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Rally Fading

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After two days on the plus side, stocks are struggling to make it three in a row.

The Dow is off 122 points on weakness in IBM, United Technologies, and Caterpillar. Procter and Gamble, Merck, and Wal-Mart are trying to minimize the loss by posting small gains.

Nasdaq-100 Tracking Stock Daily Chart

As the stochastic began to turn up, it looked like the Nasdaq-100 tracking stock (QQQ) had the potential to rally up $33.34 and recoup last week's losses. Today's 2.69% drop puts that in question, and raises the possibility of testing the 9/21 low of $27.20.

$3 drops by Verisign, Xilinx, and TMP World wide are the biggest drag on the Nasdaq-100, but $2 drops by various semiconductor stocks are also responsible. The Nasdaq-100 is relying on retailers Bed Bath and Beyond and Costco, as well as biotechs Genzyme, Amgen, and IDEC Pharmaceuticals to prevent further declines.

It's Gotta Be The Shoes

Vans and Skechers warned of slowing shoes sales, but Nike is up 91 cents today. Could it be the Michael Jordan effect?

Nike Daily Chart

On Friday Nike quickly reversed its slide by gaining $1.42. Monday the stock gained another $2.73. Tuesday MJ announced his comeback. Oversold stock getting a bounce, or traders buying the rumor and selling the news? Either way Nike has taken off like Jordan from the foul line. The stock is now back above the 200- day moving average, and $45.65 should now act as support. How much more of a boost Nike can get from the news is unclear, but climbing above resistance at $47.54 would be a start. Based on news from other companies, shoes sales are not jumping.

Skechers Daily Chart

Skechers (SKX), a global leader in lifestyle footwear...a what leader? Anyways, the shoemaker announced that Q3 and Q4 earnings would come in below previous forecasts. The company's inability to reduce planned infrastructure spending and a weak retail environment led to the decline. Skecher stock has declined accordingly, and is now closer to support at $11.62 than it is resistance at $20.

Vans Daily Chart

Vans (VANS) reported that shoe earnings rose 60% from a year ago, thanks to improved gross margins. Second quarter sales are expected to be flat or down 5%, but should rebound 15% in the third quarter. Vans stock is trying to rebound from a steep drop, but might run into resistance at $12. There is further resistance $2 higher at $14, and support looks like $10.

Jeffrey Canavan

01:30 EST Update

US$/Swiss Franc Update

During the trading halt after terrorist attacks here in the U.S. we thought traders and investors should be following the relationship between the US$ and Swiss Franc (sf01z) as it could give hint of how many market participants viewed the US$ and perhaps the markets here. In essence, a strong US$ might be perceived as "confidence," but a weak US$ as signs of nervousness. Recent action in this chart gives some hint that emotions may be starting to calm down. We'll be looking to see if a sustained break below the 0.622 brings with it a potential rally in stocks. Traders can begin to see how the Swiss Franc futures have traded as it relates to stocks. On Monday, stocks in the U.S traded strong and the Swiss Franc was weak. It's starting to look like a break below the 0.622 level would be needed to confirm some type of upward move in stocks.

Swiss Franc (Dec. 2001 futures) - last 7 months

Last Friday was a tough day for stocks, but the Swiss Franc set a new relative high against the U.S$. On Monday, stocks had a good day, but the Swiss Franc fell against the US$. This currency relationship continues to give some compelling action as it relates to stocks. Our original "fear" was that a strong Franc would be a signal that investors "feared" the U.S. as a risk and would sell the US$ and move toward the Swiss Franc. Things are starting to calm down a bit and a move back below the 0.622 level might see a decline in the Franc to the 0.605 retracement bracket level and upward trend. This type of move may come with a rally in stocks. Those traders/investors that are foregoing some bullish plays until they get the break may be doing the right thing at this point.

Dow Industrials with correlative retracement

Traders that feel that stocks are indeed showing some correlative trading with the US$/Swiss Franc might set up their retracement bracket on the Dow Industrials as shown above. Here we're using conventional retracement. Note the good correlation with the 19.1% retracement level at 8,687 and what we saw above in the Swiss Franc chart at its 19.1% retracement level of 0.622. One surmises that as long as the Swiss Franc stays above the 0.622 level then the Dow Industrials has some downside risk back to the 8,062 level. Conversely, a Swiss Franc back below the 0.622 level could see the Dow Industrials rally to the 9,313. Perhaps some good trading scenarios are in place using these relationships.

Jeff Bailey
Senior Market Technician

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