E-mini stock indexes struggle at resistance

Market Snapshot for October 18, 2011 (8:45 p.m. ET):

  • Closing Prices: DOW 11,577.05 (+180.05, +1.58%), S&P 500 1,225.38 (+24.52, +2.04%), NASDAQ 2,657.43 (+42.51, +1.63%), Nikkei 225 8,741.91 (-, -), DAX 5,877.41 (+17.98, +0.31%), FTSE 5,410.35 (-26.35, -0.48%)
  • OIL 88.28, GOLD 1,655.80, SILVER 32.005
  • EURO 1.3733, YEN 76.78, BRITISH POUND 1.5707, U.S. DOLLAR INDEX 77.41

Tug-of-War Continues

Although the market swung widely off Monday's lows, not a lot has changed in terms of my expectations. The Dow Jones Ind. Average ($DJI) and S&P 500 ($SPX) are both dealing with resistance levels at 100 day moving averages and 20 week moving averages. These levels put the brakes on a two-week rally and shifted the larger momentum of the rally on the 60 minute time frame. Even though the market has experienced bouts of selling, such as on Monday, this is merely within the context of the shifting momentum of the larger uptrend and has yet to signify any larger price reversal. In fact, the 200 day moving averages in these two major indices still remains a potential magnet for the bulls.

As I discussed in yesterday's column, right now the price action in the market is highly news-driven and wavers strongly from one day to the next, depending on the most recent headlines. In Tuesday's session this meant a strong reversal from Monday's bearish bias. The headlines that kicked off the week were mired in skepticism over the euro-zone's ability to pull itself out of its own economic crisis, but sentiment swung strongly on Tuesday following a report by The Guardian that suggested a solution that would boost the zone's bailout fund. The news led investors to overlook a possible downgrade of France's AAA rating by Moody's and a slowdown in China's growth in the third quarter.

Dow Jones Industrial Average (Figure 1)

Earnings Spotlight

Earnings season is also now in full swing and carrying its own weight on day-to-day market action. Nearly half of the Dow's thirty index components report this week, including American Express (AXP), eBay (EBAY), and General Electric (GE). 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%.

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