October 5, 2011
HOME EDUCATIONAL PRODUCTS CONTACT TONI A complete online version of this newsletter is available at http://www.tonihansen.com/Newsletters/current.html.
Daily Commentary
More Bail-outs Ahead!? (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 October 4, 2011: Closing Prices: DOW 10,808.71 (+153.41, +1.44%), SandP 500 1,123.95 (+24.72, +2.25%), NASDAQ 2,404.82 (+68.99, +2.95%), Nikkei 225 8,450.74 (-5.38, -0.06), DAX 5,216.71 (-159.99, -2.98%), FTSE 4,944.44 (-131.06, -2.58%) OIL 77.74, GOLD 1,635.00, SILVER 30.165 EURO 1.3274, YEN 76.69, BRITISH POUND 1.5424, U.S. DOLLAR INDEX 79.72
Market Breaks to New 52-Week Lows Market volatility has been quite high ever since the market broke down into the beginning of August. Tuesday’s session was no exception. After multiple days of of successive downside, the market was becoming quite extended and starting to favor an upside break in the trend channel on the 60 minute charts heading into mid-week. As I mentioned in yesterday’s column, however, the pace of the selloff was strong enough that it invited another flush to new lows before such as correction. The morning breakdown in the market took place in the early hours of the day in the index futures when trade began in London at 3:00 a.m. ET. This is a common time for major moves in the futures to take place and the index futures had been trading in a gradual trading range following Monday’s close. A second high within that channel took place on weak upside momentum heading into 3:00 a.m. ET. This created a technical pattern for a break lower as well.
Dow Jones Industrial Average (Figure 1)
If the morning flush had been rapid, we would have seen a gradual move off those lows as compared to Monday’s decline, but the pace of the selling shifted a great deal compared to Monday’s action despite breaking to new lows on the year in both the SandP 500 ($SPX) and Dow Jones Industrial Average ($DJI). The market was down more than 2% by the time the 10:00 a.m. ET economic data was released. By this point the market had fallen more than 20% since peaking in May. This is a key price level because trade under that price point is viewed as bear territory. The 10:00 a.m. ET data was not terribly reassuring. According to the U.S. Commerce Department, new orders for U.S. manufactured goods were down 0.2%, falling short of expectations that they would remain unchanged. July’s 2.4% increase was also revised lower to 2.1%. Although disappointing, market participants were happy to see that the numbers did not miss by a larger amount and it was not enough to push an already exhausted market even lower. Instead, the market took this as its cue to finally offer a reprieve. Tech stocks, and particularly semiconductors, were amongst the strongest players Tuesday morning. By mid-day the Nasdaq was in positive territory, but sharp selling pressure hit in Apple (AAPL) in the early afternoon following the unveiling of its latest iPhone. Apple had also struck technical resistance at noon at its 5 minute 200 period moving average. The 5 minute sell trigger came at approximately 12:50 ET.
SandP 500 (Figure 2)
Technicals or News? Despite strong afternoon selling in Apple (AAPL), the afternoon downside in the broad market was more gradual than the selloff into 10:00 a.m. ET and substantially slower than Monday’s decline. This continued shift in momentum with each wave of downside slower than the last is a process that often results in a strong reversal… at least in the short term. Lighter volume on the selloff compared to earlier trade also showed a lack of conviction for further downside intraday. The channel break that triggered the upside reversal on Tuesday took place out of the 15:00 ET correction period. In addition to strong technical reasons behind an afternoon rally, news headlines also may have played a role, notably in the financials, which led a powerful late-day recovery that swung the market higher by approximately 4% off morning lows. The Financial Times reported that European Ministers were looking into further ways to reinforce European banks. This really should come as no surprise, but when rapid moves take place in the market intraday it’s typical for news services to look for reasons to support it that go beyond the purely technical aspects and once the financials grabbed hold of this news they ran with it. U.S. Federal Reserve’s chairman Ben Bernanke’s appearance before the Congressional Joint Economic Committee on Tuesday to discuss the economy and recent monetary policy was practically overlooked. His remarks supported further economic stimulus, but contained nothing unexpected.
The European Central Bank will hold its rates meeting on Thursday. Recent speculation suggested that the bank could cut rates once again, but sentiment has once again shifted in favor of them holding steady. Nasdaq Composite (Figure 3) INDEX WRAPUP The Dow Jones Industrial Average ($DJI) ended the day on Tuesday with a loss of 258.08 points, or 2.36%, and closed at 10,655.30. Twenty-six of the Dow’s thirty index components posted a gain. The top performers were JP Morgan Chase (JPM) (+6.55%), DuPont (DD) (+4.52%), Bank of America (BAC) (+4.16%). The top decliners included Merck (MRK) (-0.70%) and Kraft Foods (KFT) (-0.67%). The SandP 500 ($SPX) finished the session with a loss of 32.19 points, or 2.85%, and closed at 1,099.23 with a minor breech of the 1,100 price point. The top percentage performers in the index were Morgan Stanley (MS) (+12.35%), Sears Holdings (SHLD) (+11.69%), Cliffs Natural Resources (CLF) (+10.58%), and Akamai Technologies (AKAM) (+10.24%). The weakest were Newmont Mining (NEM) (-3.15%), Allegheny Technologies (ATI) (-2.87%), and Northeast Utilities (NU) (-2.46%). The Nasdaq Composite ($COMPX) ended the session lower by 79.57 points, or 3.29%, on Tuesday and it closed at 2,335.83. The strongest performers in the Nasdaq-100 Sears Holdings (SHLD) (+11.69%), Akamai Technologies (AKAM) (+10.24%), F5 Networks (FFIV) (+10.22%), and NVIDIA (NVDA) (+9.23%). Only nine posted a loss. The weakest performers were TEVA Pharmaceuticals (TEVA) (-1.62%), Liberty Interactive Corp. (LINTA) (-1.41%), and Cerner Corp. (CERN) (-0.87%). OUTLOOK Jobs growth will remain on center stage this week, beginning on Wednesday with September’s ADP report. The most widely followed jobs reports, however, will take place on Friday when the government will release September’s nonfarm payrolls data, along with the most recent unemployment rate, hourly earnings, and the average work week.
The unemployment rate is expected to remain unchanged at 9.1% with very little net gain in the real employment data. Earnings season kicks off next week with the release of Alcoa’s quarterly earnings, but those to still watch for this week include Costo (COST), Marriott Intl. (MAR), and Monsanto (MON) on Wednesday; and Constellation Brands (STZ) on Thursday. On the technical side, I am expecting the rally which took place intraday into Tuesday’s closing bell will experience a momentum shift as the week progresses and that it will not be able to sustain such a pace. Over the course of the next week I do not expect it to outstrip the selloff of the past week, although I do believe that the extreme selling is behind us for now. Even if the rally cannot hold, we should see the momentum in the 60-minute downtrend channel become markedly more gradual. The market has a strong level of support hitting and volume was also strong when Tuesday afternoon’s buying came in, but we don’t have a decent continuation pattern for upside action forming as we head into midnight. Instead, we can easily see the afternoon gains further erode before once again finding support on the 15 minute time frame.
ECONOMIC REPORTS AND EVENTS THIS WEEK
U.S. Domestic: Eastern Time Zone (GMT -5:00) (New York, Toronto)
Oct 4 10:00 AM Factory Orders Aug
Oct 5 7:00 AM MBA Mortgage Index 10/01
Oct 5 7:30 AM Challenger Job Cuts Sep
Oct 5 8:15 AM ADP Employment Change Sep
Oct 5 10:00 AM ISM Services Sep
Oct 5 10:30 AM Crude Inventories
10/01 Oct 6 8:30 AM Initial Claims
10/01 Oct 6 8:30 AM Continuing Claims
09/24 Oct 7 8:30 AM Nonfarm Payrolls Sep Oct 7 8:30 AM Nonfarm Private Payrolls Sep Oct 7 8:30 AM Unemployment Rate Sep Oct 7 8:30 AM Hourly Earnings Sep Oct 7 8:30 AM Average Workweek Sep Oct 7 10:00 AM Wholesale Inventories Aug Oct 7 3:00 PM Consumer Credit Aug International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Oct 4 04:30 GBP Purchasing Manager Index Construction (SEP) Oct 4 05:00 EUR Euro-Zone Producer Price Index (AUG)
Oct 4 10:00 USD Fed Chairman Bernanke to Testify Before JEC
Oct 4 10:00 USD Factory Orders (AUG) Oct 4 18:30 AUD AiG Performance of Service Index (SEP) Oct 4 20:30 AUD Retail Sales s.a. (AUG) Oct 5 03:55 EUR German Purchasing Manager Index Services (SEP F) Oct 5 04:00 EUR Euro-Zone Purchasing Manager Index Composite (SEP F) Oct 5 04:00 EUR Euro-Zone Purchasing Manager Index Services (SEP F) Oct 5 04:30 GBP Purchasing Manager Index Services (SEP) Oct 5 04:30 GBP Gross Domestic Product (2Q F
Oct 5 04:30 GBP Current Account (2Q) Oct 5 04:30 GBP Total Business Investment (2Q F) Oct 5 05:00 EUR Euro-Zone Retail Sales (AUG
Oct 5 08:15 USD ADP Employment Change (SEP) Oct 5 10:00 USD ISM Non-Manufacturing Composite (SEP) Oct 6 03:15 CHF Consumer Price Index (SEP) Oct 6 03:15 CHF CPI – EU Harmonised (SEP) Oct 6 06:00 EUR German Factory Orders s.a. (AUG) Oct 6 07:00 GBP BOE Asset Purchase Target (OCT)
Oct 6 07:00 GBP Bank of England Rate Decision (OCT 6)
Oct 6 07:45 EUR European Central Bank Rate Decision (OCT 6
Oct 6 10:00 CAD Ivey Purchasing Managers Index s.a. (SEP) Oct 6 18:30 AUD AiG Performance of Construction Index (SEP) Oct 7 USD ICSC Chain Store Sales (SEP) Oct 7 JPY Bank of Japan Rate Decision (OCT 7)
Oct 7 01:00 JPY Leading Index (AUG P) Oct 7 01:45 CHF Unemployment Rate s.a. (SEP) Oct 7 04:30 GBP Producer Price Index Output n.s.a. (SEP) Oct 7 04:30 GBP Producer Price Index Output Core n.s.a. (SEP) Oct 7 06:00 EUR German Industrial Production s.a. (AUG) Oct 7 07:00 CAD Unemployment Rate (SEP)
Oct 7 07:00 CAD Net Change in Employment (SEP)
Oct 7 07:00 CAD Full Time Employment Change (SEP) Oct 7 07:00 CAD Part Time Employment Change (SEP) Oct 7 07:00 CAD Participation Rate (SEP) Oct 7 08:30 USD Change in Non-farm Payrolls (SEP)
Oct 7 08:30 USD Change in Private Payrolls (SEP) Oct 7 08:30 USD Change in Manufacturing Payrolls (SEP) Oct 7 08:30 USD Unemployment Rate (SEP
Oct 7 08:30 Average Hourly Earning (SEP) Oct 7 15:00 USD Consumer Credit (AUG)
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
Tuesday, Oct 4, 2011 Before: – During: – After: GPN, LNDC, RECN, YUM Wednesday, Oct 5, 2011 Before: AYI During: – After: ESIC, NAUH, OCZ Thursday, Oct 6, 2011 Before: RBN During: – After: DRWI, IDT Friday, Oct 7, 2011 Before: – During: –
Note: Alleconomic 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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