Weekly Resistance Levels to Watch For – Daily market commentary by Toni Hansen

October 17, 2011

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DAILY COMMENTARY

Weekly Resistance Zone Hits (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.) FRIDAY’S MARKET WRAP-UP Market Snapshot for October 16, 2011 (8:37 p.m. ET): Closing Prices: DOW 11,644.49 (+166.36, +1.45%), SandP 500 1,224.58 (+20.92, +1.74%), NASDAQ 2,667.85 (+47.61, +1.82%), Nikkei 225 8,882.26 (+134.30, +1.54), DAX 5,967.20 (+52.36, +0.89%), FTSE 5,466.36 (+62.98, +1.17%) OIL 87.43, GOLD 1,680.50, SILVER 32.16 EURO 1.3856, YEN 77.26, BRITISH POUND 1.5804, U.S. DOLLAR INDEX 76.96

European Strength and Positive Data Extend Gains Last week ended on a strong note as the SandP 500 ($SPX) and Dow Jones Ind. Average ($DJI) continued to push their way into their 100-day moving averages. We’ve been targeting this as the next major level of resistance in the market and it’s done a good job over the past week of working its way higher even though the momentum of the overall rally has slowed as anticipated when compared to the previous week. Strength overseas combined with strong economic data to add to the market’s strength heading into Friday’s session. The index futures broke higher in the early morning hours from a solid consolidation late Thursday evening. This left the market extended heading into Friday morning, but solid data helped provided an additional boost in premarket trade. According to the Commerce Department, September’s retail sales jumped 1.1% to top expectations. The pace was the fastest in seven months. August growth was also upwardly revised to 0.3%. U.S. import prices were also on the rise with an unexpected 0.2% increase in September. This was primarily a result of increased fuel and food costs.

From a technical standpoint, I expected a strong possibility that we would see the indices hit highs early in the session on Friday as a result of the premarket exhaustion. This first reversal pattern of the day actually took place shortly after the open. The momentum of the premarket buying had shifted heading into the open, creating a momentum reversal around 9:50 a.m. ET. The 9:55 a.m. ET Reuters/University of Michigan consumer sentiment index helped. Economists had anticipated an increase in consumer confidence from September’s reading of 59.4. Instead, it fell to 57.5. The indices reacted negatively to the news and the market continued lower throughout the morning before striking support mid-day from premarket congestion. Intraday on Friday we were also looking for narrower trading action as the weekend approached. Although the session had a narrower intraday range than most days of the past two months, the intraday trending action was better than I’d originally expected. The market held lows mid-day and a shallow Phoenix formed along the 5 minute 20 period moving averages. This led to a resumption of the week’s uptrend throughout the remainder of the session and even though the market had put in a high on the 15 minute time frame in the morning, it still managed to break to new highs in the afternoon.

INDEX WRAPUP

The Dow Jones Industrial Average ($DJI) ended the day on Friday with a gain of 166.36 points, or 1.45%, and closed at 11,644.49. Twenty-eight of the Dow’s thirty index components posted a gain. The top performers were Caterpillar (CAT) (+3.25%), DuPont (DD) (+3.02%), Disney (DIS) (+2.74%), and Chevron (CVX) (+2.74%). The losers were American Express (AXP) (-0.50%) and Bank of America (BAC) (-0.48%). The Dow ended the week higher by 4.88% and is now up 0.58% year-to-date. The SandP 500 ($SPX) finished the session with a gain of 20.92 points, or 1.74%, and closed at 1,224.58. The strongest sector on Friday was energy, which rose 3.6%. (Oil was up 3.2%.) The top individual percentage performers in the index were Harman Intl. Inds. (HAR) (+9.63%), Pioneer Nat. Res. (PXD) (+7.85%), Lincoln Natl. Corp. (LNC) (+7.72%), and Marathon Pete. Corp. (MPC) (+7.02%). The top decliners were Microchip Technology (MCHP) (-5.27%), Janus Cap. Group (JNS) (-3.26%), and Safeway Inc. (SWY) (-1.45%). The SandP 500 ended the week higher by 5.98%, but it is still down 2.63% year-to-date. All ten of the SandP’s industry sectors were in the black for the week, led by energy. The Nasdaq Composite ($COMPX) ended the session higher by 47.61 points, or 1.82%, on Friday and it closed at 2,667.85. The strongest performers in the Nasdaq-100 ($NDX) were Google (GOOG) (+5.85%), Sirius XM Radio (SIRI) (+4.65%), Autodesk (ADSK) (+4.61%), and Amazon.com (AMZN) (+4.47%). Google’s gains were thanks to stronger-than-anticipated earnings and revenue posted Thursday afternoon. The top decliners were Microchip Technology (MCHP) (-5.27%), Vertex Pharmaceuticals (VRTX) (-1.37%), and Mylan Inc. (MYL) (-1.12%). The Nasdaq Composite ($COMPX) was up 7.60% for the week and is now up 0.56% year-to-date. Nasdaq Composite (Figure 3)

OUTLOOK

The trend which resumed on Friday afternoon continued into Sunday evening trade. This took the SandP 500 and Dow futures to the 100-day moving average resistance that we’ve been following. It also leaves the market once again overbought heading into early Monday morning on at least the 15 minute time frame and in favor of a pullback. Since the pace of the upside on the 60-minute trend off the month’s lows increased on Friday into the closing bell and continued on Sunday afternoon, however, there is now a better chance that it can break that level without a strong daily correction like we would have expected if the momentum of the buying had continued to slow. I’ve shown this increase in pace in blue on the 30-minute NQ (Nasdaq-100 e-mini) in Figure 3. Nevertheless, I would not expect a strong break higher. The SandP 500 and Dow are both striking 20 sma resistance on the weekly time frames and the 200 day sma is nearby in the Dow. The Nasdaq is also closing in on its prior highs.

ECONOMIC REPORTS AND EVENTS THIS WEEK

U.S. Domestic: Eastern Time Zone (GMT -5:00) (New York, Toronto) Oct 17 8:30 AM Empire Manufacturing Oct Oct 17 9:15 AM Industrial Production Sep Oct 17 9:15 AM Capacity Utilization Sep Oct 18 8:30 AM PPI Sep Oct 18 8:30 AM Core PPI Sep Oct 18 9:00 AM Net Long-Term TIC Flows Aug Oct 18 10:00 AM NAHB Housing Market Index Oct Oct 19 7:00 AM MBA Mortgage Index 10/15 Oct 19 8:30 AM CPI Sep Oct 19 8:30 AM Core CPI Sep Oct 19 8:30 AM Housing Starts Sep Oct 19 8:30 AM Building Permits Sep Oct 19 10:30 AM Crude Inventories 10/15 Oct 19 2:00 PM Fed’s Beige Book Oct Oct 20 8:30 AM Initial Claims 10/15 Oct 20 8:30 AM Continuing Claims 10/08 Oct 20 10:00 AM Existing Home Sales Sep Oct 20 10:00 AM Philadelphia Fed Oct Oct 20 10:00 AM Leading Indicators Sep International: Eastern Time Zone (GMT -4:00) (New York, Toronto) Oct 16 19:01 GBP Rightmove House Prices (OCT) Oct 17 JPY Machine Tool Orders (SEP F) (SEP F) Oct 17 00:30 JPY Industrial Production (AUG F) Oct 17 09:15 USD Industrial Production (SEP) Oct 17 10:30 CAD Business Outlook Future Sales (3Q) Oct 17 10:30 CAD Band of Canada Senior Loan Officer Survey (3Q) Oct 17 20:30 AUD Reserve Bank’s Board October Minutes*** Oct 17 22:00 CNY Real GDP YTD (3Q)*** Oct 17 22:00 CNY Real GDP (3Q)*** Oct 17 22:00 CNY Industrial Production YTD (SEP) Oct 17 22:00 CNY Industrial Production (SEP) Oct 17 22:00 CNY Fixed Assets Inv Excl. Rural YTD (SEP) Oct 17 22:00 CNY Retail Sales YTD (SEP) Oct 17 22:00 CNY Retail Sales (SEP) Oct 18 GBP Nationwide Consumer Confidence (SEP) Oct 18 04:30 GBP Consumer Price Index (SEP)*** Oct 18 04:30 GBP Core Consumer Price Index (SEP) Oct 18 05:00 EUR German ZEW Survey (Current Situation) (OCT) Oct 18 05:00 EUR Euro-Zone ZEW Survey (Economic Sentiment) (OCT)*** Oct 18 08:30 USD Producer Price Index (SEP)*** Oct 18 08:30 USD Producer Price Index Ex Food and Energy (SEP)*** Oct 18 09:00 USD Net Long-term TIC Flows (AUG) Oct 18 12:30 USD Fed’s Bernanke Speaks in Boston *** Oct 19 00:30 JPY All Industry Activity Index (AUG) Oct 19 04:30 GBP Bank of England Minutes*** Oct 19 08:30 CAD Leading Indicators (SEP) Oct 19 08:30 USD Consumer Price Index (SEP)*** Oct 19 08:30 USD Consumer Price Index Ex Food and Energy (SEP)*** Oct 19 08:30 USD Housing Starts (SEP) Oct 19 08:30 USD Consumer Price Index Core Index s.a. (SEP) Oct 19 08:30 USD Building Permits (SEP) Oct 19 14:00 USD Fed Releases Beige Book Economic Survey Oct 20 01:00 JPY Leading Index (AUG F) Oct 20 02:00 EUR German Producer Prices (SEP)*** Oct 20 02:00 CHF Trade Balance (SEP) Oct 20 04:30 GBP Retail Sales (SEP) Oct 20 04:30 GBP Retail Sales w/Auto Fuel (SEP) Oct 20 05:00 CHF ZEW Survey (Expectations) (OCT) Oct 20 10:00 EUR Euro-Zone Consumer Confidence (OCT A) Oct 20 10:00 USD Leading Indicators (SEP) Oct 20 10:00 USD Philadelphia Fed. (OCT) Oct 20 10:00 USD Existing Home Sales (SEP) Oct 20 22:00 NZD Credit Card Spending s.a. (SEP) Oct 21 03:00 CHF Real Estate Index Family Homes (3Q) Oct 21 04:00 EUR German IFO – Business Climate (OCT) Oct 21 04:00 EUR German IFO – Current Assessment (OCT) Oct 21 04:00 EUR German IFO – Expectations (OCT) Oct 21 04:30 GBP Public Finances (PSNCR) (SEP) Oct 21 04:30 GBP PSNB ex Interventions (SEP) Oct 21 04:30 GBP Public Sector Net Borrowing (SEP) Oct 21 05:00 EUR Euro-Zone Government Debt-GDP Ratio (2010)*** Oct 21 07:00 CAD Consumer Price Index (SEP)*** Oct 21 07:00 CAD Bank Canada Consumer Price Index Core (SEP)*** Oct 21 07:00 CAD Consumer Price Index (SEP) ***

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, Oct 17, 2011 Before: SCHW, C, FHN, GCI, HAL, HAS, WFC During: PHG After: BMI, ELS, ICUI, IBM, LNCR, MFI, PCBK, PKG, PRK, SWK, STLD, TESS, VMW, WDFC, WAL Tuesday, Oct 18, 2011 Before: ASRV, BAC, CHKP, KO, DPZ, EMC, FRX, GPC, GS, HOG, JAKK, JNJ, LBAI, MBWM, EDU, PH, PTI, PII, STT, UNF, UNH, GWW During: – After: AAPL, CREE, CCK, CSX, FLXS, FSII, FULT, HA, INFN, INTC, ISRG, JNPR, KED, LLTC, MANH, MRTN, PNFP, PTP, RNST, RLI, SONC, URI, WCN, WERN, YHOO Wednesday, Oct 19, 2011 Before: ABT, MO, APH, AMR, ATMI, BK, BLK, CMA, CTBI, DRH, FCFS, IPT, KCG, KNL, LUFK, MHH, MEG, MS, NGNM, NYB, NTRS, PJC, PNC, BPOP, ROC, SYBT, STJ, SCL, SVU, TXT, TRV, USB, UTX, VCBI, WNS During: ANCX, WABC After: EGHT, AXP, AMLN, AF, BANR, BWLD, CATY, CVCY, CAKE, CRUS, COHU, CLB, CVA, CBST, CVBF, DTLK, ETFC, EWBC, EBAY, EW, EXPO, FNB, FNF, FWRD, FSL, GLF, HNI, KMP, KMR, LRCX, LHO, MKSI, MCRI, NFX, NE, PLCM, RJF, RVBD, SLM, SCSS, SPTN, SYK, SWFT, TCBI, TSCO, WSTL, WDC, WHG, XLNX, ZHNE Thursday, Oct 20, 2011 Before: ALK, ALXN, ADS, ACO, T, AN, BLX, BAX, BBT, BX, BSX, BGG, CSH, CBE, CY, CYS, DHR, DO, LLY, ECA, FITB, FNFG, FRC, FLIR, GMT, GNTX, HAFC, HOMB, HBAN, IEX, IR, IIIN, ESI, JNS, KNSY, KEY, LH, LSTR, LTM, MNRO, MYE, NYT, NBL, NOK, NUE, PENN, PM, POOL, PPG, SASR, SJR, SFNC, SNA, SON, LUV, TCB, ERIC, TNB, UTEK, UMPQ, UNP, USAK, USG, UTMD, WFSL, WSO, WCC During: ALNC, FMFC After: SRCE, ACTG, APKT, ALTR, APOL, ASBC, ATHN, TBBK, BAS, BJRI, BLDR, CALX, COF, CPHD, CMG, CB, CYN, CPWR, CYMI, CYT, EGP, EFII, FFIN, FLEX, GDI, HITT, INDB, INFA, IBKR, LSCC, MXIM, MBFI, MSFT, NTCT, OCFC, PBCT, PXLW, PFBC, PGI, RMTR, RRR, SNDK, SCHN, SBCF, STX, STLY, SYNA, TCO, TPX, WSCI Friday, Oct 21, 2011 Before: AOS, APD, GE, HAR, HON, IDXX, KSU, KCI, MAN, MNI, MUSA, PDS, PRSP, SLB, SXT, STI, UBNK, VZ During: – After: MCBI 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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