Option Investor
Market Updates

Equity futures showing gains

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Stock futures are showing fractional gains and have edged back above fair value. Currently, S&P futures are up 5 points, NASDAQ futures are higher by 10 and Dow futures are being bid up 42 points. Fair value on the S&P 500 is $5.86. That price will not change during the day. Buy programs are set for buying at $7.66 and set for selling at $4.26.

QQQs back on "sell signal"

Yesterday the NASDAQ-100 Index Tracking Stock (QQQ) traded as low as $44.89 in the last hour of trading. This trading below $45 was enough to put the QQQs back on a point and figure sell signal and bullish traders should be alert to this weakness.

NASDAQ-100 Index Tracking Stock (QQQ) - $1 box

One level I'll be watching like a hawk today and the next several sessions is the $43-$44 level for the QQQs. Last Wednesday, the QQQs gave a "buy signal" when they traded at $44 and a bullish trader may have jumped on the wagon and got long some QQQs at that level based on the supply/demand charts. In the next hour, the QQQs surged to an intra-hour high of $51 (I thought it was a bad tick, but these trades never seemed to be corrected) and took the QQQs one box above our ascending channel on the point/figure chart. After some consolidation between $46 and $50 the QQQs showed weakness yesterday by giving a sell signal at $45.

Bullish Percent Chart for NDX - 2% scale

Probably my favorite indicator for assessing market or sector risk is the bullish percent chart. We can actually take the 100 stocks in the NDX and QUANTITATIVELY determine if a sector or index is "overbought" or "oversold." As you can see from the above chart, there were 82% of the stocks (82 out of 100) in the NDX that were on a point and figure buy signal. Last nights reading was 79% so we've seen a net loss of stocks on a buy signal (if its not giving a buy signal, its giving a sell signal). The reason we're not seeing any "O's" on the chart or a reversal is that it takes a 3-box reversal in the percentage of stocks to change direction. However, last week we noted that this indicator had reached the 82% level and that traders should be snugging up stops and raising trailing stops as current levels of bullishness as it relates to the NDX is QUANTITATIVELY overbought. The bulls are currently carrying the bulk of the risk. Good time to be hedging risk or taking big profits off the table. The last time the NDX bullish percent reading was this high was September of 2000 (not shown on chart). Then too the bullish percent reading for the NDX was at 82%. You can access a bullish percent chart of the NDX by visiting www.stockcharts.com and typing in the symbol $BPNDX. Just remember, January - September is designated by red 1-9 and October - December is red A-C. Try correlating reversals in the above charts with those of the index.

Jeff Bailey
Senior Market Technician

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