Holiday Trading Slowdown in Play

Holiday Trading Slowdown in Play

(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 volume has been light this week due to the U.S. Thanksgiving holiday on Thursday, but that didn't stop the markets from pushing higher on Monday morning. The market has lacked confirmation for a larger price correction off recent highs even though it has been stalling at the upper end of the daily trading range. Heading into Friday evening there was a two-day trading range in place on a 60 minute time frame, but slightly lower lows within the range and increased momentum on the upside into the end of the day left the door open for the markets to break either way out of that range into Monday morning. So did the daily charts, which had started to round off at the highs over the past couple of weeks, but there were still only two highs this month and each was made on strong momentum on the intraday charts. This always makes it possible for a third high to form.

Dow Jones Industrial Average ($DJI)


The market gapped sharply higher into Monday's opening bell. This negated the potential for a breakdown and confirmed a third push higher with strong intraday momentum out of the open even though the larger momentum has been shifting along the upper trend channel lines on the daily charts. The index futures had broken strongly higher out of the 2:00 am ET correction period with the open of markets overseas. They had been trading in a range along premarket highs, so the correction period helped trigger a strong breakout. From 4:00 am ET onward the futures market was once again in a trading range. It formed a base that lasted approximately as long as the one heading into 2:00 am by the time the opening bell rang. This made it very easy for the market to continue higher when that trading range broke to trigger the third wave of upside on the "all-sessions" uptrend.

The morning rally continued strongly into the 10:00 ET existing home sales data. Existing home sales were up 10.1% in October to hit a seasonally adjusted annual rate of 6.10 million. This was substantially higher than the 5.65 million estimate and is currently the highest it has been since February 2007. The first-time-buyer tax credit for new home owners is set to expire at the end of this month and has likely contributed in part to this increase. Despite the seemingly good news, once it hit the wires the market began to turn over. The morning rally was very extended already by that point and simply could not sustain that same momentum throughout the remainder of the morning even though the data itself initially popped the markets to new intraday highs.

The momentum shift at highs triggered the first lower-risk reversal pattern out of the 10:45 ET correction period. The market spent the remainder of the morning slowly stepping lower on the 5 minute time frame. A larger correction through time began around 12:30 ET. The upside momentum off support levels remained slower-than-average, however, and the selling continued into the 2:00 am ET correction period on Tuesday morning.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) rose 132.79 points, or 1.29%, on Monday to close at 10,450.95. Telecoms were the best-performers in the Dow. Verizon (VZ) closed higher by 2.96%, while AT&T followed closely upon its heels with a gain of 2.92%. General Electric (GE) was the next-best performer with a gain of 2.76%. Only Alcoa (AA) and Merck (MRK) posted losses, but they were minor.

Meanwhile, the S&P 500 ($SPX) rose 14.86 points, or 1.36%, and closed at 1,106.24. 434 of its index components posted a gain. Zions Bancorporation (ZION) (+12.51) and Cigna Corp. (CI) (+7.56%) faired the best. Ciena (CIEN) fell +8.88%, while Cephalon (CEPH) lost 8.84% to come in as the .

Gold closed higher by nearly $20 an ounce and closed at $1,164.70. Crude oil was relatively unchanged at $77.51 a barrel. It remains in a strong range at the daily highs.

The Nasdaq Composite ($COMPX) rose 29.97 points, or 1.40%, and it closed at 2,176.01 on Monday.

Nasdaq Composite ($COMPX)


Even though the markets are set to open slightly higher on Tuesday morning, the upper end of that daily channel that is shown in dark red is going to still be a resistance zone today. The lower-risk setups will take place intraday with higher risk on positions that would require multiple-day follow through in order to hit target zones. This is because the market has morning strength, but the momentum is not showing yet that it will sustain the early-morning uptrend. Even if it does, the "V" bottom out of 2:00 AM will make the zone of Monday's highs resistance as well and increases the odds for a trading range on a 30-60 minute time frame. Keep in mind that volume will remain light this week and the markets will continue to slow down. Wednesday afternoon and Friday will be particularly light and there will be less news state-side to create strong setups. Tread lightly!

HAPPY HOLIDAYS AND I'LL SEE YOU MONDAY!!!!