Nasdaq Creeps Higher While S&P and Dow Stall

Nasdaq Creeps Higher While S&P and Dow Stall

(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! Volume continued to drop in the indices as they correct off the recent daily support that held on Friday into the closing bell. Since then, the market has been pulling slightly higher, but without a great deal of conviction. The Nasdaq has been slower overall, but while the S&P 500 and Dow Jones Industrial Average held 60-minute resistance into Tuesday's close, the Nasdaq continued to creep higher. The S&P and Dow had both hit equal move resistance on the larger intraday time frames with Tuesday's rally compared to the one into Monday morning, but the Nasdaq had been reacting more gradually to the support on the daily time frame and did not have a comparable resistance level to deal with.

Dow Jones Industrial Average ($DJI)


All three of the major indices began Wednesday's session with a gap lower into the opening bell. This gap quickly filled, however, within the first 15 minutes of the day. The gap closure level served as resistance and the pace of the buying slowed. The indices rounded off at these highs and then turned lower once again into the 10:15 ET correction period. The S&Ps and Dow both hit slightly lower lows on this reversal, but the Nasdaq was able to hold lower channel support on the 15 minute chart, along with the opening lows. When it bounced into 11:15 ET, it managed to establish a slightly higher high, while the S&Ps and Dow were merely forming two-wave corrections off the lows into 5 minute 20 sma resistance. This two-wave corrective action is typical for a continuation pattern in the direction of the previous trend and the lighter volume on the bounce helped the two indices turn strongly lower into noon.

Noon is a typical reversal period for the market intraday. Major intraday highs or lows are often made within 5 minutes of this time. In this case, another slightly lower low had formed in the S&Ps and Dow, while the Nasdaq was again at lower channel support, but in the upper half of the day's range (shown on the 15 min. charts). The volume was lighter on this selloff than the earlier morning action, allowing the support and the correction period to hold. The slightly lower lows in the S&Ps and Dow formed at a slower pace than the 10:15 ET decline, so the second low served as a bear trap, allowing the market to bounce back quickly into the early afternoon.

S&P 500 ($SPX)


The Nasdaq broke to new highs on the session as the market came out of the 13:00 ET correction period. This push higher took the S&Ps and Dow higher as well. The Dow pushed for a retest of the morning highs, but the S&Ps fell a little short of them and ended up hugging the 15 minute 20 sma resistance throughout the remainder of the session, while the Dow and Nasdaq congested in the upper 50% of the day's range until the closing bell. Despite this trading range, the range itself was not very choppy on the 2-5 minute charts and there were nice swings on the smaller time frames that were favorable for scalpers.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) ended the session on Wednesday at 10,270.55 with a loss of 26.30 points, or 0.26%. Although the Dow's gainers amounted to less than a third of the Dow's index components, its losses were minor. The top performers were Disney (DIS) (+2.57%), McDonalds (MCD) (+1.84%), Wal-Mart (WMT) (+1.46%), and 3M (MMM) (+1.33%). Pfizer (PFE) was the worst-performer in the Dow, falling 2.31% after it missed earnings estimates. Merck (MRK) followed with a loss of 2.07%.

The S&P 500 ($SPX) fell 6.04 points, or 0.55%, and closed at 1,097.28. Lexmark Intl. (LXK) was again a leader in the S&P 500. It closed higher by 7.50%. News Corp. (NWSA) followed with a gain of 7.13%. CBS Corp. (CBS) rose 4.56%. Western Union (WU) fell 8.91%, Polo Ralph Lauren (RL) fell 8.36%. Ryder Sys. (R) fell 7.74%. These were the top losers in the S&P 500.

The Nasdaq Composite ($COMPX) rose 0.85 point, or 0.04%, and it closed at 2,190.91 on Wednesday. NWSA was also the best-performer in the Nasdaq-100. It was followed by a 5.54% gain in Baidu (BIDU), a 3.40% gain in Research in Motion (RIMM), and a 3.39% gain in IAC Interactive Corp. (IACI). The Nasdaq-100's biggest losers were CH Robinson Worldwide (CHRW) (-6.76%), followed at a distant second by Millicom Intl. Cellular (MICC) (-2.81%). Cisco (CSCO) reported earnings of 40 cents a share after the close, beating estimates with net sales up 8% year-over-year, creating strong afterhours activity that should result in a good upside gap into Thursday morning.

In other markets, crude oil futures fell 25 cents to settle at $76.98 a barrel followed the Energy Information Administration's report that crude-oil inventories rose 2.3 million barrels last week. This was less than the 4.7 million increase reported by the American Petroleum Institute on Tuesday. The EIA meanwhile reported that gasoline inventories fell by 1.3 million barrels.

Earlier in the day on Wednesday, the Institute for Supply Management also reported that there was only a small gain in its non-manufacturing index with a reading of 50.5%, while the employment sub-index remained weak at 44.6%. Under 50% is contraction. The rate of those who are unemployed or underemployed in the U.S. is currently over 17%.

The indices are likely to fall back once again on Thursday. The Nasdaq has been on a three-day push higher and it is extremely unusual for an index to push higher for three days and still be able to maintain a trend that is above or hugging the 15 minute 20 period simple moving average. The S&Ps and Fow are also forming potential 15 minute Avalanches™ with two waves of upside in the afternoon following the stronger morning decline. This is also bearish for the short-term.