After striking lows for a second time on Thursday, the market faced a more difficult recovery challenge. A "V"-type of low and an inverted "V" high left the market in a range into the closing bell, but it increased the odds for a slowdown into the afternoon. Even though the market trended higher throughout the remainder of the regular trading session, the indices experienced a great deal of price overlap from one bar to the next on the five and fifteen minute time frames. This leaves the futures facing another challenge from the bears as we roll over into Friday's trade.
S&P 500 (Figure 2)
In and of itself, this is still not enough to confirm the start of a larger daily pullback, but the market is due for one. That makes this a good time to look for stocks with relative weakness or upside exhaustion for swingtrades on the short side. For example, O Reilly Automotive (ORLY) has been added to my list because it is showing slowing momentum on the weekly time frame and relative weakness over the past several weeks in addition to upside trend exhaustion. In the meantime, earnings reactions will continue to be a source for action heading into next week and will offer opportunities that will not rely as heavily on overall market direction as other index components.
The major event for the day on Friday will be January's employment data. Nonfarm payrolls are expected to have increased by 150,000 in January, while the unemployment rate is expected to remain unchanged at 8.5.
Nasdaq Composite (Figure 3)
The Dow Jones Industrial Average ($DJI) ended the day on Thursday with a loss of 11.05 points, or 0.09%, and closed at 12,705.41. Eleven of the Dow's thirty index components posted a gain. The top performers were Alcoa (AA) (+2.16%), Bank of America (BAC) (+1.22%), and American Express (AXP) (+1.07%). The top shares posting a loss were Disney (DIS) (-1.07%), Pfizer (PFE) (-0.94%), and Hewlett-Packard (HPQ) (-0.90%).
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