It has been a down, then up, and now rather flat trading session as the equity markets are once again being influence on an intra- day basis by various news event and perhaps a little "spin doctoring" from traders.
The early jolt lower for stocks some a rather meaningful reversal higher in the late morning session as the S&P 100 Index (OEX.X) 468.88 -0.23% did trade the 472.50 level, but has drifted back of its highs. For some traders, especially shorter-term bulls, they would probably like to see a close at or above that level by session end, but as it relates to supply/demand charting, that trade at 472.50 was enough to break the bearish resistance trend on the unconventional $2.5 box scale we had been using, in order to get the OEX point and figure chart to look more similar to the S&P 500 Index (SPX.X) 923.45 -0.44%, which is off its best levels of the session, which has been 923.89 (today's range for SPX has been 917.66-932.89). For those looking for a "confirming" buy signal on the SPX point and figure chart ($5-box scale) alerts can be set at 935.
The morning reversal has some traders saying that a potential reason for the sudden reversal is that this morning's weaker than expected nonfarm payrolls numbers, may allow for easier passage of President Bush's recently proposed tax-cut legislation. And it was perhaps that type of thinking, which had some money being put to work in equities, which may have come from yesterday's strong round of selling in Treasuries.
While the S&P 100 Index (OEX.X) 468.88 -0.23% broke above what I've deemed a key level of resistance at 472.50, the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $26.85 +0.56% is off its best levels of the session after trading a high of $27.26, which was also above today's "R1" of $27.06. Per our Index Trader Wraps at OptionInvesor.com, I'm also noting this morning's QQQ low of $26.22, under what appeared to be an early bearish market reaction to the payroll numbers, found the Q's holding above our market maker support of $26.18.
I've had some question regarding my $27.00 pivot from subscribers that have been taking a break from their reading, so I'll quickly explain here.
NASDAQ-100 Index Tracking Stock (QQQ) - Daily Interval
It is my opinion that volume is "way overrated" as having any meaningful influence on price action. I don't mean for this to be offensive, but it is my view that volume is simply an indicator of interest and disagreement. I do look for volume spikes and the QQQ is one of the few index-related securities that a trader can actually monitor volume levels to look for certain levels that the MARKET might have deemed important at one point in time. The reason I had marked $27.00 as a "key" level was that in late November, and very early December, the QQQ had found support at this level for 8 trading sessions, but a break below that level came on some heavier than usual levels when it traded 130.4 million shares that day on a break lower. Some may call that rather "sharp" break on volume as market agreement that the QQQ was headed lower, but for every seller, there has to be a buyer, and the volume spike that day, near that $27 level can be deemed some type of important level, and perhaps some type of longer-term pivot.
In last night's comments, we tied in today's R1 in the QQQ of $27.06, and felt the QQQ would only be viewed as bullish, if a trade was seen above then level.
For a "longer-term" type of observation, I would think "volume watcher" and especially QQQ bulls that may have taken partial positions in the QQQ, look for volume above 140 million share and some type of bullish move above the $27.00 level.
It is encouraging in my mind that this morning's weakness found QQQ support at our "fitted" retracement, which we set up some time ago from an "Ask the Analyst" column written on November 24, 2002, titled "Plan the trade and trade the plan." This article can be viewed by both premierinvestor.net and OptionInvestor.com subscribers in the "Ask the Analyst" section of the site.
As I type, I'm getting an upside alert on past bullish profiled Forest Labs (NYSE:FRX) $55.02 +1.41% as the stock sets yet another 52-week high after yesterday's 2:1 adjusted stock split. It is notable that the 2:1 stock split gives the point and figure chart a different look. However, I'm going to continue to use the "pre-split" chart for my analysis right now. As such, the current bullish vertical count continues to grow after the recent point and figure buy signal at $100, and now stands at $72.50 on a post-split basis. Again, at some point between today and end of February, some type of decision is expected out of the FDA regarding a potential "block buster" drug from FRX for the treatment of Alzheimers. My brother is a specialty representative for the company is saying that industry followers and internal projections are that if the drug is approved, could become the company's leading drug, and potentially replace Celexa, which launched the company to what it is today, as the company's best selling drug. While this is a scenario for bullishness only, it can be followed in the chart.
Disclosure: I currently own a bullish position in FRX.