WEDNESDAY'S MARKET WRAP-UP
Market Snapshot for January 18, 2011 (6:23 p.m. ET):
Closing Prices: DOW 12,578.95 (+96.88, +0.78%), S&P 500 1,308.04 (+14.37, +1.11%), NASDAQ 2,769.71 (+41.63, +1.53%), Nikkei 225 8,550.58 (-, -%), DAX 6,354.57 (+21.64, +0.34%), FTSE 5,702.37 (+8.42, +0.15%)
OIL 101.52, GOLD 1,661.60, SILVER 30.52
EURO 1.2864, YEN 76.81, BRITISH POUND 1.5434, U.S. DOLLAR INDEX 80.82
Price Levels to Watch
As the market has crept higher over the past month, it's been teasing the bulls and bears alike. Although not quite on the scale of the late-October overlap, narrower trading days have seen a great deal of price retracement from one session to the next since late-December. This becomes risky for the bulls because a breakdown in the trading channel tends to lead to very rapid corrections, such as the one experienced in November.
The market threatened such a rapid correction twice over the course of the past week. The first threat took place Friday and into Monday morning. A rapid breakdown on Friday needed only a gradual correction to offer a strong setup for a daily breakdown into the new trading week. The market, however, held on. Instead of offering a second high and a trigger in futures trading on Monday, the index futures pushed higher into Tuesday morning, negating the first attempt.
A second attempt took place on Tuesday and into Wednesday morning. Once again, the indices fell quickly off highs and began to congest at the lower end of the trading range. Once again, however, that lower channel held and the market pulled higher throughout most of Wednesday's session.
Dow Jones Industrial Average (Figure 1)
Last week I looked at two scenarios as to how the daily channel could play out. The weekly charts had still left room on the upside for a break to last year's highs, but momentum was shifting compared to December, which indicated a correction. As we saw, that correction offered no further setup on the 15 minute charts for a further correction in price versus the correction it was forming over time. On Wednesday, however, the upper channel level did break in the Nasdaq, offering confirmation on our second scenario by which the market would treat the correction of the prior couple of weeks as more of a trading range and then attempt a break that would be comparable to the mid-December rally.
This breakout will have resistance when the move higher this week equals the move higher between the 19th and 27th of December and runs into last year's highs. The Dow Jones Ind. Average ($DJI) is testing last year's highs in premarket trade, but the S&P 500 ($SPX) still has room. It also needs more confirmation for the channel break though. It is testing the upper channel of the past several weeks once again ahead of Thursday's opening bell. This will up pressure on the bulls intraday into the open, but isn't enough to negate the daily breakout.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a gain of 96.88 points, or 0.78%, and closed at 12,578.95. Twenty-seven of the Dow's thirty index components posted a gain. The strongest performers were Bank of America (BAC) (+4.94%), JP Morgan (JPM) (+4.67%), and Alcoa (AA) (+2.66%). The losers were Boeing (BA) (-0.24%), Microsoft (MSFT) (-0.11%), and Verizon (VZ) (-0.03%).
The S&P 500 ($SPX) finished the session with a gain of 14.37 points, or 1.11%, and closed at 1,308.04. The top performing industry groups were the financials (+1.7%), technology (+1.6%), and consumer discretionary (+1.6%). None of the index's industry groups posted a loss. The top individual percentage performers were Linear Technology (LLTC) (+11.55%), Amphenol Corp. (APH) (+10.96%), Altera Corp. (ALTR) (+9.88%), and Texas Instruments (TXN) (+8.56%). The top decliners were Sunoco Inc. (SUN) (-12.38%), State Street Corp. (STT) (-6.55%), Apollo Group (APOL) (-6.36%).
The Nasdaq Composite ($COMPX) ended the session higher by 41.63 points, or 1.53%, on Wednesday and it closed at 2,769.71. The strongest performers in the Nasdaq-100 ($NDX) were Linear Technology (LLTC) (+11.55%), Altera Corp. (ALTR) (+9.88%), and First Solar (FSLR) (+7.48%). The weakest were Apollo Group (APOL) (-6.36%), DirecTV (DTV) (-3.03%), and Fastenal (FAST) (-2.69%).
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.