Market Snapshot for December 17, 2011 (9:52 a.m. ET):
- Closing Prices: DOW 11,866.39 (-2.42, -0.02%), S&P 500 1,219.66 (+3.91, +0.32%), NASDAQ 2,555.33 (+14.32, +0.56%), Nikkei 225 8,401.72 (+24.35, +0.29%), DAX 5,701.78 (-28.84, -0.5%), FTSE 5,387.34 (-13.51, -0.25%)
- OIL 93.53, GOLD 1,597.90, SILVER 29.671
- EURO 1.3042, YEN 77.78, BRITISH POUND 1.5542, U.S. DOLLAR INDEX 80.84
Weekly Resistance Proves Difficult to Overcome
The market has been struggling over the past couple of weeks. The late-November/early-December recovery struck strong daily, as well as weekly resistance just over two weeks ago. This level corresponded to the early-November congestion zone and highs. It was also the 200-day moving average level in the S&P 500. The pace of the buying slowed as this zone hit, thus shifting the underlying intraday momentum. This shift in momentum resulted in a breakdown that began on December 8th coming out of the slower uptrend channel. Even though the market recovered modestly ahead of that weekend, the selling resumed early Monday morning on the 11th.
We continued to see modest recoveries on the 15 minute time frame throughout the past week, but each attempt was punctuated by a faster decline that quickly eroded those efforts. This past Friday was no exception. A slowdown in the selling pace afterhours on Wednesday evening was followed by a rapid move out of the Momentum Reversal buy setup into Thursday, but the momentum of the upside shifted once again into Friday's session, resulting in the closure of the morning gap mid-day after a rapid morning reversal (selloff). Shares remained weak into the closing bell with the broad market lower by about 3% for the week.
Dow Jones Industrial Average (Figure 1)
Friday's Index Wrap-up
The Dow Jones Industrial Average ($DJI) ended the day on Friday with a loss of 2.42 points, or 0.02%, and closed at 11,866.39. The top performers were Home Depot (HD) (+2.54%), Microsoft (MSFT) (+1.72%), General Electric (GE) (+1.31%), and Chevron (CVX) (+1.19%). The weakest were IBM (IBM) (-2.09%), United Technologies (UTX) (-1.55%), and Hewlett-Packard (HPQ) (-1.22%). The week ended lower by 2.61%, but remains higher by 2.5% for the year-to-date.
The S&P 500 ($SPX) finished the session with a gain of 3.91 points, or 0.32%, and closed at 1,219.66. The strongest individual percentage performers in the index were Adobe Sys. (ADBE) (+6.58%), Cameron International Corp. (CAM) (+6.00%), Masco Corp. (MAS) (+5.29%), and Discover Financial Services (DFS) (+5.03%). The weakest were Cablevision Sys. (CVC) (-8.47%), Sears Holdings Corp. (SHLD) (-8.36%), and Accenture Plc. (ACN) (-3.53%). The index ended the week lower by 2.83% and is now off 3.02% year-to-date.
The Nasdaq Composite ($COMPX) ended the session higher by 14.32 points, or 0.56%, on Friday and it closed at 2,555.33. The top index components in the Nasdaq-100 ($NDX) were Vertex Pharmaceuticals (VRTX) (+7.89%), Adobe Systems (ADBE) (+6.58%), and Alexion Pharmaceuticals (ALXN) (+4.24%). The weakest were Research In Motion (RIMM) (-11.17%), Sears Holdings Corp. (SHLD) (-8.36%), and Gilead Sciences (GILD) (-3.46%). Research In Motion (RIMM) beat earnings expectations for its fiscal third-quarter, but offered a disappointing outlook and announced that its next generation of BlackBerries won't be available for nearly a year. The Nasdaq Composite ($COMPX) is of 3.68% year-to-date after a weekly loss of 3.46%.
S&P 500 (Figure 2)
We've been following the daily and weekly resistance zone in the market for awhile now. Since first hitting back in mid-October, the indices have fallen into a period of congestion on the monthly time frame. Because the selloff in November held the upper 2/3 of the previous rally and the recovery returned to the zone of prior highs in December, the congestion thus far has remained outwardly bullish. Nevertheless, there is plenty of room for concern.
If this pattern had taken place following a long period of selling, it would be developing a Phoenix buy setup on the weekly time frame, but the pattern is instead forming after a two-year rally came to an end after hitting monthly price resistance back in February. This led to a rapid selloff into August which shifted the larger momentum of the market. October's recovery from that selloff was not enough to shift that larger momentum once again, however, and the inability of European leaders to make progress in stabilizing the region's economy keeps concerns for the impact on the global economy elevated.
Last week Fitch Ratings downgraded six European countries. Additionally, on Friday U.S. federal leaders pointed out that continued downside in the European region would likely impact the demand for U.S. jobs, further weakening our own recovery attempts. Even China has been starting to feel the heat in recent months.
Nasdaq Composite (Figure 3)
U.S. Dollar, Gold, and Silver
While things remain sketchy in Europe, the U.S. dollar has been a beneficiary. The U.S. Dollar Index ($DXY) hit traded at its highest level since January this past week. It does have strong weekly resistance hitting here, however, so I'm leary of new positions at this point, but the longer-term monthly outlook remains bullish. It hit strong equal move support on the monthly time frame this spring when comparing the 2009 selloff to the mid-2010 to mid-2011 one, but the pattern leading into the mid-year reversal this year typically continues to hold support for much longer than we have seen so far, making strong selling into next year unlikely. Ideally, however, we would not have seen slightly higher highs this month compared to October's highs before it pulled back again on the daily time frame. This creates a bull trap that can increase bullish risk. Stock traders can follow the U.S. Dollar Index using ticker symbol UUP.
While capital has been flowing back into the dollar, we've seen gold and silver retreat. The weekly Avalanche sell pattern we've been following over the past several months in gold triggered early this past week week after finally shaking free of the 100 day moving average zone that has served as support since September. We should see the momentum off that selloff slow this week, but the next main level of support is from the congestion zone back in May and June. This leaves the door open for more weakness before the end of the year.
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.