Dow Closes Under 10K

Dow Closes Under 10K

(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 indices spent the majority of Monday's session flirting between positive and negative territory as they tried to hold onto last Friday's afternoon gains. In the end, the bulls lost that struggle and the Dow Jones Industrial Average closed under 10,000 for the first time since November.

Monday's session began relatively unchanged from Friday's close, which took place at price resistance, as shown on the 15 minute time frames for the three major indices. The market maintained this range throughout the first half of the trading day, but edged slightly higher within that range. This series of slightly higher highs was too premature on that 15 minute time frame to sustain a decent continuation move to break to the upside, so the morning's action merely created a "rounded high" intraday. This is a bearish formation, which eventually gave way to strong afternoon selling.

Dow Jones Industrial Average ($DJI)


The morning highs took place heading into the 11:15 ET correction period in the S&P 500 and Dow Jones Ind. Ave. Both indices were also testing 5 minute 200 sma resistance at this point. The Dow held its own moving average perfectly. The reversal was gradual to begin with. A failed attempt at a two-wave pullback off the highs on the 5 minute time frame for a buy setup into noon was followed by congestion along the 5 minute 20 sma in the indices. This support gave way at the 13:00 ET correction period. Volume had dropped off dramatically as the indices were congesting at the 5 minute 20 sma between 12:00-13:00. This indicated a lack of interest on the part of the bulls and made it easy for the support to break strongly lower when the next correction period hit.

An initial decent out of 13:00 ET found support at 14:00 ET. The markets returned once again to the 5 minute 20 sma. This time it served as resistance. The indices slid down that resistance, picking up momentum as the afternoon wore on. This momentum increased after 15:00 ET. A small bear flag on the 5 minute charts once again held the 5 minute 20 sma and the strongest descent of the day took place heading into the closing bell. All three of the major indices finished at the day's lows, which were just slightly lower than the lows made in the first 30 minutes of the day.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) ended the session on Monday at 9,908.39 with a loss of 103.84 points, or 1.04%. Home Depot (HD) was the Dow's best performer on Monday. It rose 2.18% following an upgrade from "equal weight" to "overweight" by Morgan Stanley. The financials, however, continued to weigh heavily on the index and Hewlett-Packard (HPQ) was the only other Dow component to post a gain (+0.57%). Bank of America (BAC) led the downside with a loss of 3.47%, followed by a 2.80% loss in American Express. Travelers (TRV) fell 2.45%, while Caterpillar (CAT) shed 1.87%.

The S&P 500 ($SPX) fell 9.45 points, or 9.45%, and closed at 1,056.74. Hasbro Inc. (HAS) was the S&P 500's biggest gainer. It rose 12.69% after beating fourth-quarter earnings expectations. It was followed by a 5.31% gain in CVS Caremark (CVS), which gapped sharply higher after it reported an increase in fourth-quarter profit thanks to same-store pharmacy sales. The home builders were also amongst the top leaders. Lennar Corp. (LEN) rose 4.62%, while KB Home (KBH) was up 3.55%. Pulte Homes (PHM) is due to report earnings ahead of the open on Tuesday. The financial sector fell 2.2%, but all 10 of its index sectors posted a loss. Some of the S&P 500's top losers for the day included Eastman Kodak (EK) (-3.95%), Newmont Mining (NEM) (-3.94%), Massey Energy (MEE) (-3.65%), and Wells Fargo (WFC) (-3.61%).

Nasdaq Composite ($COMPX)


The Nasdaq Composite ($COMPX) fell 15.07 points, or 0.70%, and it closed at 2,126.05 on Monday. The top gainers in the Nasdaq-100 were Nii Holdings (NIHD) (+4.36%), Priceline (PCLN) (+1.86%), Electronic Arts (ERTS) (+1.33%), Dentsply Intl. (XRAY) (+1.25%), and Dell (DELL) (+1.13%). The weakest were First Solar (FSLR) (-2.61%), News Corp. (NWSA) (-2.47%), and Adobe (ADBE) (-2.20%).

In other markets, crude oil futures rose 65 cents a barrel to settle at $71.84 a barrel, while gold rose $10.80 an ounce and settled at $1,063.

There are not a lot of major reports on the economic calendar this week, although earnings season is still in full swing. A couple of reports to watch will be the U.S. government's report on retail sales on Thursday and the consumer sentiment reading on Friday.

The market is currently favoring more downside into Tuesday morning, but the "V" low, followed by the rounded highs on Monday will allow Friday's lows to serve as strong intraday support on the 15 minute time frames. This type of back-and-forth action typically leads to a continued trading range, and that is what appears to be the most likely outcome for the beginning of the trading week.

Yesterday's comments continue to apply to the larger time frames: The best that the bulls can hope for will be a trading range on the weekly time frames in which the momentum shifts from its current stance of favoring sharper selling to one in which downside action is less severe. This would eventually allow the indices to once again break higher as the year wears on. Without that trading range, however, in which the indices bounce back to the zone of the year-to-date highs, the indices can easily form a weekly Avalanche™ with further selling this spring.