Market Snapshot for January 29, 2011 (6:00 p.m. ET), Closing Prices:
- DOW 12,660.46 (-74.17, -0.58%), S&P 500 1,316.33 (-2.10, -0.16%), NASDAQ 2,816.55 (+11.27, +0.4%), Nikkei 225 8,841.22 (-, -%), DAX 6,511.98 (-27.87, -0.43%), FTSE 5,733.45 (-61.75, -1.07%)
- OIL 99.56, GOLD 1,732.20, SILVER 33.79
- EURO 1.3213, YEN 76.69, BRITISH POUND 1.5722, U.S. DOLLAR INDEX 78.98
Market Rally Falters
January has been an interesting month for the markets. Both the S&P 500 ($SPX) and Nasdaq-100 ($NDX) have been trading above their 10-day moving averages since late December. While there haven't been any exceptionally strong single-day moves this month, the indices made steady gains since the December 19th lows on the daily time frame.
Another correction attempt began on Thursday when premarket buying gave way to a momentum reversal and a strong day of steady selling from 10:00 a.m. ET and onward. Although the market attempted to recover afterhours, the indices created short patterns Friday morning as a result of the slower comparable momentum on the upside following the European open versus Thursday's downside. This change in momentum meant that the Friday morning rally was wave two in a two-wave continuation short setup in the index futures. It confirmed by pulling lower off 6:00 a.m. ET highs, hugging the 15 minute 20-period moving average support, and then breaking that support with an Avalanche (TM) short on the 15 minute time frame soon after 8:00 a.m. ET.
Dow Jones Industrial Average (Figure 1)
Although the selling continued into Friday morning in the indices, the session was a choppy one. By this point the indices were hugging 5 minute 20 sma resistance following a stronger premarket selloff. This was similar to the momentum shift that began with the stronger selling on the 15 minute time frame off Thursday's highs.
The futures were having trouble making new lows intraday and experienced a high degree of price retracement from one bar to the next on the 15 minute time frame as the indices hugged 5 and 15 minute 20 sma resistance. This type of action tends to favor a break in the resistance, but it wasn't until afternoon that the pace of selling versus buying in mid-day trade began to reverse course. The 13:00 ET correction period is a very powerful time of the day for market reversals to begin, particularly when they correspond to strong support or resistance levels.
Unlike the momentum shifts we saw throughout the course of the daily rally, the recovery attempt on Friday afternoon was very meager. Upside momentum remained gradual compared to earlier swings and the futures market turned lower once again when trading resumed on Sunday evening. Many traders prefer to stay out of the markets over the weekend and late-day position covering is common. However, the higher the market heads without breaking the 10-day moving averages, the closer we get to that scenario playing and it's a good time to start scouting for weakness on daily charts.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Friday with a loss of 74.17 points, or 0.58%, and closed at 12,660.46.Only two of the Dow's thirty index components posted a gain. They were Alcoa (AA) (+0.68%) and United Technologies (UTX) (+0.27%). The top percentage losers were Chevron (CVX) (-2.47%), Cisco Systems (CSCO) (-1.36%), and Travelers (TRV) (-1.11%).Chevron weighed heavily on the Dow after reporting earnings that fell short of expectations. The Dow ended the week lower by 0.47%. It is up 3.63% year-to-date.
The S&P 500 ($SPX) finished the session with a loss of 2.10 points, or 0.16%, and closed at 1,316.33. The top individual percentage performers in the index on Friday were First Solar (FSLR) (+11.24%), Newell Rubbermaid (NWL) (+7.97%), and Eastman Chemical (EMN) (+6.98%). The top decliners were Robert Half Intl. (RHI) (-6.75%), Federated Invs. Inc. (FII) (-5.93%), and Devry (DV) (-5.37%). The S&P 500 ended the week higher by 0.07% and is up 4.67% year-to-date.
The Nasdaq Composite ($COMPX) ended the session higher by 11.27 points, or 0.4%, on Friday and it closed at 2,816.55. It ended the week higher by 1.07% and is higher by 8.11% year-to-date. The strongest performers in the Nasdaq-100 ($NDX) on Friday were First Solar (FSLR) (+11.24%), Netflix (NFLX) (+6.71%), and Green Mountain Coffee Roasters (GMCR) (+6.40%). The weakest were Sirius XM Radio (SIRI) (-1.92%), Express Scripts (ESRX) (-1.76%), and Micron Tech. (MU) (-1.59%).
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.