Index Futures Push for Retest of the Year's Highs

Index Futures Push for Retest of the Year's 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! I am back from my travels abroad and in the process of catching up after two weeks away from the markets. Ironically, the indices are at approximately the same levels as they were when I left. They were not drama-free while I was a away, however, and made a steady recovery following a sharp turn lower into the 50 day simple moving averages in the Dow Jones Ind. Average, S&P 500, and Nasdaq Composite.

Dow Jones Industrial Average ($DJI)


Heading into my vacation, we were looking for a continuation of the correction off September highs and the unlikely odds of those highs being breached without that larger correction on a 60 minute time frame. That correction continued into October 2nd with the increased selling pace until that larger daily moving average support hit. Since that time the market has been inching higher for a push to retest the September highs.

Friday's session was a choppy one with light volume, but the indices recovered very quickly from a move lower into the open and continued to show favor for the bulls into the close. The only setback throughout the session was a shift in momentum that occurred during the morning trade and led to a short trigger on the smaller time frames into noon. This attempt to shift the momentum failed to confirm with volume and by 12:30 ET the indices were again turning higher. The Dow led with the S&Ps in tow. The Nasdaq was unable to break free from the morning's trading range, but still moved higher out of 15:00 ET.

S&P 500 ($SPX)


As the market pushes for another test of the year's highs, a number of top companies will be reporting earnings this week. Those in the banking sector will be of particular interest, including 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.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) ended the session higher by 78.07 points, or 0.80%, on Friday to close at 9,864.94. For the week overall the Dow gained 4% and was up 12.4% on the year. It is up 53% from March's lows. About 2/3 of the Dow posted gains on Friday. It was led by IBM (IBM) (+2.98%), following an upgrade of the computer hardware sector by Barclays. Hewlett-Packard (HPQ) came in second and rose 1.98%. AT&T (T) was the biggest loser (-1.08%).

Meanwhile, the S&P 500 ($SPX) rose 6.01 points, or 0.56%, and closed at 1,071.49. The S&Ps were up 4.5% for the week and ended it higher by 18.6% on the year. It is up 61% from March's lows. On Friday crude oil futures closed at $71.77 a barrel. Oil has been trading in a narrowing triangle since June. Upside pace is slower than downside pace within the triangle, which is bearish, but a continuation pattern on the weekly time frame bullish. The smaller time frames tend to indicate a breakout most accurately on a triangle, but there is still time for that pace to shift prior to a range break.

The Nasdaq Composite ($COMPX) rose 15.35 points, or 0.72%, and it closed at 2,139.28 on Friday. It was up 4.5% for the week and is currently up 35.7% on the year. It is up 69% since March's lows.

Even though the indices are still climbing again into this week, the major indices are still in the zone of major weekly resistance levels. We are now also into October, which 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.