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Divergence from Friday

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By session's end on Friday, only the Dow Industrials (INDU) 8,326 +0.16% finished in the red compared to the other major market averages, and today's trading is just the inverse, with the S&P 500 Index (SPX.X) 886 -0.43%, S&P 100 Index (OEX.X) 443 -0.18%, NASDAQ Composite (COMPX) 1,275 -1.26% and actively traded NASDAQ- 100 Trust (QQQ) $22.54 -1.95% showing losses in the first half of today's trading.

What appears to be taking place today is some short-covering and perhaps bargain hunting in the Dow components like Alco (NYSE:AA) $22.28 +1.3%, Boeing (NYSE:BA) $37.04 +4.13%, Honeywell Intl. (NYSE:HON) $24.11 +2.3% and McDonald's (NYSE:MCD) $21.30 +3.75%, which took a beating lower late last week.

On a larger scale, breadth is negative on both the big board and the NASDAQ with decliners outpacing advancers by a 3 to 2 margin on the NYSE and decliners having the upper hand on advancers at the NASDAQ by a 2 to 1 margin.

Volume at both the NYSE and NASDAQ is rather light today, partially due to observance of Yom Kippur. Volume is running about 26% below the volume trade level by this time on Friday, while NASDAQ volume is about 20% below Friday's rate.

With both the Networking Index (NWX.X) 110 -3.5% and Semiconductor Index (SOX.X) 271 -3.18% breaking to new 52-week lows today, both are littered with stocks acting accordingly.

This action exacerbates the current 52-week high versus new lows at both the NYSE and NASDAQ. The big board shows 28 stocks achieving new highs versus 62 stocks hitting new lows, while NASDAQ widens with just 17 stocks at new highs versus 96 stocks at new lows.

Earlier in the session we noted the Oil Service (OSX.X) 80.56 +1.62% and Retail HOLDRS (AMEX:RTH) $82.55 +0.18% as the only two indexes showing some gains, and while they've remained rather stagnate since the opening of trading, the Gold/Silver Index (XAU.X) 75.97 +0.09% has recouped earlier losses and once again challenges last week's resistance near 76.00.

A notable new 52-week high in the NASDAQ has come from "drug stock" Teva Pharmaceutical (NASDAQ:TEVA) $69.13 +0.46% after giving a spread-triple top "buy signal" at the $69 level in early August. The recent pullback to $65 in early September to $65 now becomes support, with longer-term bulls still targeting the current bullish vertical count of $92.

While not a new 52-week high, I recently profiled a bullish longer-term call play in Forest Labs (NYSE:FRX) $78.30 +0.19% on August 15th after the stock gave a "bullish triangle" pattern at

$74. Here too, longer-term bulls targeting my $95 target by January expiration, or the point and figure chart's bullish vertical count of $99.

"Drug Bulls" would like to see the broader Pharmaceutical Index (DRG.X) 289 -0.25% continue to firm at a now-rounding 50-day MA of 287, but needs some further sector bullishness and break above the 315 level to help leadership stocks like TEVA and FRX push higher.

Jeff Bailey
Senior Market Technician
Option Investor

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