Columbus Day Push for a Return to Dow 10K

Columbus Day Push for a Return to Dow 10K

(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! Despite a strong push higher into the opening bell on Monday morning, volume was light as the new trading week kicked off and the markets lacked a strong intraday trend throughout the first half of the session. The index futures had broken higher in the early morning hours out of the 4:00 am ET correction period. After only half an hour, however, the pace of that upside stalled and the index futures fell into a trading range along premarket highs until the opening bell. They had been pulling lower in that range into 9:30 am ET, but the bell itself helped pull the market back to the upper half of that premarket range within the first 15 minutes of the day. By 10:00 am ET the S&Ps and Dow were back at the zone of premarket highs, while the Nasdaq was pushing to new ones.

Dow Jones Industrial Average ($DJI)


The early-morning rally in the index futures was the third wave of buying on the 60 minute time frame since the indices hit 50 day simple moving average support on October 2nd. This exhausted the trend on the 60 minute time frame. This trend exhaustion and premarket resistance were also combined with previous highs on the daily time frame to create a strong resistance zone that put pressure on the markets throughout the remainder of Monday's session.

The market turned lower on the smaller time frames out of the 11:00 ET correction period in the Dow and S&Ps. The Nasdaq was forming a 5 minute Avalanche at this time and it triggered a short out of the 11:15 ET correction period. In each case, the mid-day selling returned the index futures to their opening price levels, which served as support into the noon correction period.

S&P 500 ($SPX)


From noon until 14:00 ET the volume continued to drop off in the market as the indices fell into another trading range. This time the range took place along the opening price level in the indices. 14:00 ET is a major correction period in the afternoon and on Monday that time zone served to kick off another wave of selling intraday. This led to the strongest move of the session with all three of the major indices breaking sharply to new lows on the day. The selling was led by the Nasdaq. It continued until both the S&P 500 and Dow Jones Ind. Ave. closed morning gaps and came into support at their 5 minute 200 period simple moving averages. These support levels hit at approximately 14:30 ET and held into the closing bell.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) ended the session higher by 20.86 points, or 0.21%, on Monday to close at 9,885.80. 2/3 of the Dow posted gains. They were led by a 3.03% rally in Bank of America (BAC) and a 1.28% pre-earnings rally in Johnson & Johnson (JNJ). The oil stocks followed with a 1.25% gain in Chevron (CVX) and a 1.24% gain in Exxon Mobil (XOM). Boeing (BA) was a biggest loser, down 1.95%, followed by a 1.13% loss in United Technologies (UTX) and a 1.10% loss in Caterpillar (CAT).

Meanwhile, the S&P 500 ($SPX) rose 4.70 points, or 0.44%, and closed at 1,076.19. Ryder (R) was the top gainer in the S&P 500 (+9.85%). Black & Decker (BDK) rallied 7.50%, while Ford (F) was up 7.02%. KB Home (KBH) was the top loser. It fell 7.84%. United States Steel (X) fell 3.28%.

The Nasdaq Composite ($COMPX) fell 0.14 point, or 0.01%, and it closed at 2,139.14 on Monday. Out of the Nasdaq-100, LAM Research (LCRX) was the best performer (+4.75%), while Baidu (BIDU) (-3.18%) and Wynn Resorts (WYNN) (-2.86%) were the worst.

My bias heading into the week has not changed at all going into Tuesday. The major indices remain in the zone of major weekly resistance levels after having recovered more than 50% of the losses incurred since the market peaked almost exactly two years ago in October. October is traditionally a correction month for the markets. This makes it a good time to start to watch for exhaustion on longer term holds that will have a higher chance of starting corrections on weekly time frames. This will be particularly true for securities that have been climbing steadily throughout the year. Along those lines, it is also a higher risk time of the year for making new investments.

Keep an eye on earnings this week. Among those reporting are the top financials J.P. Morgan Chase (JPM), Goldman Sachs Group (GS), and Citigroup (C). Johnson & Johnson (JNJ), Intel (INTC), and General Electric (GE) will also be reporting earnings.