Market Pushes Higher on Light Volume

Good day! Trading was quite slow on Monday. Volume was light and the indices were stuck in a narrow uptrend channel throughout most of the session, creeping higher without any strong overall bias. We had been expecting the daily channel to hold early this week and Monday's session did not disappoint in that regard.

The week began relatively unchanged from Friday's closing levels. A bullish range formed out of the open with a slow retracement to the 5 minute 20 period simple moving average, but the market was unable to get going when the range attempted to break higher at 10:10 ET. Volume remained light for morning trade and the indices appeared glued to their 5 minute 20 period smas.

When the 11:00 ET correction prior hit the market attempted to break the support. This move also lacked conviction, however, and the morning congestion held. Momentum failed to shift to any significant degree and, although the indices returned to highs and even pushed through them into the early afternoon, they failed to to confirm any larger directional bias. The 5 minute 20 sma again became support and the market slowly crawled higher into 14:00 ET.

At 14:00 ET the indices hit their first substantial intraday resistance when the Dow tested the zone of last Thursday's highs. This corresponded to that 14:00 ET correction period and the market attempted another correction off the upper end of the day's trend channel. Although the downside momentum increased somewhat, it was even more nominal than the 11:00 ET pullback and found support at the 15 minute 20 sma.

This 15 minute 20 sma level had been keeping pace with the prices action since late morning and prevented the market from quickly breaking lower into the final two hours of trade. It was not enough, however, to prevent a larger correction from taking place. Whenever the indices creep higher the risk is also high that once support gives way it can do so rather quickly. Although the 15 minute 20 sma held at first, the indices congested along that level and at 15:15 ET the market broke down. In the final 45 minutes of trade the indices displayed the strongest momentum of the session, taking the market back to the lower end of the day's range with the S&Ps leading the selloff. The 5 minute 200 sma served as support just prior to the closing bell.

The Dow Jones Industrial Average ($DJI) fell 20.11 points on Monday, or 0.2%, and closed at 12,871 with 17 of its 30 components lower. The S&P 500 ($SPX) also lost ground, falling 1.47 points, or 0.1%, to 1,396. The Nasdaq Composite gained 1.47 points. It closed at 2,424.

Leading the news on Monday was an announcement by privately held Mars, Inc. to buy Wrigley Jr. (WWY) for $80/share. The purchase is to be backed by Warren Buffett's company, Berkshire Hathaway Inc. (BRK.A/BRK.B). WWY had closed on Friday at $62.45/share. The purchase price is based upon four times sales and 35 times WWY's 2007 earnings per share. Wrigley will become a subsidiary of Mars with Berkshire Hathaway making a minority investment. Additional financing will be provided by Goldman Sachs (GS) and J.P. Morgan (JPM).

Ford Motor Co. (F) was also making headlines on Monday. F has been in a strong uptrend since mid-March. The stock pushed past $8.50 on the 24th after it reported earnings for the quarter of $100 million, or 5 cents a share. It blew away estimates, gapping higher and continuing to run throughout the morning. Although it pulled back following this exhaustion move into the weekend, it jumped higher once again on Monday when Kirk Kerkorian's Tracinda announced that it planned to offer $8.50/share for up to 20 million of Ford's shares.

The focus over the next two days will be on the Fed. on Wednesday it will be announcing its latest rate decision. While many expect them to lower rates by another quarter of a point, it is quite possible that they choose to halt the rate cuts at this point. My stance on the market's outlook this week has not changed. I continue to expect back and forth action with a slight bullish bias pacing higher with the 20 day sma. This will leave the market vulnerable for a more rapid breakdown when the next daily correction off highs gets under way.

Dow Jones Industrial Average ($DJI)



S&P 500 ($SPX)



Nasdaq Composite ($COMPX)