Market Rally Continues into the Holiday Despite Data Woes

Market Rally Continues into the Holiday Despite Data Woes

(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! The index futures opened lower on Wednesday following afterhours selling the day before, but had very little reaction to the negative premarket data on Wednesday. Ahead of the open, the Commerce Department reported that orders for U.S.- made durable goods fell 6.2% in October. This is the largest decline in two years and was substantially greater than the 2.5% decline that had been expected. Orders for transportation goods fell 11.1%. Excluding this, orders still fell by 4.4%. New orders for September were also revised lower from a 0.9% increase to a 0.2% decline.

In other news, consumer spending fell 1% in October. This was the largest decline in over 7 years. Nevertheless, the data was in line with expectations. When adjusted for inflation, real consumer spending fell 0.5%. Meanwhile, personal income rose 0.3% in October. On Tuesday the Federal Reserve had announced a plan to help boost lending by backing credit cards, auto loans, and other consumer and small business debt.

In one last bit of premarket news, the Labor Department reported early Wednesday that the four-week average of initial jobless claims had climbed to a 25-year high of 518,000, while continuing claims also hit 25-year highs of 3.92 million. Just last week President Bush signed an extension of jobless claims benefits by 7 weeks into law, with an extension of 13 weeks in states with unemployment rates topping 6%.

Nasdaq Composite ($COMPX)


The index futures held the lows made in the premarket at about 8:30 AM ET when these economic releases came out. The indices had formed a two-wave pullback on the 5 minute time frame which began at about 5:00 AM ET and it triggered a buy setup out of 8:30 AM. After a small pop, the market based into the opening bell. This congestion continued for about 15 minutes and then triggered an upside continuation out of the 9:45 AM ET correction period. This also triggered the gap closure setup which was in the direction of the larger 30 minute bias.

The market did react somewhat to the 10:00 AM ET new home sales data, but the reaction was brief. The Commerce Department had announced that new home sales fell 5.3% in October to the lowest level since 1991. On Tuesday it was reported that home prices were down a record 17.4% in October compared to just one year prior.

Volume was light on Wednesday as a result of the holiday season and this helped the new uptrend intraday hold on throughout the session. The indices congested mid-day after making their way into Tuesday's highs (and beyond in the Nasdaq), but then resumed their upward push into the close out of the 14:00 ET correction period. The session ended with a solid trend day for the fourth straight day of gains. This was the first 4-day rally since April for the Dow Jones Industrial Average ($DJI) and the first since May for the S&P 500 ($SPX) and Nasdaq Composite ($COMPX). In the Dow this rally amounted to the largest four-day rally on record, while it was the largest since the early 1930s in the S&Ps and Nasdaq.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) rose 247 points, or 2.9%, on Wednesday to close at 8,727. General Motors (GM) led the gainers with a whopping 35.1% rally. The stock was up even more at its highs into 13:00 ET on increasing confidence that the government is leaning towards a federal bailout. Citigroup Inc. (C) also posted strong gains of nearly 16% on the heels of the announcement that Mexican billionaire Carlos Slim's firm had invested approximately $150 million in the bank. AA, VZ, INTC, HD, and CAT also rose more than 5% on Wednesday. The shares of two companies, Johnson & Johnson (JNJ) and Procter & Gamble Co. (PG) finished slightly lower on the day.

The S&P 500 ($SPX) rose 30 points, or 3.5%, and closed at 888. Energy, consumer discretionary, telecoms, materials, and technology led the index's gains. The Nasdaq Composite ($COMPX) climbed 67 points, or 4.6%, on Wednesday and ended the session at 1,532.

S&P 500 ($SPX)


Friday will be a shortened trading day in the markets with a close at 13:00 PM ET on the U.S. stock exchanges. The exchanges were closed on Thursday for Thanksgiving, so we should expect volume to continue to remain light into the weekend. I am expecting the most recent lows in the indices to now hold for a larger weekly correction off the support. As such, I am focusing primarily on buy setups for longer term daily and weekly holds and shying away from shorts other than on the smaller intraday time frames for the most part.