Market Hits New Highs on the Year

Market Hits New Highs on the 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! The markets pushed once again to new highs on the year on Monday to kick off the new trading week. The main event to draw the attention of market participants on the day was a speech by Federal Reserve Chairman Ben Bernanke in which he reiterated his position that the economy is still too weak to warrant any shift in the current interest rate policy and indicated that rates would remain at these levels with no immediate plans to raise them.

Well before Bernanke's speech, however, the market was already pushing higher. A base along premarket highs had broken to new highs in the early morning hours. This created an upside gap into the opening bell. The gap itself broke the indices out of the base along daily highs from the previous three sessions. Despite the gap, the market was still off premarket highs at the open due to a negative reaction to 8:30 am ET economic data. Retail sales and November's Empire Manufacturing index came out at that time.

The Commerce Department reported that retail sales increased by 1.4% last month, which was better-than-expected. Auto and auto-parts sales alone had a 7.4% increase though, and when autos were excluded from the data the retail sales increase shrunk to an increase of 0.2%. This was below the 0.4% analysts had been anticipating. September sales were also revised lower to a drop of 2.3% compared to the initial reading of negative 1.5%. Additionally, U.S. businesses reduced their inventories by 0.4% with business sales down 0.3%.

In other news, the New York Federal Reserve Bank reported that its Empire State Manufacturing Index for NY indicated a slower rate of expansion than the previous month. The November reading came in at 23.5 compared to 34.6 in October.

Dow Jones Industrial Average ($DJI)


The buying returned in the markets immediately out of the opening bell on Monday. In fact, the rally was so strong that the index futures overtook premarket highs within the first 15 minutes of the day. The pace of the buying slowed following the first 15 minutes of the day, but didn't fall into the first price correction until the 10:15 ET correction period. Even at that time, however, the market didn't pull back sharply. Instead the indices congested and highs. The market then spent the better part of the day trying to push past the early morning resistance. Even though the indices did manage slightly higher highs intraday, they held the range of congestion and the higher highs merely created a trap scenario that allowed for the lower end of the channel to break very rapidly.

The market also found it easy to break lower on Monday afternoon thanks to light volume accompanying the attempts to push to higher highs and the pace of the buying. The market pulled back quickly at 12:15 ET and the buying that followed was substantially slower. This change in momentum became even more pronounced after 13:30 ET. From 13:30 into 14:45 ET the market crept higher as it hugged the 5 minute 20 sma zone and paced more gradually higher than the 15 minute 20 period simple moving averages. These also played a large roll in the reversal which triggered when the 5 and 15 minute 20 period simple moving averages gave way, along with the lower end of that mid-afternoon trend channel. The market found support at approximately 15:15 ET, but by that point it had taken back more than half of the intraday gains.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) rose 136.49 points, or 1.33%, on Monday to close at 10,406.96. 26 of the Dow's 30 index components posted a gain. They were led by a 3.55% gain in Boeing (BA), a 3.26% gain in Alcoa (AA), and a 2.76% gain in Caterpillar (CAT). These companies benefited from the lower dollar. The U.S. Dollar Index slipped from 75.425 on Friday to 74.96 on Monday. It is currently down 1.98% on the month and 8.75% YTD. The losers were mixed and mild. The top loser was Bank of American (BAC), which fell 0.69%.

Meanwhile, the S&P 500 ($SPX) rose 15.82 points, or 1.45%, and closed at 1,109.30. Sprint Nextel (S) was the biggest gainer in the S&P 500. It rose 12.90% after announcing that it was paying down $1 billion in debt. Following Sprint, energy and metal stocks were the main leaders. Top performers included Titanium Metals (TIE), which rose 9.98%, and AK Steel (AKS), up 7.94%. Gold futures hit new record highs ones again and closed at $1,138.60. Meanwhile, crude oil futures rose from $76.35 a barrel on Friday to end the session on Monday at $78.90 a barrel in New York.

The Nasdaq Composite ($COMPX) rose 29.97 points, or 1.38%, and it closed at 2,197.85 on Monday. Only about a dozen stocks in the Nasdaq-100 posted a loss. Research in Motion (RIMM) (-2.27%) was the biggest loser, but other top names included Amazon.com (AMZN) (-1.04%), Juniper Networks (JNPR) (-0.73%), and Qualcomm (QCOM) (-0.57%).

Nasdaq Composite ($COMPX)


In yesterday's column I posted the following: "The market is in a trading range on the 60-minute time frame heading into the new week. Since the indices were able to recover so well on Friday, it continues to leave the door open to higher highs this week, albeit with the slower overall momentum than compared to earlier this month. This would shift the momentum as the market continues to correct at this daily resistance zone from the upper end of the daily trend channel. If the channel does break strongly and does not continue to show a momentum shift, however, then the next main daily resistance is about 11200 in the Dow. Whenever the market has moves like this, I tend to stick to intraday action for the most part unless trading a stock that does not move closely in tandem with the overall market."

The market did have the higher highs, but the momentum intraday was still quite strong. This does not mean it will sustain it, however, since it is typical to see sharp moves on the upside intraday even as the overall pace shifts on a larger time frame for the larger trend channel. In this case that would mean a shift in the 60 minute trend channel. This would need to take place on Tuesday and bring the indices back to the 15 min. 200 sma zones before bouncing again in order to continue to show a decent shift in momentum at the upper end of this daily trend channel. If the market remains strong this week, then we are still looking at the 11200 zone as the next major Dow resistance.


Note: I will be at the Traders Expo Las Vegas for the remainder of the week. As a result, this column will be on hold until next Monday. I look forward to seeing many of you this week!