Market Ponders Next Step

Today's Commentary:

Market Ponders Next Step

(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 market was split on Thursday amidst the most recent jobless claims and manufacturing data and news from tech leader Research In Motion (RIMM).

Premarket data regarding last weeks jobless claims were mixed. Continuing claims fell by 148,000 to 6.68 million, which is the first time they have fallen in 6 months. On the other hand, the four-week average still rose to 6.75 million. Meanwhile, initial claims were up 3,000 and the four-week average of initial claims fell 7,000 to 615,750. Initial claims had been expected to rise.

In other economic news, the Philadelphia Federal Reserve reported that its regional manufacturing index improved from negative 22.6 in May to negative 2.2 in June. 30% of the firms surveyed in June stated that business was improving, while 35% reported no change and 32% reported worsening conditions. While fairly evenly dispersed amongst these three categories, economists had expected a lesser degree of improvement. The new orders and shipments index improved from negative 25.9 to negative 4.8. Nearly 2/3 of the firms reported that they expected business to improve over the next six months, while only 5% expected it to worsen.

A third major news event for the day came from Research In Motion (RIMM). The BlackBerry maker reported fiscal quarterly earnings of 98 cents a share. This was up from 86 cents a year earlier, as well as 4 cents ahead of estimates. Nevertheless, RIMM still disappointed market participants by issuing a weaker-than-expected guidance and faces fierce competition from Apple (AAPL), which just released its newest iPhone last week.

Dow Jones Industrial Average ($DJI)


The Nasdaq fell sharply out of the open on Thursday for the first 15 minutes of the session on weakness in technology shares such as RIMM. Even though the S&P 500 and Dow Jones Industrial Average also lost ground, the loss was minimal. The larger 60 minute trends were still over-extended on the downside into the open, so this helped the indices curtail losses rather quickly. When the 9:45 ET correction period hit the markets had turned sharply higher. The pace of the buying increased substantially when the 10:00 ET economic data was released, which included the Philly Fed news.

Buying continued into the 10:15 ET correction period with the pace of the upside slowing into that critical time of the day. The S&Ps and Dow both pushed slightly past Wednesday's highs, but the weaker Nasdaq struggled and stalled at price resistance from the previous day's mid-day highs. Given the extent of the morning rally on Thursday, the market needed some time to correct. The rally was strong enough that a mere pullback to the 5 minute 20 sma would not be enough to adequately allow the indices to push to new intraday highs. Had the indices attempted such a move, they would not have likely broken them to any strong degree and would have merely succeeded in shifting the pace of the buying. This would have increased the risk of a strong afternoon reversal.

S&P 500 ($SPX)


Both the S&Ps and Dow did pull back to the 5 minute 20 sma and held it as support. Instead of trying to break the morning highs coming off that support level, however, it held the zone from the 10:15 ET highs as resistance and fell into a longer trading range along that resistance. Notice that the 5 minute 20 sma test also corresponded to the 10:45 ET correction period.

Meanwhile, the weaker Nasdaq pulled back to a larger degree, but all three of the indices experienced a shift in momentum heading into noon and began to create buy setups on the smaller time frames. The Nasdaq formed a reverse head and shoulders pattern on the 5 minute time frame, while the S&Ps and Dow formed three-wave congestive patterns. The three broke higher into the early afternoon with the Nasdaq returning quickly to morning highs and the S&Ps and Dow pushing to new intraday highs. The momentum was not strong enough, nor accompanied by enough of an increase in volume to get very far, but it still offered a nice scalp move.

The remainder of the session proceeded within the day's range and the indices pulled back into the close. All in all, this was a day that in line with the lack of strong 60 minute direction I had noted in yesterday's column and the same remains true going into Friday.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) rose 58.20 points, or 0.69%, to close at 8,555.6 on Thursday. Bank of America (BAC) was the strongest Dow component. It rose 4.88%, followed by a 4.40% gain in JP Morgan (JPM). Included in the handful of losers were Caterpillar Inc. (CAT) with a loss of 2.07% and Intel (INTC) with a loss of 1.67%.

The S&P 500 ($SPX) rose 7.66 points, or 0.84%, and closed at 918.37. Health care, consumer staples, and utilities led the gainers in Thursday's trade, while the market's underachievers were led by information technology. Crude oil futures rose slightly from $71.03 to $71.37 a barrel.

The Nasdaq Composite ($COMPX) fell 0.34 point, or 0.02%, and it closed at 1,807.7 on Thursday.