Recovery Struggles Into Holidays – Daily commentary by Toni Hansen

December 22, 2011

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DAILY COMMENTARY

Market Recovery Challenged (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 December 21, 2011 (9:19 p.m. ET): Closing Prices: DOW 12,107.74 (+4.16, +0.03%), SandP 500 1,243.72 (+2.42, +0.19%), NASDAQ 2,577.97 (-25.76, -0.99%), Nikkei 225 8,419.63 (-40.35, -0.48%), DAX 5,791.53 (-55.50, -0.95%), FTSE 5,389.74 (-29.86, -0.55%) OIL 99.02, GOLD 1,615.20, SILVER 29.29 EURO 1.3042, YEN 78.05, BRITISH POUND 1.5663, U.S. DOLLAR INDEX 80.305

ECB’s Unexpected Boost Fails to Sustain Buyers Trade was higher heading into Wednesday morning. Part of the impetus for the move came from Europe and the European Central Bank’s unexpected increase in its 3-year loan program aimed at supporting lending and liquidity throughout 523 banks in the eurozone. The news exhausted the uptrend that had been in play since Tuesday’s close, leaving the indices struggling once again heading into the early-morning hours on Wednesday. The market initially turned over at about 5:30 a.m. ET once the spike from the news began to wane. This had created a slightly higher high in the Nasdaq ($COMPX) futures when compared to Tuesday, creating a 2B reversal pattern. This bull trap was not repeated in the SandP 500 ($SPX) and Dow ($DJI) due to greater strength heading into the morning’s announcement, but the early-morning breakout from congestion came too early compared to the extent of Tuesday’s rally to be sustainable. By the time the opening bell rang, the market had already started rolling over and had wiped out nearly all of the early gains. The weaker Nasdaq opened in the red. Selling persisted throughout the morning until hitting multiple support levels mid-day. The support ranged from prior lows in the Nasdaq, prior highs in the Dow, 15 minute 20 sma support in the Dow and similar levels in the SandP 500. The retracement was also a 50% retracement back to Monday’s lows in the SandP 500.

As the selling entered mid-day, the pace began to shift. The 5 minute 20 sma was resistance throughout morning trade, but after 11:30 a.m. ET the indices were sliding lower at a similar pace as the moving average. By hugging the moving average in this manner, the market was able to shift its momentum bias and begin to favor an afternoon recovery. The mid-day low was also the third low intraday, creating trend exhaustion. The market turned higher out of the 12:30 ET correction period and continued higher into the close where it struck resistance once again on the 5 and 15 minute time frames. This resistance came in several forms: – 5 minute 200 sma and 15 minute 200 sma resistance in the Nasdaq, as well as a 38% fibonacci retracement of the earlier selloff; – opening highs in the Dow with a 50% retracement to highs, and afterhours congestion on Tuesday; – and opening highs, afterhours congestion on Tuesday, and a 62% fibonacci retracement in the SandP 500 futures were just a few of the resistance levels that held at the close.

Wednesday’s Index Wrap-up The Dow Jones Industrial Average ($DJI) ended the day on Wednesday with a gain of 4.16 points, or 0.03%, and closed at 12,107.74.Two-thirds of the Dow’s thirty index components ended the session in the black. The strongest were General Electric (GE) (+2.37%), Coca-Cola (KO) (+1.71%), and Chevron (CVX) (+1.70%). The weakest were IBM (-3.08%), Cisco Systems (CSCO) (-2.66%), and Hewlett-Packard (HPQ) (-1.81%). The SandP 500 ($SPX) finished the session with a gain of 2.42 points, or 0.19%, and closed at 1,243.72. The strongest individual percentage performers in the index were Cintas Corp. (CTAS) (+9.30%), Yahoo (YHOO) (+5.82%), and Tenet Healthcare (THC) (+4.50%). The weakest were Oracle (ORCL) (-11.66%), Citrix Systems (CTXS) (-7.76%), and F5 Networks Inc. (FFIV) (-6.64%). Oracle’s losses followed weaker-than-anticipated quarterly earnings and was responsible for a very large portion of the Nasdaq’s overall decline. The Nasdaq Composite ($COMPX) ended the session lower by 25.76 points, or 0.99%, on Wednesday and it closed at 2,577.97. The top index components in the Nasdaq-100 ($NDX) were Research In Motion (RIMM) (+10.06%), Yahoo (YHOO) (+5.82%), and Warner Chilcott (WCRX) (+3.51%). The weakest were Oracle (ORCL) (-11.66%), Citrix Systems (CTXS) (-7.76%), and F5 Networks Inc. (FFIV) (-6.64%).

Wednesday’s existing-home sales data had little impact on intraday price action. Sales in November were up 4% compared to the prior month, making it the third straight monthly increase. It was still short of expectations, however, and a revised report on overall sales from 2007 to 2010 put the numbers lower by 14% compared to previously released data. As we head into Thursday morning, the market is once again forming a period of congestion that began with Wednesday’s closing bell. This will be the third straight session whereby we have seen such activity. The typical breakout from such a range in to the upside. This is what we experienced on both Tuesday and Wednesday. It will face steep resistance, however, on the 15 minute time frame this time around and patterns have a tendency to not perform as well on the third setup when the same pattern repeats a third time. This will make it likely that the trading range we had expected to hold yesterday will continue to do so on Thursday as well.

ECONOMIC REPORTS AND EVENTS THIS WEEK

Dec 21 7:00 AM MBA Mortgage Index 12/17 Dec 21 10:00 AM Existing Home Sales Nov Dec 21 10:30 AM Crude Inventories 12/17 Dec 22 8:30 AM Initial Claims 12/17 Dec 22 8:30 AM Continuing Claims 12/12 Dec 22 8:30 AM GDP – Third Estimate Q3 Dec 22 8:30 AM GDP Deflator – Third Estimate Q3 Dec 22 9:55 AM Michigan Sentiment – Final Dec Dec 22 10:00 AM Leading Indicators Nov Dec 22 10:00 AM FHFA Housing Price Index Oct Dec 23 8:30 AM Durable Orders Nov Dec 23 8:30 AM Durable Goods Orders -ex Transportation Dec Dec 23 8:30 AM Personal Income Nov Dec 23 8:30 AM Personal Spending Nov Dec 23 8:30 AM PCE Prices – Core Nov Dec 23 10:00 AM New Home Sales Nov International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Dec 21 JPY Bank of Japan Rate Decision (DEC 21)*** Dec 21 04:30 GBP Bank of England Minutes*** Dec 21 04:30 GBP Public Finances (PSNCR) (NOV) Dec 21 04:30 GBP PSNB ex Interventions (NOV) Dec 21 04:30 GBP Public Sector Net Borrowing (NOV) Dec 21 08:30 CAD Retail Sales (OCT) Dec 21 10:00 EUR Euro-Zone Consumer Confidence (DEC A) Dec 21 10:00 USD Existing Home Sales (NOV) Dec 21 16:45 NZD Gross Domestic Product (3Q)*** Dec 22 00:00 JPY Bank of Japan Monthly Economic Report Dec 22 04:30 GBP Gross Domestic Product (3Q F)*** Dec 22 04:30 GBP Current Account (3Q) Dec 22 04:30 GBP Total Business Investment (3Q F) Dec 22 08:30 USD Gross Domestic Product (Annualized) (3Q T)*** Dec 22 08:30 USD Personal Consumption (3Q T) Dec 22 08:30 USD Gross Domestic Product Price Index (3Q T)*** Dec 22 08:30 USD Core Personal Consumption Expenditure (3Q T) Dec 22 09:55 USD U. of Michigan Confidence (DEC F)*** Dec 22 10:00 USD Leading Indicators (NOV) Dec 23 04:30 GBP BBA Loans for House Purchase (NOV) Dec 23 08:30 USD Durable Goods Orders (NOV)*** Dec 23 08:30 USD Durables Ex Transportation (NOV) Dec 23 08:30 CAD Gross Domestic Product (OCT)*** Dec 23 08:30 USD Personal Income (NOV) Dec 23 08:30 USD Personal Spending (NOV) Dec 23 10:00 USD New Home Sales (NOV) *** 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, Dec 19, 2011 Before: – During: – After: RHT Tuesday, Dec 20, 2011 Before: CAG, GIS, JEF, NAV, SAFM During: – After: FSII, JBL, NKE, ORCL, PAYX, SHFL, STND Wednesday, Dec 21, 2011 Before: ATU, KMX, SHAW, WAG During: – After: BBBY, FINL. MLHR, LUB, SCS, TIBX Thursday, Dec 22, 2011 Before: AM, NEOG During: – After: CAMP, CBK Friday, Dec 23, 2011 Before: – During: – After: 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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