Stock indexes rally on EU hope


Market Snapshot for October 26, 2011 (5:15 p.m. ET):

Closing Prices:

DOW 11,869.04 (+162.42, +1.39%)
S&P 500 1,242.00 (+12.95, +1.05%)
NASDAQ 2,650.67 (+12.25, +0.46%)
Nikkei 225 8,748.47 (-, -)
DAX 6,016.07 (-30.68, -0.51%)
FTSE 5,553.24 (+27.70, +0.5%)
OIL 90.97, GOLD 1,723.50, SILVER 33.45
EURO 1.3894, YEN 76.16, BRITISH POUND 1.5968, U.S. DOLLAR INDEX 76.475

EU Fails to Deliver Positive News on Wednesday, but Thursday Brings Hope

Despite being in the middle of earnings season, the European Union has taken center stage this week. Wednesday's highly anticipated meeting of the region's leaders failed to deliver a comprehensive plan to solve the EU's financial crisis, which led to another round of strong selling throughout morning trade despite a strong gap higher in anticipation of positive news. This gap came on the heels of the Phoenix pattern we were following in premarket trade, which did offer up buying ahead of the opening bell.

A lot of the intraday action was news driven and more so on rumor than fact. After three waves of selling out of the open, the indices finally found support in the late morning heading into 11:00 a.m. ET. This trend exhaustion corresponded to price support with the closure of the Dow Jones Ind. Average's ($DJI) opening gap.

Dow Jones Industrial Average (Figure 1)

Mid-day action on Wednesday was full of hesitation. The market pulled off morning lows, but failed to deliver a strong reversal pattern and the pace of the late morning recovery was more gradual than earlier selling, which left the door open for a continuation of that selling into the afternoon. The first attempt to do so came at noon. This was a little early given the extent of the morning decline to offer an strong break to new lows on the day, but it did bring two waves of selling on the 5 minute time frame into 13:00 ET.

By 13:30 ET news was once again starting to have an impact. The wires began reporting progress in European talks and the market jumped back to opening price levels and held into the closing bell, although trade was choppy throughout the final two hours of trade. Congestion following the close eventually led to further buying on a 5 minute two-wave continuation pattern that began at approximately 21:30 ET. Further news out of European shored up the breakout and the index futures continued to climb overnight with the financials set to open with the strongest gains.

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