WEDNESDAY'S MARKET WRAP-UP
Market Snapshot for November 2, 2011 (5:36 a.m. ET):
Closing Prices: DOW 11,836.04 (+178.08, +1.53%), S&P 500 1,237.90 (+19.62, +1.61%), NASDAQ 2,639.98 (+33.02, +1.27%), Nikkei 225 8,640.42 (-195.10, -2.21), DAX 5,965.63 (+131.12, +2.25%), FTSE 5,484.10 (+62.53, +1.15%)
OIL 92.51, GOLD 1,729.60, SILVER 34.27
EURO 1.3746, YEN 78.06, BRITISH POUND 1.5949, U.S. DOLLAR INDEX 77.18
Market Reacts Little to FOMC Policy Statement
Wednesday was a "Fed Day," but you wouldn't know it by merely looking at the charts. Despite the strong post-announcement moves of the last meeting, this time around the market reacted to the Fed's latest policy statement as if it were a non-event. Unsurprisingly, the FOMC kept its target interest rate at 0.00-0.25%. Unlike last time, however, there were no surprise statements to accompany this news. Fed chairman Ben Bernanke reaffirmed the Fed's commitment to do everything within its power to help the struggling economy and that it was willing to take "further action" if necessary.
The market did pull higher in the morning, which is typical of Fed-day action, but Wednesday's session was a particularly difficult one for index traders. The morning's price action was fairly smooth on the five-minute time frame. The opening gap filled to some extent before finding support around 10:00 a.m. ET and turning around to new highs by 11:00 a.m. ET, but after that point things became quite sloppy. A momentum reversal took place as the morning wound down and prices began to slip. They also became more volatile. Stronger overlap from bar to bar on the five-minute time frame spoke to underlying uncertainty and made market timing more difficult. Interestingly, volume did not drop off substantially compared to the rest of the morning despite the looming Fed decision.
Dow Jones Industrial Average (Figure 1)
The market turned around in the afternoon following the 14:15 ET announcement, but trade remained choppy with a greater degree of price overlap. Congestion along the five-minute 20-period moving averages created a buy setup at 14:30 ET which continued for the next hour before correcting off the upper end of the 15-minute trading channel into the close. This correction continued afterhours and took the index futures back to the lower end of the channel by midnight.
Market Rallies Following Europe's Lead
Trading turned around once again early Thursday morning. The European Central Bank cut its interest rates by a quarter of a percentage point, making it the first rate cut by the bank in two years. Europe will continue to grab the headlines today as leaders meet for the G20 meeting in Cannes. Greece's debt problems will be one of the focus topics for the event. The index futures are up substantially higher in premarket trade and the indices have managed to hang onto daily support at the 20-day moving averages despite the weak bias of the past several days. The market should continue to hold this support throughout Thursday's session, but the upside pace will not be sustainable. This can easily lead to another choppy session without strong trend action.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a gain of 178.04 points, or 1.53%, and closed at 11,836.04. The strongest gains for the day came in the financials, which made a strong recovery after a dismal day of trade on Tuesday. The top performers were Bank of America (BAC) (+5.00%), Alcoa (AA) (+3.18%), JP Morgan (JPM) (+2.84%), and American Express (AXP) (+2.71%). The only Dow component to post a loss was Intel (INTC) (-0.21%).
The S&P 500 ($SPX) finished the session with a gain of 19.62 points, or 1.61%, and closed at 1,237.90. Top performing industry groups were energy (+2.9%), financials (+2.8%), and materials (+2.2%). The strongest individual percentage performers were Pioneer Nat. Res. (PXD) (+12.58%), MetroPCS Communications (PCS) (+11.88%), EOG Res. (EOG) (+11.83%), and Quanta Svcs (PWR) (+11.64%). The weakest were Becton Dickinson & Co. (BDX) (-4.61%), Pitney Bowes (PBI) (-3.60%), and Molson Coors Brewing Co. (TAP) (-3.30%).
The Nasdaq Composite ($COMPX) ended the session higher by 33.02 points, or 1.27%, on Wednesday and it closed at 2,639.98. The top index components in the Nasdaq-100 ($NDX) were NII Holding (NIHD) (+4.58%), Electronic Arts (ERTS) (+4.54%), and Garmin (GRMN) (+4.45%). The weakest were Sirius XM Radio (SIRI) (-2.89%), Qiagen (QGEN) (-2.70%), and Vertex Pharmaceuticals (VRTX) (-2.33%).
Nasdaq Composite (Figure 3)
In economic news, weekly jobless claims fell below 400,000 with a drop of 9,000 to a seasonally adjusted 398,000 on first-time filings for unemployment. This was slightly more than anticipated. Later today, the Insitute for Supply Management will release its October non-manufacturing index. It it expected to come in at 53.5. September's reading was 53.0. The Commerce Department will also release its factory orders for September, which are expected to have fallen 0.1%. The major economic news coming out of the States this week, however, will be Friday's employment data, which will include nonfarm payrolls and the latest unemployment rate for October.
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.