Option Investor
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Just not buying it in the S&P 500... yet

HAVING TROUBLE PRINTING?
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Stocks have been hovering near their highs of the session with the Dow Industrials (INDU) 7,410 +1.72%, S&P 500 (SPX.X) 791.81 +1.93%, S&P 100 Index (OEX.X) 399.98 +1.89%, NASDAQ Composite (COMPX) 1,448 +3.04% and NASDAQ-100 Index (NDX.X) 838 +3.84% showing gains.

For the fourth session in a row the Dow Industrials have traded a 52-week low, only for the markets to attempt a rally. Of the major indexes, its the 4-lettered stocks and the NASDAQ Composite along with the NASDAQ-100 that have been able to best yesterday's highs.

Sector action continues to find the Fiber Optic Index (FOP.X) 25.33 +7.6% and CBOE Internet Index (INX.X) 58.12% holding their late-morning highs, but have been hard pressed to push above their late morning highs.

Sector weakness has the Gold/Silver Index (XAU.X) 60.08 -2.53% continuing its recent 2.5 week slide and nearing it's July lows of 55.00.

Just as the Dow Industrials, S&P 500 and S&P 100 Index have had some problems with setting lower lows and lower highs in recent sessions, I'm monitoring the S&P Banks Index (BIX.X) 249.51 +4.59% closely. On Tuesday, this group appeared to have be leading a rally in the broader market averages, but gave back all of Tuesday's gains yesterday and had the broader markets averages more defensive. Today's rebound once gain has a bull's hopes high that bullishness in financials will help mark a near-term if not longer-term bottom in the equity markets. It's simply too soon to call if this will be the case, but a break above the 253 level in the BIX could further spur a broader market rally, while a break below 236 would have the BIX at a new 52-week low and could be sign of further trouble in the financials.

Key levels of near-term resistance for the S&P 500 (SPX.X) 795 +2.41% would be the 800 level. A combined break higher in the BIX at 253 and SPX at 801 could see a wave of bullishness come into the markets, with some upside SPX potential building to the 825 level.

S&P 500 Index Chart - Daily Interval

With the NASDAQ-100 showing some upside today, this hints to me that tech bears are still locking in some gains and perhaps getting more aggressive with their short covering. However, the S&P 500 which is more laden with retail, financials and deeper cyclicals has yet to push above yesterday's high and bears seem less eager to cover. If the S&P can break above 800, the a move could take place and see bears start getting more aggressive with their covering and even see some bulls come in with a little more confidence that a bottom is near.

Bulls should be careful and limit exposure with 1/4 and 1/2 positions if looking long. If the financials are in trouble and break to new lows, broader market enthusiasm could wane and find stocks right back near their lows.

Treasuries are seeing selling today and I'm watching the "riskier' 30-year Treasury YIELD ($TNX.X) 4.722%, which is trading right at its 21-day simple moving average. A break above the 4.8% YIELD level could be a sign from the bond market that its willing to sell some safety in the long-end and perhaps rotate some cash into stocks near their lows on what may be a more "attractive" level.

Jeff Bailey

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