Market Continues to Push Lower

Today's Commentary:

Market Continues to Push Lower

(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!

Tuesday's economic data revealed that housing starts jumped 17.2% in May according to the Commerce Department. They had fallen 12.9% the previous month and had been expected to rise by 5.9%. A strong portion of the gains were attributed to the construction of new apartment complexes, while starts on single-family homes rose 7.5%. Meanwhile, wholesale prices increased 0.2% in May compared to an anticipated gain of 0.6%. The Labor Department further reported that the core PPI, which excludes food and energy prices, fell 0.1%. May's consumer-price index and the weekly petroleum inventories will be released on Wednesday, followed by the Philadelphia region manufacturing survey and weekly jobless claims on Thursday.

Dow Jones Industrial Average ($DJI)


Interestingly, Tuesday's data did not have much of an impact on the day's trade... At least in terms of immediate impact! The indices continued the range that had been in place since mid-morning on Monday to finally correct long enough to allow the market to continue the downtrend. This was accomplished by resting in the range for an amount of time comparable to the previous intraday correction at lows on Friday.

The pace shifted early on Tuesday morning within the range itself. After hitting highs early on, the market pulled quickly lower for several minutes and then retested the zone of the morning highs while hugging the 5 minute 20 period simple moving average from the 10:15 ET correction period into the 11:15 ET correction period. Volume was very light on this second push to intraday highs, which confirmed that the bulls were not particularly eager to jump on board as the indices approached resistance levels on the 15 minute time frame and the Nasdaq futures inched into their 200 sma on the 5 minute time frame.

S&P 500 ($SPX)


When the market turned lower late Tuesday morning it didn't do so with the same gusto as the previous day initially. It did, however, build strength on the downside once it cleared the support from the morning lows. That zone had been tested overall at noon and broke sharply coming out of 12:30 ET. This full-filled the third waves of selling in the S&Ps and Dow on the 30 minute time frame downtrends.

13:00 ET is a strong correction period in the market and I expected this support zone to hold, but the pace of the selling did not slow or shift enough to allow for a sharp bounce to take place. A small reaction to the support took the indices into 5 minute 20 sma resistance, but the move was simply not rapid enough to form a decent Phoenix™. Instead, two smaller waves of selling took the indices to slightly lower lows into 14:30 ET while overall hugging the 5 minute 20 sma. This did result in the smaller time frame resistance breaking, but the lack of an adequate shift in momentum prevented the market from following through strongly and kept risk higher into the close. The 15 minute 20 sma held as resistance and the market pulled back again into the close, but still held the zone of the intraday support into midnight.

The next major daily support is not until the 50 day sma in the indices. Although we will likely see a slowdown compared to the week so far, that zone is now serving as a magnet. I won't be as aggressive on the short side for new positions as compared to over the past two trading days, however, due to the greater extension of the intraday trend.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) fell 107 points, or 1.3%, to close at 8,505 on Tuesday. Only two of the Dow's 30 index components posted gains and these were again only by a fraction of a point. They included Pfizer (PFE) and Microsoft (MSFT). Bank of America (BAC) dropped 4.5%. Disney (DIS) fell 3.13%, while General Electric (GE) lost 2.81%, and Alcoa (AA) shed 2.77%. The index has fallen 3.4% so far this week after briefly pushing into positive territory for the year on Friday. Of course, this was a very major resistance level and the indices are also testing other levels of resistance on the weekly time frames such as the 200 day moving average. The thing to keep in mind is that even when prices trade above these resistance zones, the exact price is not the actual resistance. There is a cushion around that level that marks the resistance zone, so even when a security or index pierces support or resistance, it does not necessarily mean it will break it.

The S&P 500 ($SPX) fell 12 points, or 1.3%, and closed at 912. Electronics retailer Best Buy (BBY) failed to live up to expectations and posted disappointing same-store sales data. This seemed to have an impact on the retail sector overall. Target (TGT) fell 3.7%, but Nordstrom (JWN) had a particularly tough session with a loss of 6.8%. Wal-Mart (WMT) did not follow suit and only slipped 0.4%.

The Nasdaq Composite ($COMPX) fell 20 points, or 1.1%, and it closed at 1,796 on Tuesday.