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Some interesting things happening

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When I saw stock futures really getting hit this morning, I immediately "thought" of some things I thought might happen, but wanted to look for any DIVERGENCE from what I thought might happen and what actually took place today. While one-day does not make a trend, I would have thought any type of market action that was in a "concerned" response to the economy, or factors other than a response to Intel's (NASDAQ:INTC) $22.07 -18.26% mid-quarter update should be observed.

The two things that were most important to me as it relates to today's trading was necessarily what took place as it relates to certain support/resistance levels in the broader market averages, but what kind of response certain sectors might get from the MARKET that are somewhat "far removed" from what Intel (INTC) had to say last night.

As mentioned in last night's market wrap at premierinvestor.net, there is a lot of psychology in play and emotions are coming into play. We saw some of that at the opening of trading. Specifically, I'm talking about the Gold/Silver Index (XAU.X). In my mind, I was thinking as all broader market equity bears have been for months, that gold stocks should surge as Intel's news now has everyone understanding that this economy isn't a bed of roses. While the Gold/Silver Index (XAU.X) was one of the few sectors showing gains at the opening of trading, it now has surpassed all sectors and now leads the sector decliner list with a 4.72% decline at 79.77. The Semiconductor Index (SOX.X) 433.37 -4.45% is the second worst performing sector and that's not necessarily a surprise considering last nights news from Intel.

Gold/Silver Index Chart - Daily Interval

Today's "weakness" is perhaps surprising to some that have observed the bullishness in this group signaling doom for the U.S. Economy and broader U.S. equity markets. It is entirely possible that this sector is just seeing some good old profit taking on what would normally have been thought of as a bullish day. After all, there's been enough "bad news" to choke a horse as it relates to a slowly growing economy. I say "bad news" only because the economic data hasn't necessarily been as strong as some seem to think it should be. Today, I'm simply taking note of the weakness in the sector. Technically, this group remains very strong and bullish. There's plenty of shorts in this group that should be looking to cover past losses from the jump higher to the upper-end of regression. Going forward, we would become alert to weakness on any violation much below the 74.18 level. For now, just looks overextended and good day for bulls to have taken some profits.

I will also make note here that according to Dorsey/Wright and Associates, the "gold sector" as a whole is currently "bull confirmed" at an "overbought" level of 82%. Levels above 70% are considered "overbought" and higher risk levels for bulls. Once again, makes some sense that the group would see some profit taking.

The "offsetting" market that I like to look at as compared to gold stocks is what took place in the Treasury market today. Here' too, we saw some fractional buying at the open, but that has now turned into marginal selling. Some cite the selling in Treasuries today with concerns over the U.S. Govt. debt and a potential budget deficit. However, I would have "thought" that gold stocks would have responded more bullish and not been a leading sector decliner. Earlier today in the 11:00 Update, I noted that the U.S Dollar was showing some gains against the foreign currencies. This too is a bit of a "surprise" or trades against the thought of concern regarding U.S. Govt. debt and budget issues. Again, this is only one day, but should be monitored and followed going forward.

I will also note that the NASDAQ-100 Trust (AMEX:QQQ) $28.20 -2.35% did come right down to the lower end of our trending lower regression channel that we've shown in past market commentaries. This is almost the complete INVERSE of what we see in the Gold/Silver Index (XAU.X) from above. Almost like traders are perhaps selling gold stocks and buying some beaten down tech stocks or at least some short covering and profit taking by bears in that part of the market, which is largely technology.

I'll note hear that according to www.stockcharts.com, last night's reading for the NASDAQ-100 Bullish % ($BPNDX) was 24%. This is considered "oversold" as levels below 30% are considered more oversold. Just the opposite once again from the Gold sector. Interesting DIVERGENCE near-term and good reason for traders to be very alert and disciplined with their trading.

Jeff Bailey
Senior Market Technician
Option Investor

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