Market Holds Range Heading into Final Day of Shortened Week

(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.)


Good day! The market surged on Thursday on a positive projection of a $3 billion profit from Wells Fargo & Co. (WFC) for the first quarter of this year. WFC alone gained 31.7%. This week will be a big one for the banking sector with earnings also due out in J.P. Morgan Chase (JPM) and Citigroup (C). JPM rose 19.39% on Thursday, while C rose 12.59%. American Express (AXP) climbed 19.78%. Thursday's gains marked quite a turn-around from earlier in the week when one analyst's report stating the expectation of Great Depression-era bank loan losses spread like wild fire.

The Dow Jones Industrial Average ($DJI) rose 246.27 points, or 3.1%, and closed at 8,083.38 on Thursday. It ended the shortened trading week higher by 0.8% for the 5th straight week of gains with the financials leading Friday's gains. The last time the Dow managed a 5-week upside run was in October 2007 when it hit its all-time high. 



The S&P 500 ($SPX) rose 31.40 points, or 3.8%, and closed at 856.56. The S&Ps rose 1.7% for the week. This was the best 5-week percentage gain in the S&Ps in 16 years. Energy shares rose on Thursday along with crude oil futures, which closed higher by 5.8% at $54.24 a barrel in New York.

The Nasdaq Composite ($COMPX) rose 61.88 points, or 3.9%, and closed at 1,652.54. The Nasdaq finished the week higher by 1.9%. 

The market took off stronger within 15 minute of the opening bell on Thursday to continue the morning rally. Despite correcting back into that breakout zone in the latter half of the morning, the pace was gradual enough to hold onto the support and pull higher to congest mid-day. The gap and earlier rally, however, left little room for continued upside without allowing the market to catch its breath. Even though it pushed higher, the moves were choppy for the most part. The Nasdaq, which had led the morning ascent, took a backseat to the Dow and S&Ps in the second half of the session. All three indices went into the closing bell at or near the day's highs.

The lack of momentum shift into Wednesday's close had left the market open for another push higher on the daily charts and Thursday's news from WFC cinched the deal. The gap triggered a third push higher on that time frame at this level of daily resistance. At this point the market is creating a potential momentum reversal pattern on the daily time frame with this third push into a slightly higher high after the larger rally a month ago. Even though last week's lighter volume can be attributed in part to the holiday trading week, it also supports this pattern formation.

If the market does manage to break through the upper trend channel made by the previous two highs by more than a hair, however, the next major resistance level in the Dow and S&Ps is not until the price zone from the beginning of this year. At this point I I am a bit leery in both directions on the daily time frame, since pace into the weekend suggests the attempt to break the daily channel highs, but I've also see this pattern create a trap quite often and reverse or correct longer before continuing. I think a lot is going to hinge upon whether or not the other financials do as well as WFC. If they don't, then we can see another large daily pullback take place very shortly.