Stock Market Trends Lower on Dismal Economic Data
Although the range was not extreme in Thursday's trading, the market still found itself in a strong intraday downtrend throughout the entire session. The day had actually began on a positive note with a large upside gap into the opening bell. Premarket upside had begun around 3:45 am ET and continued into 7:30 am ET. Research in Motion (RIMM) had helped with the move, boosting technology issues as it rose 9% after announcing that it expects 4th quarter account additions to be 15-20% higher than previously anticipated.
After the strong premarket action, the indices reacted very little to 8:30 am ET initial jobless claims. The government reported a drop in weekly U.S. jobless claims, but revised the previous week's claims count higher. First-time jobless claims fell 9,000 last week to 349,000, while the prior week's claims were revised higher to reflect an increase of 1,000 to 358,000, as opposed to prior estimates of a drop of 9,000. The jobless claims reflect recent layoff activity and currently are pointing towards a weakening labor market.
When the opening bell rang, the morning's gap had taken the market smack into really strong price resistance from the opening highs on the 19th. Unable to push past those levels, the market was hit by more economic data at 10:00 am ET when the Conference Board reported a 0.1% decline in leading indicators in January. This was the index's fourth straight decline. Market prices immediately began to head lower with all three of the major indices breaking to new intraday lows and making headway on closing the morning gap.
Wednesday's closing prices in the S&P 500 and Dow Jones Ind. Ave. hit at the same point as the 5 minute 20 simple moving average and the indices fell into a congestion level along that support to create a 5 minute Avalanche pattern. Although prices had climbed somewhat off the support, the volume did not. That, combined with the momentum shift and overhead resistance on the larger time frames, was enough to drop the market lower once again out of the 10:15 ET reversal period.
This second wave of selling on the 5 minute time frame was able to sustain itself for nearly twice as long as the initial one. Equal move support hit on the 5 minute charts when the Nasdaq closed its morning gap at the 10:45 ET correction period, but then the selling continued after only a few minutes, lasting into the 11:00 ET correction period. This second wave of selling on the 5 minute time frame manifested itself as a much larger initial decline on the 15 minute time frame, taking the market into support from the prior two trading days at previous congestion levels and pivot zones, as well as the 15 minute 200 sma in the S&P 500 and Dow.
With the market once again at higher time frame support, it was able to form a larger correction off those prices. It was still rather early on in the 15 minute reversal off highs, however, so the result was an Avalanche pattern on that time frame. Two waves of upside over mid-day on light volume led to a breakdown into noon when the Philadelphia Fed. data came out, showing further weakness in the manufacturing in that region during February. This pointed once again to a bearish bias and the sellers held onto that notion throughout the remainder of Thursday's session. A couple of additional corrections took place off larger support, such as the 14:00 ET and 15:05 ET bounces, but lighter volume and sluggish pace kept the bears in command into the closing bell with a third wave of selling in play on the 15 minute time frame into 16:00 ET.
As we head into Friday, my outlook still remains bearish. The daily time frames are a little bit iffy, since there was some stronger upside about a week ago in the S&Ps and Dow and then congestion since the 13th. As long as this congestion on the 120-minute can break lower though, then we are looking at another week of selling rather easily. The next main support will hit at about 11,800 in the Dow and about 1290 in the S&Ps.
Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.
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