Market Continues to Edge Higher Off Daily Support Levels

Market Continues to Edge Higher Off Daily Support Levels

(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 market continued to push higher on Tuesday after reacting to daily support off Friday's lows. The indices had sold off sharply in the third week of January, but that selling pace abated last week after the indices struck support at the 100 day simple moving averages in the major indices. This momentum shift helped the indices pull higher this week, although volume has been light and the upside pace off the lows has been fairly comparable to the final stages of the selloff last week. As expected, the S&Ps and Dow Jones Industrial Average had the strongest reaction to the support since the momentum shift last week was more pronounced in those two indices than in the Nasdaq, which had been weighed down by technology shares.

Dow Jones Industrial Average ($DJI)


The market opened slightly higher on Monday morning, but failed to push past the 15 minute highs to begin with. The indices pulled back to close the minor gap over the course of the next 15 minutes. The S&Ps and Dow experienced gradual corrections into their 5 minute 20 period sma support, while the Nasdaq continued to display greater weakness.

Things turned around rather quickly once the 10:00 ET pending home sales data was released by the National Association of Realtors. According to their index of pending home sales, sales were up 1% in December. They had fallen 16.4% the month before. This outcome was better-than-expected and the homebuilder D.R. Horton (DHI) also helped promote a positive mood after it reported a quarterly profit for the first time in nearly three years.

The market moved strongly higher on the 5 minute time frame out of the pending home sales data until the S&Ps and Dow both hit strong 15 minute resistance at prior 15 minute highs from Friday. This resistance level hit at approximately 10:30 ET and the market correction with a trading range into noon. The data-driven move was the strongest of the day, but the indices still managed to spend the remainder of the session in an uptrend. The 5 and 15 minute 20 sma served as support throughout that uptrend. A series of 2-wave bull flags led to minor buy setups throughout the day that corresponded well with the intraday correction periods. The final one took place out of the 15:00 ET correction period before the indices pulled back slightly in the final 30 minutes of trade to close just off the day's highs.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) ended the session on Tuesday at 10,296.85 with a gain of 111.32 points, or 1.09%. All of the Dow's 30 index components posted a gain on Tuesday except for two, which were once again only minuscule losses of under 0.1%. These exceptions were DuPont (DD) and 3M (MMM). Two-thirds posted gains of over 1%. The leaders were General Electric (GE) (+3.69%), Merck (MRK) (+3.24%), Pfizer (PFE) (+2.39%), J.P. Morgan (JPM) (+2.32%), and Alcoa (AA) (+2.32%).

The S&P 500 ($SPX) rose 14.13 points, or 1.30%, and closed at 1,103.32. Eastman Kodak (EK) (+12.83%) was the biggest gainer in the S&P 500. It was closely followed by an 11.98% gain in Lexmark Intl. (LXK), a 10.92% gain in D R Horton (DHI), and a 10.10% gain in Emerson Elec. (EMR).

Nasdaq Composite ($COMPX)


The Nasdaq Composite ($COMPX) rose 18.86 points, or 0.87%, and it closed at 2,190.06 on Tuesday. Hologic Inc. (HOLX) was the best-performer in the Nasdaq-100, rising 8.72%, while Flextronics (FLEX) and Seagate Tech. (STX) both followed with a gain of 3.80% each. Qualcomm Inc. (QCOM) (-1.28%) and Wynn Resorts (WYNN) (-1.07%) were the two biggest losers in the Nasdaq-100.

In other markets, crude oil futures continued to react to the daily support that also hit last week and closed higher by $1.27 a barrel at $77.19. Gold was also on the rise and closed higher by $10.50 at $1,115 an ounce.

My outlook has not changed a great deal since yesterday. The market is likely to continue to hold this daily support zone into Wednesday. There is also still the higher risk of decent day-to-day overlap throughout the week, particularly in the weaker Nasdaq. The 15 and 30 minute charts are showing resistance into Tuesday's close, so there is a good chance for a pullback into Wednesday as the indices correct to a greater degree off that resistance.