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Some testing of "S2s"

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In last night's Index Trader's wrap we got the feeling if bears were going to stage a defense against the recent rally found in early January, they'd better make their presence shown soon as some key levels of "longer-term" resistance were being challenged and some internal improvement was starting to show up in the Dow Industrials Bullish % ($BPINDU) which had reversed back into "bull confirmed" status yesterday.

A bears look to have answered their call this morning, at least on a short-term basis as some of our intra-day support levels from pivot analysis did have the Dow Industrials (INDU) 8,675 -0.74% trading a morning low of 8,657, which was just under S2 support of 8,661.56.

While the narrower Dow Industrials (just 30 stocks) was able to see a test of lower intra-day support, the broader S&P 500 Index (SPX.X) 917.58 -0.58% traded its "S1" support of 918.31, but has yet to test its lower intra-day "S2" of 913.68, though this morning's low of 914.59 came close.

The narrower S&P 100 (OEX.X) 465 -0.6%, currently trades right on its "S1" of 465.23, but here too, this morning low of 463.44 wasn't enough to see a test of intra-day S2 at 462.60.

This shorter-term analysis/observation gives the perception that some of the Dow stocks may be seeing a little more selling than others, but this may also be due to the impressive early month gains from many of the "Dow Dogs," especially the "Little Dogs" that showed an impressive 7%+ gain out of the gain in the first several sessions of the new year.

Today's downgrades of "Little Dogs" SBC Communications (NYSE:SBC) $28.90 -3.7% and J.P. Morgan (NYSE:JPM) $26.85 -3.5% looked to be a "valuation" call by UBS Warburg, and has had a more bearish impact on the Dow Industrials today.

Also lending to the Dow's more negative trade and ability to trade its lower S2 level is disappointing earnings out of Alcoa (NYSE:AA) $22.07 -9.47%.

As a daily observation, I would think bears want to see the Dow Industrials close below today's "S1" level of 8,699.70 and no higher than today's "pivot" of 8,751.17.

While technology sectors are all in the red today, with the Semiconductor Index (SOX.X) 325.69 -2.31% leading sector declines and Fiber Optic (FOP.X) 52.23 -2.11% and Wireless Telecom (YLS.X) 56.94 -2.03% not too far behind in today's "sector loser" category, the NASDAQ-100 Index (NDX.X) 1,056.79 -1.4% has also seen a test of its intraday S1 level of 1,058, but hasn't come close to its lower S2 of 1,045 as this morning's low has been 1,054.

In this morning's market monitor we also noted the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $26.26 -1.46% had achieved S1 of $26.29, but hadn't been able to get much below our "market maker support" of $26.18. Minutes later the QQQ did trade $26.16, which has been the session low and could have QQQ S2 of $25.93 in play by session's end. Trader's may me cautiously bearish here with 1/4 or 1/2 positions, but most likely using today's "pivot" of $26.61 as their shorter-term risk assessment level on stops.

Jeff Bailey

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