WEDNESDAY'S MARKET WRAP-UP
Market Snapshot for October 26, 2011 (5:15 p.m. ET):
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.
Wednesday and Thursday's Economic Reports
Wednesday's economic data took a back seat to Europe, but the news was somewhat positive. According to the Commerce Department, durable goods orders showed the largest increase in six months in September. Orders excluding transportation rose 1.7% for the month after a 0.4% slide in August. This was stronger-than-expected. Meanwhile, new home sales were also on the rise, once again after four months of downside. Mortgage applications also rose. The problem, however, was that new home prices fell and builders cut their prices, so the "positive" data does little to assist with a recovery in the housing market.
Early Thursday morning's GDP report showed a growth of 2.5% annually for the third quarter, according to the Commerce Department's first quarterly estimate. The rate stood at 1.3% in the last quarter. Jobless claims last week fell 2,000 to 402,000, which was slightly less than the 400,000 anticipated. Pending home sales numbers are due out at 10:00 a.m. ET.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a gain of 162.42 points, or 1.39%, and closed at 11,869.04. Out of the Dow's thirty index components, twenty-seven posted a gain. The top percentage performers were Boeing (4.46%), Hewlett-Packard (HPQ) (2.79%), and DuPont (DD) (+2.58%). The session's decliners were Microsoft (MSFT) (-0.82%), Cisco Systems (CSCO) (-0.06%), and 3M (MMM) (-0.03%).
The S&P 500 ($SPX) finished the session with a gain of 12.95 points, or 1.05%, and closed at 1,242.00. None of the index's industry groups managed to end the session with a gain. Top percentage performers in the index were Valero Energy Corp. (VLO) (+15.16%), F5 Networks (FFIV) (+14.08%), Express Scripts SRX) (+13.49%), and Medco Health Solutions (MHS) (+11.06%). Devry Inc. (DV) (-16.75%), Amazon.com (AMZN) (-12.66%), and Bemis Inc. (BMS) (-11.05%).
The Nasdaq Composite ($COMPX) ended the session higher by 12.25 points, or 0.46%, on Wednesday and it closed at 2,650.67. The strongest performers in the Nasdaq-100 ($NDX) were F5 Networks (FFIV) (+14.08%), Express Scripts SRX) (+13.49%), and Biogen Inc. (BIIB) (+9.40%). The weakest were Amazon.com (AMZN) (-12.66%), C H Robinson Worldwide Inc. (CHRW) (-8.19%), and Research In Motion (RIMM) (-6.96%). Amazon shares were lower thanks to a weaker-than-anticipated holiday season outlook and slashed price targets from at least eight brokerages. Research In Motion also offered up disappointing news by announcing that it would not be upgrading the software for its PlayBook until February and the new upgrades will not feature the BlackBerry Messenger application.
Nasdaq Composite (Figure 3)
The index futures have been steadily pushing higher in premarket trade after European leaders finally announced a deal that would aid Greece's debt whereby those holding it would accept a 50% loss on holdings of Greek government bonds. Additionally, it outlined a plan to further shore up the private sector and intentions to strengthen the power of the EFSF fund.
As trading kicks off on Thursday morning wer should be on the look-out for exhaustion on the upside. The futures have been heading strongly higher since early Wednesday afternoon with only a brief pause afterhours. The extended gains will likely create a choppier intraday session that can make follow-through difficult on the 15 minute time frame. Earnings plays moving out of sync with the overall market will offer the best odds for stronger intraday trend moves.
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.