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Stock futures give back gains after retail sales released

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Stock futures have given back some of their earlier gains after June's retail sales numbers showed a gain of 1.1% after a 0.9% decline in May. The 1.1% gain was stronger than expected.

It looks like the pullback in stock futures from higher levels came when the retail sales excluding autos rose just 0.4% and that number was inline with economists' expectation.

Taken separately, traders/investors see that the autos component was strong and indeed that is the case. Auto sales soared 3.4% to $72 billion in June, the biggest increase since October.

Retail sales represent about half of all consumer spending, which in turn accounts for about two-thirds of final economic demand in the economy.

In June, spending at general merchandise stores rose 1.1% to $38.4 billion. Sales at specialized clothing stores jumped 2% to $14.6 billion, while sales at electronics and appliance stores increased a more modest 8% to $7.9 billion. Also showing gains were sales at restaurants and bars, where sales rose 0.5% and health and personal care store sales rose a modest 0.2% to $15.2 billion..

Weaker sectors showed furniture store sales flat at $8 billion and sales at food stores dropped 0.3% to $39.9 billion.

S&P 500 futures are now up 2.7 points at 929.60, NASDAQ futures are higher by 16.5 points at 1,015 and Dow futures are up 23 points at 8,820.

Fair value for the S&P 500 today is $1.05. That price will not change during the session. HL Camp & Company has their computers set for program buying at $2.05 and set for program selling at $-1.52. Fair value for the NASDAQ-100 today is $3.68.

This morning's economic data has seen some marginal selling take place in Treasuries as YIELD on the benchmark 10-year YIELD edges higher at 4.645%, now just above previously identified YIELD support at 4.635%.

General Electric's net income rose 14%

Industrial giant General Electric said its Q2 second quarter net income rose 14% to $0.44 a share and matching Wall Street consensus. The company said its second quarter operating margin grew modestly to 21.2% versus 20.6% in 2001's second quarter. Revenues increased to $33.2 billion from $32 billion, led by gains in GE's Power Systems and Medical Systems businesses.

Bullish % charts get interesting

Yesterday's action has the S&P 500 Bullish % ($BPSPX) falling to 28% and this reading below 30% puts the chart into "oversold" territory. You can bet that many of the sell signals that were generated, took place to the markets recovery at 12:05 PM EST yesterday. As it relates to the S&P 500, bearish traders simply need to understand that they've scored a touchdown by crossing the 30% level and risk for bearish trades now start to run high in this market.

If still holding short/put a stock in this market, then simply look at a point and figure chart. Assess upside risk to where the stock might give a "buy signal" and contribute positively to the bullish %, and assess longer-term downside using the bearish vertical count technique.

If you hold a trade where the stock could rally $5 to its "buy signal" and the bearish vertical count potential is $5 away, then you may be holding a stock that is 50/50 risk/reward. As such, if profitable in the trade, it may make sense to trip back to 1/2 the current position, or tighten down a stop in the bearish trade.

Historically speaking, the S&P 500 Bullish % ($BPSPX) has reached levels of 30% or lower, only 5 times since September of 1999.

S&P 500 Bullish % Chart - 2% box

The bullish % charts are very good at giving traders and investors a feel for "market risk." Lower levels of bullish percent are correlative with more oversold conditions where investors have started to throw in the towel and supply really begins outstripping demand. Look at how "quickly" the S&P 500 bullish percent as fallen from the beginning of June (red 6) to now, how comparatively "long" it took for the bullish percent to fall from a higher level in April (red 4) to June (red 6).

It's always been so interesting that while the MARKET can be rather bullish at higher levels of risk (near 70%) the more climactic type of selling comes as risk is reduced (near 30%) as investor panick begins to set in. As if by "magic" the MARKET seems to sniff out some type of perceived lower risk level, and a recovery in the bullish % and the markets take hold.

Now, remember that the S&P 500 represents a number of industry groups and takes some time to start generating enough "buy signals" to get things turned around. Yesterday's tabulation from Stockcharts.com has just 26.4% of the stocks (132) in the S&P 500 currently showing a buy signal and it would currently take a reading of 34% (170 stocks) to get the S&P 500 into "bull alert" status.

Now make a note that the S&P 500 Index (SPX.X) gained just 0.74% yesterday. Now consider that the NASDAQ-100 Index (NDX.X) gained 4.06% on the session. Think about "risk" when trying to understand some of the reasoning why the NASDAQ-100 "outperformed" when it has been the weakest of the major market averages.

NASDAQ-100 Bullish % Chart - 2% box

The narrower based and more tech-heavy NASDAQ-100 Bullish % ($BPNDX) reversed back into "bull alert" status on Monday and after yesterday's action, currently has 15% of the stocks (15 of the 100) showing a buy signal on their point/figure charts.

The 4% gain in the NASDAQ-100 yesterday surely hints at a greater extent of short covering as "risk" actually runs higher for bears here at 15% than the S&P 500 does at 28% (relative scale of course).

What a technology bear needs to be cognizant of is that this market (NASDAQ-100) could achieve a "bull confirmed" status at 24% and that could be a signal that a massive amount of short covering is taking place and more an more stocks begin giving buy signals as demand begins outstripping supply.

One stock we're turning more bullish on after a bearish profile back in May and June are shares of NVIDIA Corp. (NASDAQ:NVDA) $19.92 +10%. As it relates to the S&P 500 bullish % and the NASDAQ-100 bullish %, this stock is a component of both. A trade at $21 would have the stock giving a "buy signal" and contributing 1 stock to both bullish % charts.

If you shorted this stock when it gave a sell signal back at $31, or the spread-triple-bottom at $30, you've seen the stock fall to its bearish vertical count of $19 and then some ($16). I would think a trader still short would at least "honor" the first buy signal the stock has given to lock in some gains. After all, a trade at $21 would be the first sign that demand (X) may actually begin outstripping supply (O).

NVIDIA Corporation Chart - $1 and $0.50 box

Shares of NVIDIA Corp. (NVDA) may seem "overpriced" after yesterday's 10% gain, but this silly stock hasn't even given a "buy signal" yet. If it does give the buy signal at $21, then bears are going to have to assess risk up to the $25-$26 level to begin with. Not only that, but a trade at $21 would begin the construction of the bullish vertical count to $27.50.

Note that the bullish vertical count is constructed in two parts. The ((4*3)*0.05) is to calculate for the $0.50 box scale to $20, and the ((1*3)*1) is to begin calculation for the $1 boxes.

I agree that a stop at $17.50 on the point and figure chart is a lot of room to give, but a trader that will reduce his/her trade size to 1/4 or 1/2 positions can take a little more heat and give the stock some room to breath.

Option traders will understand that call and put option premiums are running very high as the Market Volatility Index ($VIX.X) has spiked to 38.64!

For those that are interested, the Market Volatility Index ($VIX) is thought to be a "contrarian" indicator and that market reversals can occur to the upside when volatility spike higher.

Have some fun and take a look at the $VIX. Remember it jumped to 57 back in September. Compare that to the bullish percent charts above.

Jeff Bailey
Senior Market Technician
Option Investor

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