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
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 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%.
Shares of Apple (AAPL) were down more then 7% afterhours on Tuesday following its fiscal fourth-quarter earnings. The company surprised the market by missing expectations even though the iPhone and iPad maker's earnings and revenue were up strongly from last year. Despite the disappointment, it offered a better-than-expected outlook for this quarter. Earnings excluding items rose to $7.05 a share, while revenue increased 39% to $28.3 billion.
Yahoo (YHOO) also posted earnings following Tuesday's close. Unlike Apple, its earnings fell this past quarter, but it still beat expectations. This sent shares higher afterhours. Earnings excluding items fell 21 cents a share while net revenue fell to $1.072 billion.
Intel (INTC) shares were also on the rise following its earnings. The company beat expectations for this past quarter and posted a strong forecast for the current quarter. Earnings per share excluding items was 69 cents, while revenue rose 29%.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Tuesday with a gain of 180.05 points, or 1.58%, and closed at 11,577.05. The banks led the Dow to the upside. The top performers were Bank of America (BAC) (+10.12%), JP Morgan (JPM) (+5.90%), Alcoa (AA) (+5.85%), and Chevron Corp. (CVX) (+4.40%). Only IBM (IBM) (-4.12%) and Coca-Cola (KO) (-0.39%) posted losses. IBM was lower after its earnings fell short of expectations.
The S&P 500 ($SPX) finished the session with a gain of 24.52 points, or 2.04%, and closed at 1,225.38. The top percentage performers in the index were AK Steel Holding Corp. (AKS) (+12.73%), Pulte Group (PHM) (+11.22%), DR Horton Inc. (DHI) (+11.01%), and Regions Financial Corp. (RF) (+10.69%). Shares in home builders rose following the National Association of Home Builders report that its index for builder sentiment rose from 14 to 18 in October. Thirty-two of the S&P 500's index components posted a loss on Tuesday. The weakest was Hospira Inc. (HSP) (-21.01%). It was followed by losses in Harley Davidson (HOG) (-7.04%) and Netflix (NFLX) (-4.76%).
The Nasdaq Composite ($COMPX) ended the session higher by 42.51 points, or 1.63%, on Tuesday and it closed at 2,657.43. The strongest performers in the Nasdaq-100 ($NDX) were Seagate Tech. (STX) (+7.08%), Micron Tech. (MU) (+6.26%), First Solar (FSLR) (+5.57%), and Joy Global (JOYG) (+5.47%). Ten of the index's components posted a loss. The weakest were Netflix (NFLX) (-4.76%), Ctrip (CTRP) (-3.98%), and Baidu (BIDU) (-2.39%).
Nasdaq Composite (Figure 3)
Weekly Losses Wiped Out
The market struggled initially heading into Tuesday's session, but the larger intraday support pointed out in yesterday's column held well. The index futures primarily congested overnight with only slightly lower lows. Instead of indicating underlying weakness, the slightly lower lows served as bear traps. Every time a new low hit, the market snapped back. At 10:00 a.m. ET the reversal finally held and the upper end of the trading channel that had been in place throughout premarket trade finally gave way. The pace of the buying slowed mid-day, but the report from The Guardian provided an added boost for the bulls in the final hour of trade. This wiped out the losses from the previous session.
As we head into Wednesday's session the markets are primarily favoring a trading range on the 60-minute time frame. The 200 day moving averages in the S&P 500 and Dow can still draw those indices higher, but the market will likely experience wider swings in intraday price action as debt and job crisis headlines continue to vie for a attention alongside earnings news. Swingtrades overnight at this time will be higher risk as a result.
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.