TUESDAY'S MARKET WRAP-UP
Market Snapshot for December 6, 2011 (8:55 a.m. ET):
Closing Prices: DOW 12,150.13 (+52.30, +0.43%), S&P 500 1,258.47 (+1.39, +0.11%), NASDAQ 2,649.56 (-6.20, -0.23%), Nikkei 225 8,648.70 (+73.54, +0.86%), DAX 6,028.82 (-77.27, -1.27%), FTSE 5,568.72 (+0.76, +0.01%)
OIL 101.34, GOLD 1,733.30, SILVER 32.64
EURO 1.3413, YEN 77.71, BRITISH POUND 1.5604, U.S. DOLLAR INDEX 78.565
Tuesday was a rather slow day for the market. Volume was on the light side as the indices continue to struggle with price resistance on the daily time frame. The market saw a recovery from Monday's selloff, but the intraday action favored daytrades on the five-minute time frame as anticipated. Tuesday's session began with the markets continuing to push higher after reversing course once the European exchanges opened. This reversal kicked off with a Phoenix buy setup on the 15-minute time frame out of 3:00 a.m. ET, as shown on the ES chart in Figure 2.
In yesterday's column we looked not only at this all-sessions price action, but the intraday moves as well, to help predict early-morning action. Both the S&P 500 and Dow Jones Ind. Averages formed two waves of buying intraday after reversing in the final hour of trade on Monday. The first wave of the upside reversal continued into Tuesday's opening bell, was followed by a pullback into the 9:45 a.m. ET correction period, and then continued with a second wave of buying into the 10:45 ET correction period. This was price resistance at prior five minute highs and helped put the market once again into corrective mode intraday.
Dow Jones Industrial Average (Figure 1)
Tuesday's session was once again dominated by headlines out of Europe. The session began with further warnings from Standard & Poor's that suggested that it was considering placing the European Financial Stability Facility (EFSF) on negative watch. This came just a day after it warned that the remaining 15 nations in the Eurozone that have not already had their ratings cut were on the verge of seeing it come to pass. Portugal and Greece have already seen their credit ratings reduced to junk status.
And now there is talk that EU's financial leaders are considering to allow the region's current bailout fund to continue to run even though a new one will be added to the mix in 2012, known as the European Stability Mechanism. EU leaders will be meeting this week and the financial crisis facing the region will take precedence. French and German leaders will be pushing for reforms in the EU treaty that would place tighter demands on the economic security of member nations.
The fact that the news supports a rally one day and can lead to sharp losses the next makes this a tougher environment for swingtraders at the moment. One way to reduce risk is to stick to securities that move independently of the overall market or to enter using daytrade tactics with the possibility of holding partials longer if conditions remain favorable. Due to the narrower stops on intraday setups, traders can take greater position size without greater risk. This can be cut back ahead of the close to protect some of the gains and allow a wider swingtrade stop on the rest.
S&P 500 (Figure 2)
Tuesday's Index Wrap-up
The Dow Jones Industrial Average ($DJI) ended the day on Tuesday with a gain of 52.30 points, or 0.43%, and closed at 12,150.13.The top performers were General Electric (GE) (+2.39%), Pfizer (PFE) (+1.97%), Chevron (CVX) (+1.50%), and 3M (MMM) (+1.48%). The weakest were Caterpillar (CAT) (-0.92%) and JP Morgan (JPM) (-0.84%).
The S&P 500 ($SPX) finished the session with a gain of 1.39 points, or 0.11%, and closed at 1,258.47. The strongest sectors on Tuesday were materials and health care, while the strongest individual percentage performers in the index were MetroPCS (PCS) (+7.78%), Federated Invs. Inc. (FII) (+4.69%), and CF Inds. Holdings (CF) (+4.28%). The weakest was Darden Restaurants (DRI) (-12.38%), which fell sharply after it cut its fiscal 2012 earnings and sales forecast. Darden is the parent company of Olive Garden. Other top decliners included Suntrust (STI), Tesoro (TSO) (-6.12%).
The Nasdaq Composite ($COMPX) ended the session lower by 6.20 points, or 0.23%, on Tuesday and it closed at 2,649.56. The top index components in the Nasdaq-100 ($NDX) were Marvell Technology Group (MRVL) (+2.32%), Autodesk (ADSK) (+2.02%), and Electronic Arts (ERTS) (+1.85%). The weakest were First Solar (FSLR) (-3.43%) and Wynn Resorts (WYNN) (-3.27%).
Nasdaq Composite (Figure 3)
The market is trading in a narrow 60-minute trading range at resistance on the daily time frame and that zone is going to continue to be resistance throughout this week. The Nasdaq has the most room before absolute highs from November hit, but the S&P 500 and Dow are already striking them. This will put pressure upon the bulls. Slightly higher highs, such as those see on the Nasdaq last month, are also a concern for the bulls. These create bull trap patterns that can lead to rapid reversals intraday and make it difficult to push higher by a noteworthy degree.
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.