Focus Letter

Market Inches Higher Into The Holidays

Good day! The market managed to hold up pretty well in Friday's session going into the extended three day weekend. As anticipated, most the activity took place in the morning hours, before volume dried up heading into mid-day. Despite the upside as a whole, however, there weren't a lot of intraday breakout patterns and the market instead whipped back and forth as it inched higher. The Dow Jones Industrial Average managed a 67.56 point gain by the close, with the S&P 500 also putting in a trend day to end 7.38 points higher. The Nasdaq Composite had the most range-bound activity throughout its session, but it still closed positive by 7.28 points.

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Friday began with an average sized gap on the upside following the premarket data. Personal incomes rose 0.5% in April, but were offset by a corresponding rise in consumer prices by 0.5%. Core inflation rose 0.2%, hitting analysts' expectations. The core inflation data excludes food and energy data and is slightly higher than the Federal Reserve likes to see. Many feel that this decreases the odds for another rate hike for federal-funds at its next meeting.

After an initial surge on the data release, the market slowed just prior to the open, pulling down off premarket highs by the bell. While not shown on the intraday charts here, the Dow and S&Ps began to hug their 5 minute 20 simple moving average on the all sessions charts (meaning those charts which take into account premarket trading activity). The S&P 500 futures formed a strong Avalanche pattern by continuing to hug the support into the 10:15 ET reversal period. It triggered a selloff into 10:35ish when the S&Ps put in an equal move as compared to the premarket decline.

With the 15 minute 20 sma intraday just under the 10:35 lows and the 10:45 ET reversal period still ahead, there was a bit more favor for the market to test that support more strongly into the reversal period as opposed to the other possibility of a 5 minute bear flag, which would have had more difficulty due to the support. This first scenario would also mean a stronger reaction off the support since it would flush the market a bit more than the initial decline out of 10:15 did. An increase in the volume on the 5 minute charts also assisted the bulls when the 15 minute support hit. Additionally, the Nasdaq hit its 15 minute 200 sma and congestion from the prior afternoon provided more support for the indices at that time.

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The market bounced strongly out of 10:45 ET, putting in three small upside moves on the 1 minute charts before the Nasdaq and S&P 500 ran into resistance at premarket highs in made by the futures. This resistance hit just after 11:30 ET and the market slowed into noon. This would mark the end of the strongest intraday activity and things slowed down a great deal as the day wore on.

The downside pace declined heading into the early afternoon, creating a more bullish bias into the afternoon. Upside remained more rapid, although it occurred with only a brief burst into 12:30 ET and began slowly into 13:30 ET when the late afternoon breakout kicked off. It then picked up again and the S&P 500 and Dow moved to new intraday highs with the 14:00 ET reversal period. The S&P performed the best, while the Dow only barely made higher highs. The Nasdaq continued to show greater pressure by holding the 11:30 highs. Both the S&P and Dow held the 5 minute 20 sma support zone on another correction into 15:00 ET. It was unable to significantly break the earlier highs on the day, however, due to the light volume. The Nasdaq tested them one last time, but the morning resistance held into the close.

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The market so far has been having a decent reaction to the larger daily and weekly support levels. I don't have a strong intraday bias for Tuesday, but with the rounded lows and the pace picking up on the upside on the daily charts, the odds are now greater than the indices will fall into a triangle trading range on the daily and weekly time frames as opposed to hugging the lows for a continuation breakdown. This does not, however, mean that the triangle cannot still break lower, but we'll have to wait to see which side begins to dominate within the range to show a stronger bias. Often a triangle will start to react more gradually in the direction opposite of which it will break as it gets close to a breakout.