Market Rallies into Holiday Trade

(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! When I left for Vegas last week we were expecting a slow continuation of the downside that began early in November into new lows, followed by a sharp spike to the upside to break the channel. Well, the scenario played out quite well. The indices continued to move lower into Friday afternoon. At that point the indices rounded off at lows by creating slightly lower lows than the day before on high volume Thursday into Friday. Then the market gave us our sharp rally on Friday afternoon heading into the close.

The market has been quite fond of these rapid Friday afternoon reversals lately. We have seen it happen nearly every other week since the beginning of October. The rally continued into Monday morning with a gap higher and resumed into the closing bell. This broke the indices out of their downtrend channel as expected, but the market was not able to bust through the previous week's congestion. This price resistance zone held throughout trading on Tuesday with volume dropping off as the market corrected off highs.

Nasdaq Composite ($COMPX)


Even though the indices originally pulled back sharply off the highs on Tuesday into 11:00 am ET, the sharp upside momentum going into the week helped prevent a greater decay in price. Instead the pace began to shift mid-day with a slightly lower low into the 13:00 ET correction period and a continued rounding off at intraday lows at the zone of price support from mid-day congestion on Monday. At 4:30 ET the upside momentum increased when the indices busted through their 5 minute 20 period simple moving average resistance into the final hour of trade. They continued to hold up well into the close, leading to a positive close in the Dow Jones Industrial Average and S&P 500.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) rose 36.08 points, or 0.4%, on Tuesday to close at 8,479.47. Out of the Dow's 30 index components, 16 closed in positive territory. J.P. Morgan Chase & Co. (JPM) was among the gains, up 7.9%, while United Technologies Corp. (UTX) was on the losing side, down 4%.

The S&P 500 ($SPX) rose 5.58 points, or 0.7%, and closed at 857.39. Telecommunication services, financials, and materials led the gainers, while consumer staples led the decliners.

The Nasdaq Composite ($COMPX) shed 7.29 points, or 0.5%, and closed at 1,464.73. The index was weighed down by technology shares such as Cisco Systems Inc. (CSCO), which fell 6%, while Hewlett-Packard Co. (HPQ) fell 5.9%.

S&P 500 ($SPX)


Right now the market is looking quite similar on a daily time frame as what we have seen over the course of many of these recent Fridays. The indices have established a third lows, slightly under the prior two. This has created a rounded appearance. The technical bias as a result is a positive one. In fact, there is a decent likelihood that the market can experience a sharp recovery. The zone of congestion from early November highs is the next main daily resistance level.