month. This is the highest level new orders have been at since spring, but the state's manufacturing plants indicated a worsening outlook in business conditions over the next six months to a level not seen since early 2009.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Monday with a loss of 247.49 points, or 2.13%, and closed at 11,397.00. All thirty of the Dow's index components posted a loss. The top performers were AT&T (T) (-0.51%), Exxon Mobil (XOM) (-0.82%), and Intel (INTC) (-0.94%). The weakest were Alcoa (AA) (-6.63%), Hewlett Packard (HPQ) (-4.79%), 3M (MMM) (-3.82%).
The S&P 500 ($SPX) finished the session with a loss of 23.72 points, or 1.94%, and closed at 1,200.86. Only thirty-four issues ended the session in the black. The top individual percentage performer in the index was El Paso Corp. (EP) (+24.81%) on news that Kinder Morgan intends to purchase the company for $20.7 billion. It's gains were followed by Anadarko Pete. Corp. (APC) (+5.48%), and Walgreen (WAG) (+2.70%). The weakest were Pulte Group (PHM) (-9.48%), Gannett Inc. (GCI) (-8.68%), Wells Fargo (WFC) (-8.44%), and Halliburton (HAL) (-7.88%). Wells Fargo (WFC), the fourth-largest U.S. bank, surprised investors by missing earnings estimates by a penny a share. Halliburton's (HAL) losses came even after the company posted better-than-expected earnings. In recent years the company has seen tremendous growth in demand for natural gas from U.S. shale rock, which has also been surrounded by a great deal of controversy due to the levels of methane emitted by the gas, as well as the chemicals used in the fracturing process to release the gas.
The Nasdaq Composite ($COMPX) ended the session lower by 52.93 points, or 1.98%, on Monday and it closed at 2,614.92. The strongest performers in the Nasdaq-100 ($NDX) were Sears Holdings (SHLD) (+1.41%), Netflix (NFLX) (+1.11%), and Costco (COST) (+0.72%). The weakest performer was Green Mountain Coffee (GMCR) (-10.41%) after fund manager David Einhorn expressed a negative bias for the stock, which had more than tripled this year by the time it hit last month's highs. Other top decliners included Vertex Pharmaceuticals (VRTX) (-7.37%), Research In Motion (RIMM) (-6.55%), and Cerner Corp. (CERN) (-5.92%).
Nasdaq Composite (Figure 3)
European Debt Crisis and Quarterly Earnings Vie for Influence
Although the jobs situation at home has been a focus in recent weeks with eyes on Obama's jobs plan, eyes have returned to the European debt crisis and towards third quarter earnings after Obama's bill hit a major roadblock in the Senate early last week. European leaders are struggling to reach an agreement of their own on how to handle their own economic turmoil and headlines have wavered from positive to negative on nearly a daily basis.
While the market struggles with major resistance on daily and weekly time frames, earnings have now also entered the mix. Nearly half of the Dow's thirty index components report this week, including Intel (INTC), McDonalds (MCD), and General Electric. Among S&P 500 companies (96 of whom report this week), earnings are expected to have risen 23% in Q3 (according to Thomson Reuters). Meanwhile, revenues are expected to have increased 10%.
All of these variables mixed together with the resistance on the heels of two weeks of strong upside are a recipe for a choppy market as the indices sway from one day to the next based upon the latest news to hit the wires. A wider momentum shift with the indices creeping higher over the next week or two remains quite possible, but resistance levels and a larger shift in the upside momentum on the 60 minute charts is beginning to favor the bears in many individual securities.
Potential magnets to pull the market higher are the 200 day moving averages which loom just overhead in the S&P 500 and Dow, while prior highs are near at hand in the Nasdaq. The pace of Monday's selloff, however, leaves this possibility up in the air. In order for more buying to materialize to pull the market into these next levels of resistance, the indices need a rather strong reaction off the price support zone that is hitting on the intraday time frames in the index futures heading into midnight. This support includes prior lows and 10 day moving averages.
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.