Light Trade Marks the End of a Week of New Yearly Highs

Light Trade Marks the End of a Week of New Yearly Highs

(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! Action was choppy in the markets on Friday as the indices continued to press against the year's highs. The range narrowed considerably and the five minute charts looked like a typical Friday heading into a holiday weekend. In this case, the weekend brought with it the beginning of Rosh Hashanah, as well as the end of Ramadan. Overall this made it a more difficult day to trade since there was not a great deal of follow-through even though the core tenets of technical analysis held well.

Dow Jones Industrial Average ($DJI)


Friday kicked off with a gap higher into the opening bell, but this gap led the indices directly into strong price resistance from previous highs on Thursday. Selling pressure hit almost immediately out of the open to bring to an end the steady premarket climb that had been in play since the 3:00 am ET correction period.

The downside out of the open continued through the 5 minute 20 sma support in the S&P 500 and Nasdaq e-Mini futures. The Nasdaq actually picked up momentum once that level broke. The 10:15 ET correction period, however, held well and the three indices all reacted to strong support levels hitting at that time. The stronger Dow was testing its 5 minute 20 sma and 15 minute 20 sma, while the weaker Nasdaq held early lows on the 15 minute time frame, as well as the 5 minute 200 sma perfectly.

The market tried to pop back after hitting early morning lows, but failed to maintain the momentum with any volume confirmation and fell into a narrowing trading range that held until a break lower out of the 11:15 ET correction period triggered a short out of a symmetrical triangle in the Dow and S&Ps and a momentum reversal or rising wedge in the Nasdaq. A small continuation move took both the Dow and S&Ps to new intraday lows at noon, albeit only barely.

S&P 500 ($SPX)


12:00 ET is another prime time for the market to shift directions. The indices pulled up and hugged the 5 minute 20 sma before breaking once again to the upside. A typical trend took place on the 2 minute time frame with three waves of buying, followed by a longer correction and a fourth attempt to push higher just before 14:00 ET. The volume failed to confirm this move. This series of three waves, a longer rest, and a fourth wave of buying is common in an uptrend and is generally followed by a more substantial trend correction. This began with a trading range along the day, but confirmed when the indices broke lower around 14:30 ET. A two-wave correction followed in which the Dow and Nasdaq formed 5-15 minute Avalanche short setups before breaking lower once gain in the final 30 minutes of trade.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) closed higher on Friday by 36.28 points, or 0.37%, at 9,820.20. The top gainer was Procter and Gamble (PG), which closed the day higher by 3.22% on an upgrade. AT&T (T) came in second with a gain of 2.58%, while Pfizer (PFE) rose 1.15%, and Home Depot (HD) climbed 1.11%. About a third of the Dow posted losses. The top loser was General Electric (GE), which fell 0.96%. Caterpillar (CAT) fell 0.87%, while Travelers (TRV) lost 0.69%.

Meanwhile, the S&P 500 ($SPX) rose 2.81 points, or 0.26%, and closed at 1,068.30. Telecoms were among the strongest of the the shares making headway on Friday after underperforming in recent days. Health care, materials, financials, and energy shares were all lower, but losses were minimal without much news to move the markets into the weekend.

The Nasdaq Composite ($COMPX) rose 6.11 points, or 0.29%, and it closed at 2,132.86 on Friday. Starbucks (SBUX) (+3.39%) was the top gainer in the Nasdaq-100.

The U.S. ended the week on a strong note. The Dollar Index had fallen to a new low on the the year on Thursday, but recovered approximately 0.4% on Friday. The commodities fell as the dollar index climbed and crude oil prices slipped 0.7% to $72.95 a barrel (up 61.52% YTD), while gold prices also came back slightly to $1010.30 an ounce.

This week is a lighter one on the economic front, but it still contains a few key points of interest. One to certainly watch out for is the two-day Federal Reserve's interest rate meeting which begins on Tuesday. On Wednesday afternoon the Fed is expected to keep its key interest rate target at 0%-0.25%. Additionally, the government will auction $112 billion in Treasury securities throughout the first half of the week. The existing-home sales data will then be coming out on Thursday, followed by the latest new-home sales numbers out on Friday. Overall the market is favoring a price correction this week, so use caution on the long side.