Week Ends at Highest Levels in Over a Year

Week Ends at Highest Levels in Over a Year

(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! Friday's activity intraday bore a strong resemblance in the S&P 500 and Dow Jones Industrial Average on Friday as compared to Thursday's activity with one noticeable difference: Whereas on Thursday the market made new highs on the year, Friday's session was spent primarily in negative territory due to a strong gap lower into the opening bell and continued weakness into 10:00 AM ET.

Contributing heavily to Friday's losses were disappointing earnings from Bank of America (BAC), IBM, and General Electric (GE). BAC fell 4.64% when it posted a larger-than-expected loss of -$0.26 a share for the third quarter. The financial sector ended the session lower by 2.6%. IBM beat earnings and raised its 2009 earnings forecast, but overall it was still down from last year. GE also had better-than-expected earnings, but its capital finance business experienced a 20% year-over-year drop in revenue.

Dow Jones Industrial Average ($DJI)


When the opening bell rang on Friday morning it was the S&P 500 and Dow Jones Ind. Ave. that took the biggest hits. Both, however, opened at strong support from the 5 minute 200 period simple moving averages, while the Nasdaq Composite opened into price support from lows of the prior two days. This support zone held throughout the first 25 minutes or so of the session, although they were not able to adequately able to push through the 15 minute high zone. The gap itself had triggered a larger channel break on the 30 minute charts after the indices had hit strong equal move resistance into Wednesday's highs. This triggered a larger correction on the 60 minute time frame.

The market turned lower after holding up in that first 15-25 minutes of the day and did so with increasing momentum. By 10:00 ET all three of the major indices had broken to new lows. The Nasdaq, which had held up the best into the open, fell the sharpest into 10:00 ET. This morning selloff lasted until all three of the indices ran into strong support between 10:00-10:15 ET. The Nasdaq support hit at its 15 minute 200 period simple moving average after closing the gap from 10/14. The S&P 500 and Dow both fell into the lows from 10/14, which served as strong price support. These levels held extremely well and served to end the sharp descent.

Due to the pace of the morning's selloff, the market was not able to react quickly and decisively off the 10:00-10:15 ET lows. The bounce did take back a large chunk of the continuation selloff in the Dow and S&Ps (about 50%), but the pace allowed the market to still pull back into the lows heading into the 11:00 ET correction period. This time the pace of the selling was more gradual. A slightly lower low in the S&Ps and Dow created a 2B reversal off lows in the form of a double bottom trap. The Nasdaq established a slightly higher low, so it formed a Phoenix™ into 11:00 ET. The follow through allowed the indices to retest the prior 5 minute highs, but the "V" bottom meant that the market was not able to easily bust through that resistance. This was similar to what the market experienced around 12:15 ET on Thursday.

S&P 500 ($SPX)


The market continued to follow in Thursday's footsteps with another pullback into noon was was reminiscent of the correction into 13:00 ET on Thursday. It found support just off the previous lows and rallied a large chunk of the prior 5 minute decline before falling into a sideways range on the 5 minute time frame from about 12:15-13:00 ET. The comparable base on Thursday took place between 13:30-14:30 ET. Volume was light, which supported a congestion move in favor of a continuation breakout. The breakout was slow to begin with, but by 13:15 the pace had increased dramatically and it pulled the S&Ps and Dow to slightly higher highs on the day. The rally hit resistance with the middle of 15 minute congestion in the indices in the Dow and Nasdaq, the 5 minute 200 sma in the Nasdaq, morning highs in the Nasdaq, and Thursday morning highs in the S&Ps. The pace slowed into this resistance and the market corrected off afternoon highs going into 14:00 ET.

At this point the market lost touch with Thursday's follow through and had a more difficult time making headway into the close. Despite a push higher out of the 15:00 ET correction period with a 2 wave continuation setup, the momentum on the follow through was very weak, and the indices easily fell back into the close. This weakness continued into Sunday evening in the index futures and leaves the market poised for another gap lower and a continuation off the correction of last week's highs into the new week.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) fell 67.03 points, or 0.67%, on Friday to close at 9,995.91. Just over half of the Dow's 30 index components posted a loss on the day. The largest decliner was IBM, which fell 4.95%. The second biggest loser in the Dow was Bank of America (BAC). It fell 4.64%. General Electric rounded out the list of Dow components that fell over 4%. It closed lower by 4.23%. The top gainer was Boeing (BA) (+2.76%). Kraft Foods (KFT) posted a gain of 1.50%. McDonald's (MCD) closed higher by 1%.

Meanwhile, the S&P 500 ($SPX) fell 8.88 points, or 0.81%, and closed at 1,087.68. Intercontinental Exchange (ICE) was the top gainer in the S&P 500, up 7.73% after breaking out of a symmetrical triangle on the daily time frame. Micron Technologies (MU) (-8.09%), Advanced Micro Devices (AMD) (-7.27%), and MBIA Inc. (MBI) (-6.44%) were the top losers.

The Nasdaq Composite ($COMPX) fell 16.49 points, or 0.76%, and it closed at 2,156.80 on Friday. Most of the Nasdaq-100 shares ended lower on Friday, but there were a couple of standouts. The top gainer was Google (GOOG) which rose 3.75%. Oracle (ORCL) closed higher by 2.30%. Yahoo (YHOO) rounded out the top three with a gain of 1.76%.

This week, 75 of the S&P 500 index components will be posting earnings (61 has posted so far), as well as 11 Dow components. Top names to keep an eye on will be Apple Computers (AAPL) on Monday after the close; Coca-Cola (CO), DuPont (DD), Pfizer (PFE), and United Technologies (UTX) on Tuesday; Boeing (BA), Freeport McMoRan (FRX), Morgan Stanley (MS), and Wells Fargo (WFC) on Wednesday; 3M (MMM), AT&T (T), Dow Chemical (DOW), McDonald's (MCD), and Merck (MRK) on Thursday; and Microsoft (MSFT) on Friday.

The market hit some very strong resistance on a daily time frame this past week, not only from the 10K level in the Dow, but also equal move price resistance as compared to the prior daily rally. This leaves it most likely to continue to correct from that level into this week, but the pace of that correction does not look like it will be extremely strong to begin with other than some more rapid shorter term moves within a larger, slower pullback. This momentum is going to have to shift to a greater extent for the market to show signs of confirmation for a larger daily or weekly correction.