Markets tank on poor employment statistics

Equity markets reacted negatively to weak non-farm payrolls and closed at session lows. At the closing bell today (May 4, 2012), the S&P 500 ended down 1.6%, the NASDAQ gave up 2.3%, and the DJIA retreated 1.3 percent.

/ES, 180 d 1h

The hourly bars chart of the E-mini S&P 500 Index Futures (/ES) is among the charts of market indices with interesting price action with respect to price channels. Depicted above, the chart shows that today’s selling pressure brought the contract into the support of a well-defined, 3-month price channel.

And while a break of the channel support line would be bearish, just below rests horizontal support of 1352.5 (the low of April 10) and 1354 (the low of April 23).

/NQ, 180 d 1h

Interesting technicals are also evident on the hourly bars chart of the E-mini NASDAQ 100 Index Futures (/NQ). Today’s low of 2625.25 came within a point of horizontal support from intra-day lows on April 23 and April 24. Price is also at an extreme level of divergence from the 200-period simple moving average since Feb 6^th (which is as far back as the above chart depicts); the current difference between price and the SMA is -80 points.

Intel Corp (INTC) reacts from resistance of a 2-year price channel

Markets settled the day in bearish territory: the S&P500 slid 0.8%, the NASDAQ surrendered 1.2%, and the relatively defensive DJIA outperformed with a decline of only 0.5%.

Intel Corp (INTC) shares merit a closer look.

INTC, 4 y 1d

Intel declined today from a conspicuously overbought point, namely a touch yesterday of two-year price channel resistance on the daily bars chart. Moreover, yesterday’s price action, at which INTC incidentally set an 8-year high, brought the security to over $4.50 above its 200-day moving average. Such an occurrence over the past four years has always marked an unsustainable level of bullish sentiment (at least over the short term; see the oscillator on the lower portion of the above chart). 

INTC, 180 d 1h

The hourly bars chart likewise shows Intel shares at price channel resistance, although the lower line of the channel is admittedly poorly defined. It might be more apt to describe INTC as being at trendline resistance. The price-versus-SMA oscillator does not show the security as being particularly overbought.

In sum, a short position initiated yesterday above $29.25 would have been prescient and, in light of the above evidence, relatively high-probability. But the profitability of holding such a position beyond today’s knee-jerk reaction lower appears less certain.

Bears threaten Automatic Data Processing (ADP) at support

Following yesterday’s morning rally and late-day paring of gains, markets were little changed today (May 2, 2012). The S&P500 and NASDAQ ended with equal and opposite percentage price change, up 0.3% and down 0.3% respectively; the DJIA closed down one tenth of a percent.

Today’s highlighted stock is Automatic Data Processing (ADP), a component of the NASDAQ-100. The company is best known as the generator of weekly payroll statistics, which are released at 8:15a Eastern on every Wednesday. Some view ADP payroll statistics as a leading indicator of government non-farm payrolls (NFP) data, which counts itself among those regular data releases that have the biggest market impact. Since ADP’s payroll number is released weekly while the government NFP is produced monthly, the ADP reading tends to be more volatile.

ADP, 4 y 1d

The daily-bars perspective on ADP, shown above, reveals little. Price action is contained by a remarkably lengthy channel, one stretching back 3.5 years; the flash crash on May 6, 2010 does break through, but only with intra-day data. Reactions against the primary upward trend are relatively subdued.

ADP, 180 d 1h

The hourly-bars chart is more exciting. A well-fitting price channel again cleanly defines peaks and troughs, but unlike the case above, the current price rests right at the support trendline. Moreover, price action tested the support trendline recently, on April 23^rd, and only bounced weakly before reacting down anew. The stock appears poised for a downward break.

ADP, 20 d 5m

Further zooming into the most recent price action, ADP’s behavior is again well-modeled by a price channel, which instills confidence in the price channel -supported frameworks introduced above. The critical nature of the current price (about $54.6) is confirmed – that price marks the support level of price action of the past fortnight – and makes the technical analyst yet more inclined to follow this issue closely.

Morgan Stanley (MS) treads water, may drown

Equity markets closed with slight losses today (April 30, 2012). The S&P500 settled down 0.4 percent, the NASDAQ declined 0.7% and the DJIA edged down a marginal 0.1%.

Morgan Stanley (MS) shares have recently displayed interesting price action, with price compressing in a support zone and setting up for increased volatility. Compression at notable support is in evidence on charts with daily bars, hourly bars, and five-minute bars.

MS, 4 y 1d

On the four year chart above, daily bars representing the last several days all appear supported by a nine-month price channel. Ordinarily, a bounce from a price channel would portend further bullish price action; however, Morgan Stanley’s consolidation just above support increases the probability of a bearish pierce.

MS, 180 d 1h

The same nine-month price channel described above is rendered in greater detail on the hourly bars chart of MS. This vantage point confirms that price action is receiving little boost from the support line of the price channel. The hourly chart also shows that the last week of price action has MS bumping against horizontal resistance at $17.3, a price level that had been a support level from mid-January through April 23^rd.

MS, 20 d 5m

On the five-minute bars chart, MS remains somewhat defined by a modestly downward-sloping, 2-week price channel – hardly the bullish behaviour that one might expect for a stock at the support level of a 9-month price channel.  Horizontal support at $16.77 has held for the past 6 sessions.

In sum, Morgan Stanley has consolidated at support from a 9-month price channel. A volatility contraction, particularly at such an important support level, often begets pronounced volatility expansion. A bearish move would not be unexpected given the past week’s weakness, but a delayed rally may be in the cards instead.