Stock market faces resistance to recovery

Market Snapshot for December 21, 2011 (9:19 p.m. ET):

  • Closing Prices: DOW 12,107.74 (+4.16, +0.03%), S&P 500 1,243.72 (+2.42, +0.19%), NASDAQ 2,577.97 (-25.76, -0.99%), Nikkei 225 8,419.63 (-40.35, -0.48%), DAX 5,791.53 (-55.50, -0.95%), FTSE 5,389.74 (-29.86, -0.55%)
  • OIL 99.02, GOLD 1,615.20, SILVER 29.29
  • EURO 1.3042, YEN 78.05, BRITISH POUND 1.5663, U.S. DOLLAR INDEX 80.305

ECB's Unexpected Boost Fails to Sustain Buyers

Trade was higher heading into Wednesday morning. Part of the impetus for the move came from Europe and the European Central Bank's unexpected increase in its 3-year loan program aimed at supporting lending and liquidity throughout 523 banks in the eurozone. The news exhausted the uptrend that had been in play since Tuesday's close, leaving the indices struggling once again heading into the early-morning hours on Wednesday.

The market initially turned over at about 5:30 a.m. ET once the spike from the news began to wane. This had created a slightly higher high in the Nasdaq ($COMPX) futures when compared to Tuesday, creating a 2B reversal pattern. This bull trap was not repeated in the S&P 500 ($SPX) and Dow ($DJI) due to greater strength heading into the morning's announcement, but the early-morning breakout from congestion came too early compared to the extent of Tuesday's rally to be sustainable.

By the time the opening bell rang, the market had already started rolling over and had wiped out nearly all of the early gains. The weaker Nasdaq opened in the red. Selling persisted throughout the morning until hitting multiple support levels mid-day. The support ranged from prior lows in the Nasdaq, prior highs in the Dow, 15 minute 20 sma support in the Dow and similar levels in the S&P 500. The retracement was also a 50% retracement back to Monday's lows in the S&P 500.

Dow Jones Industrial Average (Figure 1)

As the selling entered mid-day, the pace began to shift. The 5 minute 20 sma was resistance throughout morning trade, but after 11:30 a.m. ET the indices were sliding lower at a similar pace as the moving average. By hugging the moving average in this manner, the market was able to shift its momentum bias and begin to favor an afternoon recovery. The mid-day low was also the third low intraday, creating trend exhaustion. The market turned higher out of the 12:30 ET correction period and continued higher into the close where it struck resistance once again on the 5 and 15 minute time frames.

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