Market Recovers Wednesday's Losses

Market Recovers Wednesday's Losses

(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 one of the strongest waves of selling in nearly a month, the market managed a fairly decent recovery on Thursday. This earnings season has seen its share of strong up and downside moves as the indices play with larger daily and weekly resistance zones. The extreme descent Wednesday afternoon made it impossible for the market to pivot as sharply off a low as the majority of its selling, but the indices pulled through with an alternative recovery plan. Instead, the pace of the selling slowed, but continued into Thursday morning. This created a shift in momentum, similar to speeding car heading into a sharp curve.

Dow Jones Industrial Average ($DJI)


The market held lows at 10:00 ET, but the momentum did not quickly return on the upside. Instead, the pace continued to shift, created an even more rounded appearance on a 15 minute time frame. The S&Ps and Dow experienced the strongest initial recovery. They rallied into the 5 minute 20 sma, based, and then broke higher into 15 minute 20 period simple moving average resistance before falling into a longer mid-day range. The Nasdaq also pulled higher at this point, but not to the same extent. It waited until afternoon to push to that same 15 minute resistance level. The indices based throughout the lunch hour and broke higher at 12:30 ET. This move took the Nasdaq into its own 20 sma, which hit around the 13:00 ET correction period.

Even though the market made a slightly higher high at 13:00 on a 5 minute time frame, the overall concept for the mid-day activity into 14:00 was a 2-wave correction coming out of the 10:00 rally on the 15 minute time frame. This was why the market based along the 15 minute 20 sma for about as long as it took to rally before it broke higher and why that breakout at 12:30 could not establish an equal move as compared to the initial rally. However, when comparing the continuation out of 14:00 ET to the one from 10:00-11:15 ET in the S&Ps and Dow, you will notice that the moves are nearly identical in terms of both the pace of the rally and the extent of the rally in the Dow, albeit stronger in the S&Ps and Nasdaq. The stronger afternoon pace in those two indices allowed them to overshoot a typical equal move target.

The greatest afternoon strength was the 14:00 move on the 5 minute time. Just as in the 10-11:15 ET move, however, the afternoon move came in two waves. The second began just prior to 15:00 ET. At that point the pace shifted on the 5 minute time frame, slowing the ascent. The market still made it back into the zone of congestion from Wednesday afternoon, but that level served as strong resistance and the indices fell back slightly into the close.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) gained 131.95 points, or 1.33%, on Thursday to close back above the 10K mark at 1,081.31. 26 of the Dow's 30 index components posted gains on the year. Travelers Companies (TRV) was the best performer in the Dow. It broke sharply higher with a weekly 2-wave breakout and gap trigger coming out of earnings. It ended the session higher by 7.66%. 3M (MMM) also continued a daily and weekly breakout and was up 3.22%. American Express (AXP) came back from earlier losses and came in second place with a gain of 3.83%. General Electric (GE) was the worst performer. It fell 1.22%. Kraft (KFT) lost 1.13%. WalMart (WMT) and Verizon (VZ) also posted small losses.

Meanwhile, the S&P 500 ($SPX) rose 11.51 points, or 1.06%, and closed at 1,092.91. New York Times (NYT) was the biggest winner in the S&P 500. It had a setup very similar to TRV and the gap higher led to a gain of 22.51% on the day. Crude oil held steady at the daily resistance zone, down fractionally from $81.37 a barrel on Wednesday to $81.19 a barrel.

The Nasdaq Composite ($COMPX) rose 14.56 points, or 0.68%, and it closed at 2,165.29 on Thursday. Sears Holding (SHLD) was the strongest intraday gainer in the Nasdaq-100. It rose 5.33%. Amgen Inc. (AMGN) was the largest decliner. It fell 4.29%, followed by eBay (EBAY), which lost 4.23%. Amazon.com (AMZN) shares surged nearly 15% afterhours when they beat analyst estimates, earning $199 million in the third quarter, or $0.45 a share with revenue of $5.45 billion.

Nasdaq Composite ($COMPX)


This week, 75 of the S&P 500 index components are posting earnings, as well as 11 Dow components. Microsoft (MSFT), Honeywell (HON), Whirlpool (WHR) and Schlumberger (SLB) are due to report on Friday.

The recovery on Thursday has left the market with a type of "V' bottom that will most often lead to a trading range and difficulty breaking the prior high without a longer reaction off that level. This makes it most likely that the market will have a difficult time continuing the reversal that has taken place since hitting lows late Wednesday afternoon.

Both the S&P 500 and Dow Jones Industrial Average are still hitting larger time frame resistance with equal move zones hitting on the weekly time frames on this current rally off the July lows as compared to the move from March into early June. Additionally, they are striking their 100 week simple moving averages. As I mentioned yesterday, however, slower waves of intraday upside and a break in the 50 day moving averages will be necessary to confirm a larger weekly correction.

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