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Stock futures in the green

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Stock futures are in the green this morning with S&P futures trading higher by 6 points to 1,090. NASDAQ futures are up 19 points to 1,332 and Dow futures are up 62 points to 9,317. Fair value for the S&P 500 today is $2.62. HL Camp & Company has their computers set for program buying at $3.94 and set for program selling at $0.92. Fair value for the NASDAQ-100 today is $5.63.

Major indexes now in "bull alert" status

Yesterday's action for the NYSE Composite (NYA.X) and bullish percent reading (percentage of stocks giving point and figure chart buy signals) in that market has our major indexes all in "bull alert" status. This tells us that we are now starting to see some favorable supply/demand characteristics begin to take form. The NYSE Composite bullish percent ($BPNYA) is usually the last to reverse down and last to reverse higher.

As is often the case, the NASDAQ-100 bullish percent ($BPNDX) is the first to reverse direction and we saw that in late September when this indicator fell to 0% (Sept. 21st) and reversed into "bull alert status" at 6%. Today we see this indicator getting close to a level achieved in July and again in early August near the 50% level. With a current reading of 45% bullish (45 of the 100 stocks showing a buy signal on their p/f chart) we understand that the NASDAQ-100 is as "risky" as it was in early July and early August.

NASDAQ-100 Bullish Percent chart ($BPNDX) - 2% scale

It will take a reading of 52% to get the NASDAQ-100 into "bull confirmed" status and this is something this group of stocks has had a tough time achieving. What we want to note here is the latest attempt to try and get bull confirmed in early July (red 7) and early August (red 8). Is there something in the bar chart that gives us a level to be monitoring as technical resistance that correlates with the bullish percent during these two time periods? I think so.

NASDAQ-100 Index (NDX.X) - last six months

In early July and then again in early August, the NASDAQ-100 Index (NDX.X) had brief rallies to its 50-day MA on the bar chart. This type of correlation (with bullish % data) now gives bulls a level to be targeting to the upside. Bullish traders trading some NASDAQ-100 stocks or QQQ traders can also use the 61.8% retracement level from our fitted retracement bracket to help monitor bullish trades for stocks that are part of this index. Remember... as each trading session passes; the 50-day moving average will change levels, so keep an eye on it over time.

But Jeff... the risk/reward is poor!

A bullish trader that assesses risk to 1,130 and reward to 1,439 (50-day MA) is looking at $174 risk/ $135 reward. Yes, risk/reward is not favorable for bulls if they feel the bullish percent will not go "bull confirmed" and perhaps move to a level near 70% (like it did in April-May). One way to still expose capital to an upward move like we saw from the April lows of 1,348 to the then unknown high of 2,052 was to expose some capital with partial positions or seek out stocks where a trader could control risk and set some tighter stops.

For instance, a trader could trade 1/2 position in the NASDAQ-100 to the long side with a stop below 80.9% retracement at 1,130, or trade a full position with a stop just under the October 5th low of 1,216.

PeopleSoft Chart - $1 and $0.50 box

Subscribers across all of the Premier Investor Network remember shares of PeopleSoft (NASDAQ:PSFT) and how we set up a bearish trade in this stock back in early August. At that time, we were working off a BEARISH vertical count and looking to short/put a rally back near the $42-$44 level. Now we've got a BULLISH vertical count to work with of $49.50. While $49.50 is not our short-term target a move from yesterday's close of $25.61 to the $30 level is not a bad move (I'm writing this Wednesday evening, so I don't know where stock will open or what the markets are indicating at the open). A trade at the $28 level would be a triple top buy signal and a move to bearish resistance of $34 would be a wonderful 4th quarter gift should we get there.

If the bond market unravels and YIELDS move higher, and the NASDAQ-100 reaches a state of euphoria with a bullish percent reading above 70%, then a bullish trader may be willing to risk a stop to $23 near-term in shares of PSFT. Subscribers using retracement brackets on PSFT from $51 to $17.62 will note how PSFT has been finding some support at 80.9% retracement of $23.99 in the past 5 sessions.

Subscribers to OptionInvetor.com and IndexSkybox.com might be well served to go back and review some of the observations we were making as it relates to the GSTI Software Index (GSO.X) and several other software stocks on August 7th at 12:00 EST. At that time we were pointing out the negatives or bearish things to be looking for. Make note of those, then try turning the tables to see if today were finding any bullishness in those same stocks.

For premierinvestor.net subscribers, we wanted to monitor stocks like Microsoft (NASDAQ:MSFT), J.D. Edwards (NASDAQ:JDEC), SAP Aktiengesell (NYSE:SAP), Oracle (NASDAQ:ORCL) and Adobe Systems (NASDAQ:ADBE). Stocks that compete more directly against PSFT are (SAP, JDEC and parts of ORCL).

Jeff Bailey
Senior Market Technician
Option Investor

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