THURSDAY'S MARKET WRAP-UP
Market Snapshot for January 12, 2011 (10:43 p.m. ET):
Closing Prices: DOW 12,471.02 (+21.57, +0.17%), S&P 500 1,295.50 (+3.02, +0.23%), NASDAQ 2,724.70 (+13.94, +0.51%), Nikkei 225 8,470.50 (+84.91, +1.01%), DAX 6,179.21 (+26.87, +0.44%), FTSE 5,662.42 (-8.40, -0.15%)
OIL 99.57, GOLD 1,637.50, SILVER 29.80
EURO 1.2818, YEN 76.79, BRITISH POUND 1.5335, U.S. DOLLAR INDEX 81.08
Bears Start to Show Their Stuff
The market has been difficult for swingtraders over the past several weeks, and often for daytraders as well. We did start to see better daytrade action once again on Thursday, but the market continued to hold the trading channel of the past several weeks. This has been marked by swings from highs to lows without a strong breakout bias. That, however, is starting to change.
We've been following the market with two possible scenarios: One was the Momentum Reversal (TM) short on the daily charts. The other was a break in the channel on the upside to offer up another leg of buying similar to early December. For that to happen, however, we would have needed to have seen a strong hold on the upper end of the channel over the past day or so. That did not happen. The market has put in a stronger test of daily resistance with yet another slightly higher high and the continuation of overlap in price from one day to the next gave way to strong selling both Thursday and Friday morning.
Dow Jones Industrial Average (Figure 1)
As this momentum continues to shift on the 15 minute time frames, it solidifies the bear's influence. I've marked the momentum shift on the daily charts to clarify. Even though the market recovered from Thursday morning's rapid decline, the recovery was more gradual than the selloff, making it almost impossible to break Thursday's premarket highs. It opened the door for another selloff, which followed a change in momentum on the 5 minute time frame afterhours and into the European open. Before long, the index futures were selling off and gaining momentum on that selloff as Friday's opening bell approaches. It is also, however, running into support once again on the smaller time frames. This support comes in the form of prior lows and the lows of the daily channel of the past several weeks (corresponding to the 10-day moving average).
The exhaustion move into the open will make it more difficult to sustain the selloff early in the regular session without slowing, but it will also limit upside as well. As we saw Thursday morning, stronger-than-average moves such as this have a more difficult time mounting recoveries of similar momentum. The exception is if the selloff is followed by slightly lower lows that shift the momentum before buying returns. Given the daily shift, however, that is unlikely to even be enough to change the outcome at this point and a pullback on the daily charts is likely with a break in the daily channel finally occurring. Nevertheless, the 5-15 minute exhaustion will make new setups unlikely on a 15 minute time frame and it will be lower risk to stick to 2-5 minute setups intraday and swingtrade shorts on the daily time frame.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Thursday with a gain of 21.57 points, or 0.17%, and closed at 12,471.02. Twenty-two of the Dow's thirty index components posted a gain. The strongest performers were Alcoa (AA) (+3.12%), Caterpillar (CAT) (+2.31%), and DuPont (DD) (+1.69%). The weakest were Chevron (CVX) (-2.60%), Bank of America (BAC) (-1.16%), and IBM (IBM) (-0.97%).
The S&P 500 ($SPX) finished the session with a gain of 3.02 points, or 0.23%, and closed at 1,295.50. The top performing industry groups were the materials (+1.5%) and industrials (+0.9%). Losses were once again the largest in energy (-0.9%).
The Nasdaq Composite ($COMPX) ended the session higher by 13.94 points, or 0.51%, on Thursday and it closed at 2,724.70.
Nasdaq Composite (Figure 3)
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.