Market Plummets on Consumer Confidence Data

Market Plummets on Consumer Confidence Data

(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! Trading was choppy on Tuesday as the markets digested not only the recent selloff, but poorly-received economic data as well. The session began without much interest. The range from the previous session continued until 10:00 am ET. At that point the Conference Board released its Consumer Confidence Index, which fell to 47.7 in October from a revised 53.4 in September. Economists were expecting approximately 53.2 and the market was not at all pleased by the news, along with the fact that the Conference Board's present situation index fell from 23.0 to 20.7, which is the lowest level in 26 years and its expectations index slid from 73.7 to 65.7.

The market fell very sharply on the 10:00 am ET data. The Nasdaq was the hardest hit. It triggered a larger breakdown setup on the 15 minute time frame coming out of the news. The Dow was the strongest and when it hit Monday's lows, the entire market was able to find some support.

In other news, the S&P/Case Shiller home price index that measures data in 20 cities was expected to fall 11.9% from a year ago August, but came in slightly better than expected with a decline of 11.3%. This was still up 1.2% from July. The healthiest markets were Dallas and Denver, while the weakest were Las Vegas and Phoenix.

Dow Jones Industrial Average ($DJI)
http://www.tradingfrommainstreet.com/images/FocusLetter/20091028dow.gif

The indices did initially recover from the data-drive decline. A three-wave rally took place and lasted into the 10:45 ET correction period. Each wave was followed by mild congestion and a continuation. It can be viewed the most clearly on the 1 and 2 minute time frames. The Dow was even able to establish a new high on the day on its third wave of upside, but the zone of morning highs served as resistance and the Nasdaq only managed to return to the middle of its 15 minute congestion zone before reversing course once again.

The three-wave trend rally from 10:05-10:45 ET was substantially slower than the decline into the morning lows, but it was not a slower-than-average move. This created a higher probability of a trading range heading into noon. The market used this range to shift momentum to once again favor the bears going into the early afternoon, but not on a scale that was large enough to break the zone from the morning's range. Slower upside congestion from 11-12ish broke lower to trigger a short on a 5 minute time frame into the early afternoon, but the setup was in the upper half of the session's range, making previous lows a strong support level. That level hit at 13:30 ET and held for the remainder of the session.

Although the market had some decent setups on 1-2 minute time frames with very consistent trend development, the moves lacked much follow-through on the 5 minute time frame. On the 15 minute charts it just comes across as a series of overlapping candlesticks with a slight upside bias into 15:00 ET and downside again within the range going into the close.

S&P 500 ($SPX)
http://www.tradingfrommainstreet.com/images/FocusLetter/20091028sp.gif

The Dow Jones Industrial Average ($DJI) rose 14.21 points, or 0.14%, on Tuesday to close at 9,882.17. Approximately half of the Dow's index components posted a gain. They were led by American Express (AXP) (+3.07%), Exxon Mobil (XOM) (+2.29%), and Verizon (VZ) (+1.96%). The top losers were Alcoa (AA) (-3.54%), Disney (DIS) (-1.68%), and Hewlett-Packard (HPQ) (-1.17%).

Meanwhile, the S&P 500 ($SPX) fell 3.54 points, or 0.33%, and closed at 1,063.41. Crude oil futures closed higher by 1.1% on the session at $79.55 a barrel from Monday's close of $78.68.

The Nasdaq Composite ($COMPX) fell 25.76 points, or 1.20%, and it closed at 2,116.09 on Tuesday. Baidu.com (BIDU) was the biggest decliner in the Nasdaq-100. It fell 11.39% after issuing a warning for the fourth quarter. It was down even further into the open at $355.71, but recovered to close at $383.66. It had ended Monday's session at $432.97. Wynn Resorts (WYNN) was also a major decliner. It fell 11% after reporting a third-quarter profit loss.

Nasdaq Composite ($COMPX)
http://www.tradingfrommainstreet.com/images/FocusLetter/20091028nas.gif

Tuesday's action was very favorable for a continuation of a larger daily and weekly correction. Even though the weekly correction won't confirm until the 50 day simple moving average breaks, the daily one has already done so thanks to Monday and Tuesday's action. All three of the major indices are now under the 60 minute 20 period simple moving averages. This had served as support throughout October's uptrend.

The selloff has since brought the indices into 60 minute 200 sma support. The momentum has established a larger shift, however, and even though we can still see some reaction off this zone, the next daily support is not until that 50 day sma. I am expecting that within the month we will see it broken and the market at 100 day sma levels. Keep in mind that October is a major monthly correction period, so when we combine this with the weekly and monthly resistance I've talked about over the past several weeks, it should be extremely difficult to break this zone on the upside without first correcting on the larger weekly time frame.