Dismal Economic Data Weighs on an Already Struggling Market

Dismal Economic Data Weighs on an Already Struggling Market

(Note: Unless otherwise stated, the index action described below relates to the EMini 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.)

Good day! After a day of unrest the markets took another tumble on Thursday. The index futures were already trading lower into the open following Wednesday evening's approval by the Senate of a new economic rescue plan by 74 to 25. The vote did little to appease the market which must now await a decision by the House of Representatives on Friday.

Thursday began with the prior week's initial jobless claims data. According to the Labor Department, the number of first-time filings for unemployment benefits climbed to 497,000 last week, up 1,000 to their highest level in 7 years. The September jobs data is due out on Friday and economists are anticipating a loss of 105,000 jobs last month, adding to the 605,000 on the year-to-date.

The market broke its first 15 minute lows quite easily on Thursday, continuing lower when the Commerce Department reported that factory orders for August dropped 4%, which is the largest monthly decline we have seen in two years. They had been expected to fall 3%, which would still have been a rather large slump. Transportation orders alone fell a whopping 9.1%. Excluding this decline, factor orders were down 3.3%, which is the largest downside move since September 2001.

Nasdaq Composite ($COMPX)


Adding to losses is the encroaching earnings season. Companies are beginning to post warnings ahead of the coming data. Marriott International (MAR) (-5.3%) offered a bit of a preview when it returned to the year's lows following earnings of 27 cents a share, down 28% and a warning of further downside in the fourth quarter. The news weighed down others in the sector anticipating similar declines.

As the euro fell and dollar climbed to the year's highs, companies that had been benefiting from global growth came under pressure on Thursday as well. Alcoa (AA) (-8.9%) and Caterpillar Inc. (CAT) (-8.3%) helped lead the downside in the Dow Jones Industrial Average. General Electric (GE) (-9.6%) also continued lower following its daily breakdown the previous session. It plans on launching a secondary stock offering to raise $12 billion in cash, alongside a separate deal with Berkshire (BRKA) to buy $3 billion in preferred stocks.

Oil prices and the oil sector as a whole also experienced sharp downside, taking back nearly all of the gains from the second half of last month to continue the longer weekly correction to the larger term support at a slower pace. Crude oil closed lower by $4.56 a barrel, or 5.6%, at $93.97 on Thursday. It is down 36% off July's highs.

Dow Jones Industrial Average ($DJI)


After the immediate aftermath of the 10:00 ET data, the indices slowed their decline, but failed to show any strong reversal potential. The Nasdaq Composite displayed some promise out of the 11:15 ET zone lows by creating a momentum reversal pattern on a 5 minute time strong off Monday's lows, but the pace failed to increase on the break higher into noon and the first target level from the 10:30ish price zone held. The market hit this mid-day resistance at the same time as the 12:00 ET correction period and rolled over once again into the afternoon.

The market dropped to lows again out of 13:00 ET and slightly lower lows on a 15 minute time frame created potential for a 2B setup on the 15 minute charts. The 15 minute 20 sma loomed overhead, however, and the attempt again failed to amount to more than a scalp-sized move as the indices fell into another period of congestion along the day's lows.

The indices continued to step lower with choppy trading into the closing bell. The series of three lows in the afternoon on the Nasdaq formed a buy setup into the close which took the index futures higher following the bell, but it ended the session at the lows of the day.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) closed lower on Thursday by 348.22 points, or 3.2%, at 10,482. The S&P 500 ($SPX) fell 46.78 points, or 4.0%, and closed at 1,114. The energy sector dropped 10%, followed by materials, which were down 7.2%. Industrials fell 6.3%. The Nasdaq Composite ($COMPX) was the worst performer amongst the three major indices, falling 92.68 points, or 4.5%. It closed at 1,976.



I was a bit disappointed that the market pushed so well back into the lows of the week. I had hoped for a more substantial base or level of congestion on a daily time frame to allow for another stronger break lower at the end of this next week. This does still remain possible that such a pattern will form, but it would be best to see the lows of the week so far hold.

The House of Representatives plans on voting again on Friday for Treasury Secretary Paulson's financial bailout plan, so expect risk levels to remain elevated throughout the session. The bias for price action on a 30-60 minute time frame right now is inconclusive because there are about as many pros as there are cons in either direction into the open. The closing pattern was bullish, but there is still a lot of time before the opening bell for that setup to hit and hold target levels and to leave the market poised for another turn. It is currently 1:00 am ET and the NQ has already hit its initial target.

NOTE: The Securities and Exchange Commission extended the ban on short-selling late Wednesday until both the House of Representatives and the Senate approve a rescue package. The ban had ben set to expire on the 2nd, but will now continue until the third day following legislative approval.