Making a Break for It – Daily commentary by Toni Hansen

January 19, 2011

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DAILY COMMENTARY

Making a Break for It! (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.)

WEDNESDAY’S MARKET WRAP-UP

Market Snapshot for January 18, 2011 (6:23 p.m. ET): Closing Prices: DOW 12,578.95 (+96.88, +0.78%), SandP 500 1,308.04 (+14.37, +1.11%), NASDAQ 2,769.71 (+41.63, +1.53%), Nikkei 225 8,550.58 (-, -%), DAX 6,354.57 (+21.64, +0.34%), FTSE 5,702.37 (+8.42, +0.15%) OIL 101.52, GOLD 1,661.60, SILVER 30.52 EURO 1.2864,YEN 76.81, BRITISH POUND 1.5434, U.S. DOLLAR INDEX 80.82

Price Levels to Watch As the market has crept higher over the past month, it’s been teasing the bulls and bears alike. Although not quite on the scale of the late-October overlap, narrower trading days have seen a great deal of price retracement from one session to the next since late-December. This become risky for the bulls because a breakdown in the trading channel tends to lead to very rapid corrections, such as the one experienced in November. The market threatened such a rapid correction twice over the course of the past week. The first threat took place Friday and into Monday morning. A rapid breakdown on Friday needed only a gradual correction to offer a strong setup for a daily breakdown into the new trading week. The market, however, held on. Instead of offering a second high and a trigger in futures trading on Monday, the index futures pushed higher into Tuesday morning, negating the first attempt. A second attempt took place on Tuesday and into Wednesday morning. Once again, the indices fell quickly off highs and began to congest at the lower end of the trading range. Once again, however, that lower channel held and the market pulled higher throughout most of Wednesday’s session.

Last week I looked at two scenarios as to how the daily channel could play out. The weekly charts had still left room on the upside for a break to last year’s highs, but momentum was shifting compared to December, which indicated a correction. As we saw, that correction offered no further setup on the 15 minute charts for a further correction in price versus the correction it was forming over time. On Wednesday, however, the upper channel level did break in the Nasdaq, offering confirmation on our second scenario by which the market would treat the correction of the prior couple of weeks as more of a trading range and then attempt a break that would be comparable to the mid-December rally. This breakout will have resistance when the move higher this week equals the move higher between the 19th and 27th of December and runs into last year’s highs. The Dow Jones Ind. Average ($DJI) is testing last year’s highs in premarket trade, but the SandP 500 ($SPX) still has room. It also needs more confirmation for the channel break though. It is testing the upper channel of the past several weeks once again ahead of Thursday’s opening bell. This will up pressure on the bulls intraday into the open, but isn’t enough to negate the daily breakout.

INDEX WRAP-UP

The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a gain of 96.88 points, or 0.78%, and closed at 12,578.95. Twenty-seven of the Dow’s thirty index components posted a gain. The strongest performers were Bank of America (BAC) (+4.94%), JP Morgan (JPM) (+4.67%), and Alcoa (AA) (+2.66%). The losers were Boeing (BA) (-0.24%), Microsoft (MSFT) (-0.11%), and Verizon (VZ) (-0.03%). The SandP 500 ($SPX) finished the session with a gain of 14.37 points, or 1.11%, and closed at 1,308.04. The top performing industry groups were the financials (+1.7%), technology (+1.6%), and consumer discretionary (+1.6%). None of the index’s industry groups posted a loss. The top individual percentage performers were Linear Technology (LLTC) (+11.55%), Amphenol Corp. (APH) (+10.96%), Altera Corp. (ALTR) (+9.88%), and Texas Instruments (TXN) (+8.56%). The top decliners were Sunoco Inc. (SUN) (-12.38%), State Street Corp. (STT) (-6.55%), Apollo Group (APOL) (-6.36%). The Nasdaq Composite ($COMPX) ended the session higher by 41.63 points, or 1.53%, on Wednesday and it closed at 2,769.71. The strongest performers in the Nasdaq-100 ($NDX) were Linear Technology (LLTC) (+11.55%), Altera Corp. (ALTR) (+9.88%), and First Solar (FSLR) (+7.48%). The weakest were Apollo Group (APOL) (-6.36%), DirecTV (DTV) (-3.03%), and Fastenal (FAST) (-2.69%).

ECONOMIC REPORTS AND EVENTS THIS WEEK

Jan 9 3:00 PM Consumer Credit Nov Jan 10 10:00 AM Wholesale Inventories Nov Jan 11 7:00 AM MBA Mortgage Purchase Index 01/07 Jan 11 10:30 AM Crude Inventories 01/07 Jan 11 2:00 PM Fed’s Beige Book Jan Jan 12 8:30 AM Initial Claims 01/07 Jan 12 8:30 AM Continuing Claims 12/31 Jan 12 8:30 AM Retail Sales Dec Jan 12 8:30 AM Retail Sales ex-auto Dec Jan 12 10:00 AM Business Inventories Nov Jan 12 2:00 PM Treasury Budget Dec Jan 13 8:30 AM Trade Balance Nov Jan 13 8:30 AM Export Prices ex-ag. Dec Jan 13 8:30 AM Import Prices ex-oil Dec Jan 13 9:55 AM Mich Sentiment Jan International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Jan 12 JPY Eco Watchers Survey: Current (DEC) Jan 12 JPY Eco Watchers Survey: Outlook (DEC) Jan 12 01:00 JPY Machine Tool Orders (DEC P) Jan 12 02:00 EUR German Consumer Price Index (DEC F)*** Jan 12 02:00 EUR German Consumer Price Index – EU Harmonised (DEC F)*** Jan 12 04:30 GBP Industrial Production (NOV) Jan 12 04:30 GBP Manufacturing Production (NOV) Jan 12 05:00 EUR Euro-Zone Industrial Production w.d.a. (NOV) Jan 12 07:00 GBP BOE Asset Purchase Target (JAN)*** Jan 12 07:00 GBP Bank of England Rate Decision (JAN 12)*** Jan 12 07:45 EUR European Central Bank Rate Decision (JAN 12)*** Jan 12 08:30 USD Advance Retail Sales (DEC)*** Jan 12 08:30 USD Retail Sales Less Autos (DEC) Jan 12 08:30 USD Retail Sales Ex Auto and Gas (DEC) Jan 12 10:00 USD Business Inventories (NOV) Jan 12 10:00 GBP NIESR Gross Domestic Product Estimate (DEC)*** Jan 12 14:00 USD Monthly Budget Statement (DEC) Jan 12 23:00 JPY Bankruptcies (DEC) Jan 13 CNY Industrial Production YTD (DEC) Jan 13 CNY Fixed Assets Inv Excl. Rural YTD (DEC) Jan 13 CNY Real GDP YTD (4Q)*** Jan 13 CNY Retail Sales YTD (DEC) Jan 13 NZD REINZ House Sales (DEC) Jan 13 04:30 GBP Producer Price Index Input n.s.a. (DEC) Jan 13 04:30 GBP Producer Price Index Output n.s.a. (DEC) Jan 13 04:30 GBP Producer Price Index Output Core n.s.a. (DEC) Jan 13 05:00 EUR Euro-Zone Trade Balance s.a. (NOV) Jan 13 08:30 USD Trade Balance (NOV) Jan 13 09:55 USD U. of Michigan Confidence (JAN P)***

*** Highly influentialNotice: The Bastiat Group, Inc. has attempted to verify the information contained in this calendar, however, any aspect of such info may change without notice. Foreign economic reports included in this list are only those deemed medium to high impact.

KEY EARNINGS ANNOUNCEMENTS THIS WEEK

Monday, Jan 9, 2012 Before: AYI, AUGT, PENX, ZEP During: – After: AA, MG, OCZ, SCHN, SMSC, VOXX, WDFC Tuesday, Jan 10, 2012 Before: – During: – After: RFMI, SNX Wednesday, Jan 11, 2012 Before: LEN, LEDS, SVU During: – After: NDN, DRWI, EXFO, PRXI Thursday, Jan 12, 2012 Before: INFY, SJR During: BKSC After: ESS Friday, Jan 13, 2012 Before: JPM During:

Note: All economic numbers and earnings reports are in line with those compiled by Briefing.com. Occasionally changes will occur that are made after the posting of this column and some companies have not confirmed their time, so always double check when taking positions overnight during earnings season! (?) = Not yet confirmed at the time the list was compiled.

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