WEDNESDAY'S MARKET WRAP-UP
Market Snapshot for February 1, 2011 (9:05 p.m. ET):
Closing Prices: DOW 12,716.46 (+83.55, +0.66%), S&P 500 1,324.08 (+11.67, +0.89%), NASDAQ 2,848.27 (+34.43 +1.22%), Nikkei 225 8,880.19 (+70.40, +0.8%), DAX 6,616.64 (+157.73, +2.44%), FTSE 5,790.72 (+109.11, +1.92%)
OIL 97.56, GOLD 1,752.40, SILVER 33.825
EURO 1.3181, YEN 76.13, BRITISH POUND 1.585, U.S. DOLLAR INDEX 78.895
Dow Jones Inds. and S&P 500 Hit 20-Day SMA
The market has continued to chug its way higher into the next month with a solid start on Wednesday. A rally in Europe following a report on slowing inflation boosted the index futures, leading a strong opening gap to kick off the session. Tuesday's highs served as resistance in premarket trade, but congestion along those highs from 4:30 a.m. ET into the opening bell allowed the market to rest just long enough to manage another break higher shortly after the open.
Dow Jones Industrial Average (Figure 1)
ISM Data Offers Further Encouragement
The market rally picked up once again following the 10:00 a.m. ET economic data on Wednesday morning. According to the Institute for Supply Management, business at U.S. manufacturers expanded in January at its fastest pace in eight months.
Additionally, construction spending was up 1.5% in December.
The rally out of the morning data was not as extreme as seen in premarket trade following the European open. While the premarket congestion was long enough to allow for a breakout, it was not enough to fully correct from the earlier gains, making it difficult for the market to mount another push higher with the same momentum. Nevertheless, the move was still impressive point-wise and the indices managed one of the strongest sessions of the year-to-date.
Slowing momentum allowed the market to break its uptrend channel mid-day, resulting in a pullback into the closing bell. The S&P 500 and Dow Jones Ind. Average experienced a stronger correction than the Nasdaq, which has continued to outperform throughout the year. While the S&P 500 and Dow both pulled back to 20-day moving average support this week, the Nasdaq has yet to do more than test its 10-day moving average this year.
S&P 500 (Figure 2)
The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a gain of 83.55 points, or 0.66%, and closed at 12,716.46. Twenty-seven of the Dow's thirty index components posted a gain. The top performers were Bank of America (BAC) (+3.23%), Hewlett-Packard (HPQ) (+2.79%), and United Technologies Corp. (UTX) (+2.39%). The top only shares posting a loss were McDonald's (MCD) (-0.66%), Johnson & Johnson (JNJ) (-0.33%), and Chevron Corp. (CVX) (-0.32%).
The S&P 500 ($SPX) finished the session with a gain of 11.67 points, or 0.89%, and closed at 1,324.08. Out of the index's ten industry groups, the strongest were the financials (+1.7%), industrials (+1.1%), and materials (+1.1%). There were no declining industry groups. The top individual percentage performer in the index was Whirlpool (WHR), which rose 13.48% after it raised its 2012 earnings guidance. WHR was followed by strong performances in Marathon Pete. Corp. (MPC) (+9.58%), and Broadcom Corp. (BRCM) (+8.09%). BRCM also raised its earnings guidance for the year. The top decliner was Amazon.com (AMZN) (-7.70%) after raising concerns that it would post a loss in the first quarter after missing estimates last quarter. Other top decliners were CH Robinson Worldwide (CHRW) (-7.02%) and Southwestern Energy Co. (SWN) (-2.34%).
The Nasdaq Composite ($COMPX) ended the session higher by 34.43 points, or 1.22%, on Wednesday and it closed at 2,848.27. The strongest performer in the Nasdaq-100 ($NDX) was Seagate Technology (STX) (+20.77%). It was followed by gains in Broadcom Corp. (BRCM) (+8.09%) and Mylan Inc. (MYL) (+5.88%). The weakest were Amazon.com (AMZN) (-7.70%), CH Robinson Worldwide (CHRW) (-7.02%), and Activision Blizzard Inc. (ATVI) (-1.46%).
Nasdaq Composite (Figure 3)
The market was up further afterhours on Wednesday after strong earnings from Qualcomm (QCOM), Green Mountain Coffee Roasters (GMCR), and Allstate (ALL).
GMCR shares jumped 22% after it posted earnings of 60 cents a share (18 cents higher than the previous year) and revenue growth of 102%, beating the Street estimates. GMCR saw its share prices plummet from over $115 a share in September to under $35 by November last year. It's set to open over $65 a share Thursday morning.
The market momentum continued to slow afterhours on Wednesday despite the above-mentioned earnings. Only the Nasdaq managed a higher high, but the highs were only slightly higher. This created a bull trap and further shifted the momentum of the day's rally. The result was a Momentum Reversal following Europe's open and a pullback in the Nasdaq to its premarket congestive levels from Wednesday morning. The Dow and S&P 500 have also found support at this congestion zone heading into Thursday morning. This will continue to serve as support throughout the remainder of the morning, while last week's highs in the Dow will serve as market resistance. We have not yet seen a strong pattern develop for a break in the current daily uptrend, but new multi-day positions in that direction gain risk with each passing day as the market comes closer and closer to a stronger daily correction.
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.