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 ($DJI) due to greater strength heading into the morning's announcement, but the early-morning breakout from congestion came too early compared to the extent of Tuesday's rally to be sustainable.
By the time the opening bell rang, the market had already started rolling over and had wiped out nearly all of the early gains. The weaker Nasdaq opened in the red. Selling persisted throughout the morning until hitting multiple support levels mid-day. The support ranged from prior lows in the Nasdaq, prior highs in the Dow, 15 minute 20 sma support in the Dow and similar levels in the S&P 500. The retracement was also a 50% retracement back to Monday's lows in the S&P 500.
Dow Jones Industrial Average (Figure 1)
As the selling entered mid-day, the pace began to shift. The 5 minute 20 sma was resistance throughout morning trade, but after 11:30 a.m. ET the indices were sliding lower at a similar pace as the moving average. By hugging the moving average in this manner, the market was able to shift its momentum bias and begin to favor an afternoon recovery. The mid-day low was also the third low intraday, creating trend exhaustion. The market turned higher out of the 12:30 ET correction period and continued higher into the close where it struck resistance once again on the 5 and 15 minute time frames.
This resistance came in several forms:
- 5 minute 200 sma and 15 minute 200 sma resistance in the Nasdaq, as well as a 38% fibonacci retracement of the earlier selloff;
- opening highs in the Dow with a 50% retracement to highs, and afterhours congestion on Tuesday;
- and opening highs, afterhours congestion on Tuesday, and a 62% fibonacci retracement in the S&P 500 futures were just a few of the resistance levels that held at the close.
S&P 500 (Figure 2)
Wednesday's Index Wrap-up
The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a gain of 4.16 points, or 0.03%, and closed at 12,107.74.Two-thirds of the Dow's thirty index components ended the session in the black. The strongest were General Electric (GE) (+2.37%), Coca-Cola (KO) (+1.71%), and Chevron (CVX) (+1.70%). The weakest were IBM (-3.08%), Cisco Systems (CSCO) (-2.66%), and Hewlett-Packard (HPQ) (-1.81%).
The S&P 500 ($SPX) finished the session with a gain of 2.42 points, or 0.19%, and closed at 1,243.72. The strongest individual percentage performers in the index were Cintas Corp. (CTAS) (+9.30%), Yahoo (YHOO) (+5.82%), and Tenet Healthcare (THC) (+4.50%). The weakest were Oracle (ORCL) (-11.66%), Citrix Systems (CTXS) (-7.76%), and F5 Networks Inc. (FFIV) (-6.64%). Oracle's losses followed weaker-than-anticipated quarterly earnings and was responsible for a very large portion of the Nasdaq's overall decline.
The Nasdaq Composite ($COMPX) ended the session lower by 25.76 points, or 0.99%, on Wednesday and it closed at 2,577.97. The top index components in the Nasdaq-100 ($NDX) were Research In Motion (RIMM) (+10.06%), Yahoo (YHOO) (+5.82%), and Warner Chilcott (WCRX) (+3.51%). The weakest were Oracle (ORCL) (-11.66%), Citrix Systems (CTXS) (-7.76%), and F5 Networks Inc. (FFIV) (-6.64%).
Nasdaq Composite (Figure 3)
Wednesday's existing-home sales data had little impact on intraday price action. Sales in November were up 4% compared to the prior month, making it the third straight monthly increase. It was still short of expectations, however, and a revised report on overall sales from 2007 to 2010 put the numbers lower by 14% compared to previously released data.
As we head into Thursday morning, the market is once again forming a period of congestion that began with Wednesday's closing bell. This will be the third straight session whereby we have seen such activity. The typical breakout from such a range in to the upside. This is what we experienced on both Tuesday and Wednesday. It will face steep resistance, however, on the 15 minute time frame this time around and patterns have a tendency to not perform as well on the third setup when the same pattern repeats a third time. This will make it likely that the trading range we had expected to hold yesterday will continue to do so on Thursday as well.
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.