January 27 Market Wrap — Another whippy day

Tuesday's Market Stats
1234market stats

Several earnings reports from some big international companies, which have been hurt by the strong dollar, as well as more warnings about the negative impact of lower oil prices, spooked traders during the overnight session and equity futures opened this morning with a large gap down. The DOW was the weaker index as many of its components are the bigger international companies and many were guilty by association. After dropping a little further in the first hour of trading the DOW was down almost -400 points and not looking pretty. But then the dipsters couldn't stand it any longer and had to do some buying. The indexes, led by the RUT, got a good bounce into the afternoon but then fear of the dark led to another pullback into the close. After the close AAPL announced blowout earnings and that could give the market a nice jolt to the upside on Wednesday.

I could say this morning's selling caused a lot of technical damage but the truth is that the only thing this morning's decline did for the DOW was have it testing the bottom of its trading range that it's been stuck in since December. The trading range is tightening and there's likely going to be a big move out of it. This morning's low for the DOW tested an uptrend line from December 17 - January 16 and as can be seen on its 60-min chart below, it's clearly looking like a sideways triangle since December. Keep in mind that this is typically a bullish continuation pattern following the October-December rally.

DOW 60-min chart

If the sideways triangle for the DOW is a bullish continuation pattern, which typically leads to the final move (up in this case), an expected projection would be the width of the triangle projected from its breakout level. Depending on how the triangle is drawn (sideways shown on the 60-min chart above or descending triangle shown on the daily chart below), if it breaks out around 17730 we get an upside projection to about 18400-18800. If another rally is to be the c-wave in an A-B-C move up from October, the c-wave would be 62% of the a-wave near 18600, splitting the difference between the other two projections. Think that might cause a little pain for those in bearish positions? Take nothing for granted and expect anything, which is why trading needs to continue to be short term.

DOW daily chart

SPX found support this morning at its broken downtrend line from October, near 2023, and its September high at 2019 (this level has been S/R since then). It will be more bearish below that level, especially since it would likely mean the DOW is breaking down from its triangle pattern instead of breaking out (and bulls beware a failed bullish pattern if that happens). The bulls would be in the driver's seat above last Thursday's high, near 2065, in which case I'd be studying the upside pattern for clues for how far the rally might go.

SPX daily chart

NDX was weak all day and even took over the leadership role to the downside after the DOW started its bounce back up. NDX gapped down to its broken downtrend line from December and then dropped lower from there. It was weak all day, as was AAPL, but like the DOW, it remains stuck inside a trading range and it's just been a choppy whippy mess. A rally on Wednesday, if the after-hour euphoria holds into the open, will still be inside the trading range and there's no telling which way this is going to go. The only thing that we can go on here is that it would be bullish above last week's high near 4300 and bearish below the January 16th low near 4090. Mind the chop in between.

NDX daily chart

Following the close of today's cash market AAPL announced earnings and showed more strength than had been expected. Its stock shot up about 6 points, from about 109 to 115, and equity futures followed. ES jumped 7 points from the 16:00 close at 2023 to its 16:15 close at 2030 and then rallied some more when it reopened for trading at 16:30. It pulled back a little from there this evening but keep in mind the 16:00 closing price when relating it to what the cash market will do in the morning. Add 7 points to whatever ES is telling us how the S&P 500 might open.

Not surprisingly, NQ had an even bigger post-close jump and should recover quite a bit of today's decline if the after-hours rally holds into tomorrow morning. NQ closed the RTH session at 4158.50 and its 16:15 close was 19 points higher at 4177.50. At 16:30 it then jumped another 30 points higher to 4207.25 following the AAPL report before pulling back some in the evening session. But as with ES, add 19 points to whatever NQ is reading before the opening bell and that will give you a good sense for what NDX will do after the open.

And then Wednesday afternoon we'll get to hear what the FOMC thinks of all that's been going on and what they plan to do. After the initial morning flurry of activity we'll probably see the market quiet down in anticipation of the announcement. The Fed will likely not want to rock the boat and as long as the market doesn't hear anything about rate changes there shouldn't be much of a reaction. Stay safe in this wild market.

Tuesday's pivot table:
1234pivot table