Stock Market Rally Returns on Improved Outlook from IBM
The market posted gains for the third session in a row on Tuesday. Heading into the day I was looking for a correction on the larger intraday time frames coming off Monday's highs. The morning certainly began along those lines, selling off in the premarket to open slightly lower. Congestion with Monday's close as resistance was followed by further downside throughout the first half of the morning. Support hit with the 10:45 am ET correction period. This came in the form of previous 15-minute lows in the Nasdaq and the 15-minute 20 period simple moving average in the S&P 500 and Dow Jones Ind. Average.
The momentum of the downside was enough to favor a move higher off the support into the second half of the afternoon, but three waves of downside on the all sessions time frame of the Nasdaq also helped. This created trend exhaustion into the support to allow for a reversal. The ultimate bonus was the release of news from IBM. The company raised its 2008 earning forecast on the heels of a $15 billion stock buyback plan. As in the prior two sessions, the combination of a favorable price level given the technical aspects of the market and the release of intraday news allowed the market to once again surge higher.
The initial reaction to the IBM news was followed by a congestion period along the highs into 11:30 am ET, but then the market continued to push higher well into the early afternoon. The impact it had on the market nullified my bias for a greater correction on the 60 minute time frame and instead created a third wave of buying on the S&P 500 and the Dow on the 60 minute time frame. It also created an equal move on the 60 minute Nasdaq chart as compared to the rally off the lows on the 22nd and into the morning of the 23rd, taking that index back into last Thursday's highs.
One of the major afternoon reversal periods is 13:00 ET and the market held this time zone very well on Tuesday after the strong morning trend move hit trend extension and price resistance at that time. The last surge of the rally into 13:00 ET made it difficult for the market to roll over easily right away. Instead, the market pulled back more gradually than that last pop. 14:00 ET and 15:00 ET are the next two afternoon reversal periods and the 14:00 one halted the descent. The correction was not enough to account for the morning rally, however, so the market only crept higher from that point on light volume and when the 15:00 ET zone hit the market plunged.
This 15-minute Avalanche pattern took back a decent chunk of the day's gains, but the market still closed in the upper end of the congestion which followed the fall. The Dow closed higher by 114.70 points, or 0.9%, at 12,684.92. 23 of its 30 components gained ground. The S&P 500 lost 9.49 points, or 0.7%, and closed at 1,381.29. The Nasdaq Composite rose 17.51 points, or 0.8%. It closed at 2,344.99.
In other markets, the euro once again hit new highs against the dollar. It hit $1.4982, pushing past the previous high of $1.4966 on Nov. 23, 2007. The dollar index, which tracks the dollar against 6 major currencies, hit a new all-time low of 74.706. This move began after early morning economic data and continued inflation worries. The producer price index climbed an unexpected 1% last month, driven by increasing food and energy prices. The core PPI, which excluded these, rose 0.4%. This was thanks primarily to higher drug and auto prices.
Due to Tuesday's rally, the S&Ps and Dow have now moved higher by nearly 2 1/2 sessions whereby they have held their 15-minute 20 period simple moving averages intraday. I cannot remember the last time that the market has been able to maintain a trend move such as this for more than 2 1/2-3 days. After that point the indices will correct more strongly in terms of price, time, or both and break through the 15-minute 20 sma support.
Dow Jones Industrial Average ($DJI)
S&P 500 ($SPX)
Nasdaq Composite ($COMPX)
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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