January 11, 2011
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DAILY COMMENTARY
Bulls Continue to Struggle as Volume Remains Light (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.)
TUESDAY’S MARKET WRAP-UP
Market Snapshot for January 10, 2011 (10:30 p.m. ET): Closing Prices: DOW 12,462.47 (+69.78, +0.56%), SandP 500 1,292.08 (+11.38, +0.89%), NASDAQ 2,702.50 (+25.94, +0.09%), Nikkei 225 8,422.26 (+31.91, +0.38%), DAX 6,162.98 (+145.75, +2.42%), FTSE 5,696.70 (+84.44, +1.50%) OIL 102.17, GOLD 1,631.80, SILVER 29.90 EURO 1.2773, YEN 76.84, BRITISH POUND 1.548, U.S. DOLLAR INDEX 81.175
Upside continues, but… After a jump start to kick off the New Year, which resulted in a solid opening gap to the upside last Tuesday, the market spent the remainder of the week trying to figure out what to do next. The week’s congestion had a bias in favor of a bullish resolution, but the question was whether that resolution would be merely a trap for the bulls, or a solid upside breakout. So far, that question still remains.
The gains made so far this week have been thanks to the rally that began afterhours on Monday and continued throughout the evening and into Tuesday’s opening bell. The steady buying, which held 15 minute 20 simple moving average support throughout, began to see a shift in momentum after 6:00 a.m. ET. By 8:30 a.m. ET the SandP 500 ($SPX) and Dow Jones Ind. Average ($DJI) futures had both experienced a second, slightly higher high in premarket trade and were pulling back once again just prior to the bell. A third slightly higher high followed when the 10:00 a.m. ET wholesale inventories data came out. The resulting pattern was a Momentum Reversal Short (TM) in the SandP 500 futures. This led to a selloff that lasted into the early afternoon and resumed at the 15:00 ET correction period and into afterhours trade. As expected, intraday buy setups were few and far between in the overall market and were primarily limited to 2-5 minute charts. The wholesales data that “popped” the market was an increase in sales by 1.6%, while inventories were up 0.1%. Although inventories were less than anticipated, the increase in sales was welcomed, although the jump in the market that followed was exactly what the market needed to create yet one more bull trap to complete the Momentum Reversal (TM) pattern that triggered shortly thereafter.
The weak action following the morning’s data was not the only reason the bulls would have to be concerned that the 30-minute upside breakout is still without a solid foothold. As we saw on the premarket charts in the SandP 500, a series of slightly higher highs following a stronger rally can lead to rapid corrections that can wipe out a large portion of those gains in a fraction of the time it took to establish them. The daily charts of the indices are forming this same pattern with momentum shifting. The strongest upside began on December 20th, but the first high on that rally was made on the 28th. This was followed by a second slightly higher high last Tuesday. Now the formation of a third is under way. The weekly charts still have some room to move before striking resistance more solidly on the upside, even though the daily charts suggest hesitation. The 10-day moving average is serving as the support for the current move on the daily time frame. In order to avoid a stronger daily pullback, we want to see that support level hold. Unless the upper channel from the past several weeks breaks to the upside over the next several days, however, I will be using a great deal of extra caution on long positions, particularly in the indices, and will be focusing on smaller time frames for setups in that direction. A break in the upper channel Wednesday, however, can kick of another wave of buying comparable to the December 20-28th move. This is not something that is typically likely given the daily price action, but has increased potential due to the wiggle room still available on the weekly charts, which could treat this as a weekly breakout from the October to December congestion and would treat the December 28th and January 3rd highs as part of a two-wave continuation move on the upside. Whether we see this breakout continuation on the upside confirm or the Momentum Reversal (TM) instead will depend upon smaller changes in momentum intraday and a break in the channel of the past two weeks will provide confirmation, albeit not typically the best entry triggers. (These occur intraday on the smaller time frames.)
INDEX WRAP-UP
The Dow Jones Industrial Average ($DJI) ended the day on Tuesday with a gain of 69.78 points, or 0.56%, and closed at 12,462.47. Twenty-three of the Dow’s thirty index components posted a gain. The strongest performers were Bank of America (BAC) (+5.74%), Caterpillar (CAT) (+2.95%), and United Technologies (UTX) (+2.60%). The weakest were General Electric (GE) (-0.74%) and Cisco Systems (CSCO) (-0.74%). Alcoa (AA) (+0.21%) originally has a strong start for the day after posting quarterly results Monday evening. The company met earning estimates and offered a positive outlook, providing a strong start to unofficially kick off earnings season. Nevertheless, the early gains were quickly erased. The reason was largely technical. The opening gap hit equal move resistance compared to the rally AA had heading into Monday morning. It was bid up again into the close on Monday and sharply higher afterhours, leaving it exhausted by the time the market opened on Tuesday. The gap quickly filled, but it still managed to close in positive territory. The SandP 500 ($SPX) finished the session with a gain of 11.38 points, or 0.89%, and closed at 1,292.08. The top performing industry groups were the financials (+2.0%) and materials (+1.8%). The strongest individual percentage performers in the index were Borgwarner Inc. (BWA) (+12.26%), Life Technologies Corp. (LIFE) (+8.25%), and Genworth Finl. Inc. (GNW) (+7.39%). There were no declining industry groups. The weakest individual performer was Tiffany and Co. (TIF), which fell 10.46%. Its holiday sales were lower than expected, leading the company to drop its full-year profit forecast. Other top decliners included Goodyear Tire and Rubber (GT) (-8.31%) and Cablevision Sys. Corp. (CVC) (-3.42%). The Nasdaq Composite ($COMPX) ended the session higher by 25.94 points, or 0.97%, on Tuesday and it closed at 2,702.50. The strongest performers in the Nasdaq-100 ($NDX) were Life Technologies Corp. (LIFE) (+8.25%), Baidu Inc. (BIDU) (+5.64%), and First Solar (FSLR) (+5.24%). The weakest were Netflix (NFLX) (-2.39%) and Marvell Technology Group (MRVL) (-1.45%).
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 08 CNY Business Climate Index (4Q) Jan 08 16:45 NZD Trade Balance (NOV) Jan 08 16:45 NZD Balance (YTD) (NOV) Jan 08 17:30 AUD AiG Performance of Construction Index (DEC) Jan 08 19:00 AUD HIA New Home Sales (NOV) Jan 08 19:30 AUD Retail Sales s.a. (NOV) Jan 09 CNY Producer Price Index (DEC) Jan 09 CNY Consumer Price Index (DEC)*** Jan 09 01:45 CHF Unemployment Rate (DEC) Jan 09 02:00 EUR German Trade Balance (NOV) Jan 09 03:15 CHF Retail Sales (Real) (NOV) Jan 09 04:30 EUR Euro-Zone Sentix Investor Confidence (JAN) Jan 09 06:00 EUR German Industrial Production n.s.a. and w.d.a. (NOV) Jan 09 10:30 CAD Business Outlook Future Sales (4Q) Jan 09 10:30 CAD Band of Canda Senior Loan Officer Survey (4Q) Jan 09 15:00 USD Consumer Credit (NOV) Jan 10 CNY Trade Balance (USD) (DEC) Jan 10 08:15 CAD Housing Starts (DEC) Jan 10 18:30 AUD Westpac Consumer Confidence (JAN) Jan 11 CNY Foreign Exchange Reserves (DEC) Jan 11 JPY Leading Index (NOV P) Jan 11 CNY New Yuan Loans (DEC)*** Jan 11 03:00 EUR German Real GDP Growth (2011)*** Jan 11 04:30 GBP Visible Trade Balance (NOV) Jan 11 14:00 USD Fed’s Beige Book*** Jan 11 18:50 JPY Trade Balance – BOP Basis (NOV) 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 influential Notice: 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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