Light, Choppy Trade Marks the Beginning of the Trading Week

(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 fell throughout the weekend, shedding gains in the brief afterhours activity on Friday and then basing into the early hours of Monday morning before continuing lower with a nice breakdown setup out of the 2:00 am ET correction period. Support hit with an equal move zone around 6:00 am ET and the futures chopped around at that level until the opening bell. This resulted in a gap lower to kick off the regular trading session, but the open also came at strong support levels. The equal move support was still one factor, but previous lows on the 15-60 minute time frame last week also provided price support.

Dow Jones Industrial Average ($DJI)


Morning trading was very choppy until the 11:00 ET correction period. The market showed very little reaction to the 10:00 data whereby the Conference Board posted its latest leading economic indicators reading. Its index climbed 0.6% in August, which points towards continued recovery and marks the fifth straight month it has risen, but it still fell short of the 0.7% gain economists had been expecting.

The momentum in the market shifted as the morning slipped by. The upside gained strength and a slightly higher low in the S&Ps and Dow following a slightly lower low into 10:00 ET created an Inverse Head and Shoulders pattern at the day's lows to trigger a buy when the market pushed through 5 minute 20 sma resistance. The Nasdaq also broke through resistance at that time. This left very little immediate overhead resistance and the market popped quickly out of the 11:00 ET correction period.

The initial breakout was the strongest and momentum shifted once again when 5 and 15 minute resistance levels approached within the larger 60 minute trading range. The market held highs around 11:45 ET where the Dow and S&Ps hit 15 minute 20 sma resistance and 5 minute 200 sma resistance, along with gap closures. Meanwhile the Nasdaq was striking price resistance at the highs of the past several trading days.

S&P 500 ($SPX)


The slowdown in the buying into resistance made it easy for the market to hold those levels securely and begin to correct into the afternoon. This shift in momentum also made it a lot higher risk to attempt to buy continuation patterns on the upside later in the session. The market offered several false triggers in an attempt to lure in unsuspecting buyers just hoping for one more push to new highs. The first false setup took place off the 5 minute 20 sma just prior to 12:30 ET. Since the market took nearly 2 hours to rally and the pace shifted at strong intraday resistance, however, a correction of 45 minutes simply wasn't enough to push the it to new highs on the day.

A second wave of selling within correction on the smaller time frame led to a break of the 5 minute 20 sma and pullback into 13:00-13:30 ET. Volume was light and the momentum modest. The lack of volume showed a lack of interest on the side of the sellers and the market pulled higher into 14:00 ET. Once again, however, there was no confirmation. The pace of the buying was slow and light volume prevented the bulls from breaching the day's highs. This interplay continued into the closing bell with a false attempt to break higher on a 15 minute time frame around 15:15 ET. The overall buying was still gradual off the lows of the range, however, so the indices easily fell back to the lower end of the afternoon range by the closing bell.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) fell 41.34 points, or 0.42%, on Monday to close at 9,778.86. The financials were amongst the top losers for the day. American Express (AXP) fell 2.90%, while Bank of America (BAC) followed with a loss of 2.16%. Caterpillar (CAT) (-1.80%), Disney (DIS) (-1.55%), McDonald's (MCD) (-1.51%), and Coca-Cola (KO) (-1.41%) rounded off the list of shares dropping over 1%. The top gainer was Wal-Mart (WMT), which closed higher by 1.60%. It was followed by a gain of 1.58% in General Electric (GE).

Meanwhile, the S&P 500 ($SPX) slipped 3.64 points, or 0.34%, and closed at 1,064.66. American International Group (AIG) was the best-performer in the S&P 500, up 21.27%. Moodys Corp. (MCO) was the biggest loser, down 5.72%. Energy was the top declining sector. Crude oil futures fell under $70 to close lower by $2.33 at $69.71 a barrel in New York while the dollar managed to again pull higher. Gold ended the day at $1,004.90 an ounce.

The Nasdaq Composite ($COMPX) rose 5.18 points, or 0.34%, and it closed at 2,138.04 on Monday. Apollo (APOL) was the top performer in the Nasdaq-100. It rose 8.29% and was followed by a 5.04% gain in Celgene Corp. (CELG). Dell (DELL) was the top loser, down 4.07% after slowly pushing back into highs to form a double top into the end of last week on the daily time frame.

On Tuesday the Federal Reserve will be kicking off a two-day interest rate meeting. It is expected to keep its key interest rate target at 0%-0.25%. Later in the week, watch out for existing-home sales data on Thursday, followed by the latest new-home sales numbers out on Friday. The G20 meeting is also taking place this week and will be closely followed. This Group of Twenty finance ministers and central bank governors was established in 1999 to bring together leaders for the purpose of discussing key issues in the global economy.

Overall the market is continuing to favor a correction this week off the recent highs.

Notice: I will be traveling abroad for vacation starting on Thursday and will return October 10th. I will be off line throughout most of the trip, so if you need anything at all, please contact either Vic for web or online order support at info@tonihansen.com or Dave for business relations or information on my Market Timing course at Dave@HansenFinanceGroup.com. Thanks!