Week-to-Date Gains Completely Eliminated

Week-to-Date Gains Completely Eliminated

(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! Well... unless you are a bull! Stocks took a bearing on Thursday after several days of light, but steady gains as the indices corrected off last Friday's support. As I mentioned in yesterday's column, the Nasdaq had been trading steadily higher for three days, during which time it held the 15 minute, 20 period simple moving average. It is EXTREMELY rare for any of the major indices to manage this feat past Day 3, so the index was due for a price correction. Meanwhile, the S&P 500 and Dow Jones Ind. Ave. had fallen sharply off Wednesday morning highs and then formed a base into the closing bell with two-waves of upside in it. This created the start of an Avalanche™ pattern, which is the term I use for a specific pattern that serves as the first continuation setup to kick off a new downtrend.

Dow Jones Industrial Average ($DJI)


The index futures already began to follow through on this bearish bias in the early morning hours on Thursday with continued concerns over Europe's economy, particularly Greece, which continued to make headlines. When the latest jobs data came out, however, the bottom completely gave way. The light volume that had accompanied the week-to-date rally meant that the bulls were already nervous and there was not a lot of upside participation. Those that had been on edge heading into Thursday morning threw up their hands by the time the opening bell rang.

Initial claims for jobless benefits increased by 8,000 to 480,000 last week. This took economists by surprise. They had been expecting it to fall to 454,000. The four-week moving average also increased. The reaction was immediate and the indices resumed their decline, but at a faster pace. Commodity prices were particular affected, while the U.S. Dollar rallied on the news. By the end of the session, both the materials and financials sectors in the S&P 500 had fallen by more than 3.7%. Keep an eye out on Friday for the the government's nonfarm payroll report for January.

S&P 500 ($SPX)


The sharpest intraday selling on Thursday took place in the first 30 minutes of trade following the opening bell. By the time the indices found initial support, they had already wiped out the week's gains. The selling did not end, but the pace of the selloff did shift. A series of two-wave continuation patterns, or bear flags, continued to trigger sell setups into the final hour of trade and all three of the major indices ended the session at lows. Only the Nasdaq managed to keep from breaking to new lows on the week, but even it closed at that previous level of support.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) ended the session on Thursday at 10,002.18 with a loss of 268.37 points, or 2.61%. Only Cisco (CSCO), which had gapped higher on a positive earnings report, managed to post a gain in the Dow. It gave up a hefty portion of the early-morning gains, however, and only ended the session higher by o.39%. Financials were the biggest losers. Bank of America (BAC) fell 5.02%, while J.P. Morgan (JPM) followed with a loss of 4.82%. Other top losers were Alcoa (AA) (-4.3%), and Merck (MRK) (-4.18%).

The S&P 500 ($SPX) fell 34.17 points, or 3.11%, and closed at 1,063.11. Less than a dozen of the S&P 500's index components posted a gain. The top performers were retailers, including Abercrombie & Fitch (ANF) (+3.91%), Macys (M) (+2.65%, Gap (GPS) (+2.42%), and Big Lots (BIG) (+1.54%). Top losers were MEMC Electr. Materials (WFR) (-14.89%), Monster Worldwide (MWW) (-12.36%), and Eastman Kodak (EK) (-11.42%).

The Nasdaq Composite ($COMPX) fell 65.48 points, or 2.99%, and it closed at 2,125.42 on Thursday. Only CSCO, Teva Pharmaceutical (TEVA) (+0.22%) and Costco (COST) (+0.17%) posted gains in the Nasdaq-100. The biggest losers were Steel Dynamics (STLD) (-7.10%) and Joy Global (JOYG) (-6.95%).

The market's can still slip lower ahead of the weekend, but we are not likely to see the same momentum repeated. The economic data due out in the morning, namely the employment data, will play a central role, so I suggest waiting for data to be released and focus upon trading the reaction instead of speculating on it ahead of time. The market has room at this point on both the upside and downside intraday without a strong bias, so the news will likely be the determining factor.