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Intra-day pivots set morning range

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As time allows, traders may have noted that today’s action has the major indexes looking to trade today’s intra-day levels from pivot analysis, with the NASDAQ-100 Index (NDX.X) 1,084 –0.30% really pegging it’s intra-day “resistance 1” which was 1,103 with a morning high of 1,104.32 achieved in the first 10-minutes of trading. From there, the other indexes were also trading these short-term resistance levels and quickly pulled right back to their pivots, with the NASDAQ-100 Index (NDX.X) low of 1,075.96, doing a pretty good job of trading its intra- day pivot of 1,080.04.

With little “market news” helping to explain this mornings rather bullish open into a flat trade as we approach the mid-point of the session, it certainly looks as if today’s trade as been technically driven.

Time allowed, I’ve been trying to go through a list of S&P 100 Index components, looking for stocks that might trigger reversing “buy” or “sell” signals on their point and figure charts, which might then have the S&P 100 Bullish % ($BPOEX) from www.stockcharts.com giving some type internal confirmation toward strength, should this indicator see a net gain of one stock to a point and figure “buy signal” and get the bullish % for this rather narrow (just 100 stocks) back into “bull confirmed” status.

While I haven’t been able to get through half of the charts at this time, it is rather “uncanny” that I can find many stocks that look to be “sitting on the fence” and rather “neutral” at this point.

One stock that grabbed my interest is shares of American Electric Power (NYSE:AEP) $27.22 –4.25%, which is a higher dividend yielding stock in the Utility Index (UTY.X) 263.05 –1.9%, which trades down not only in sympathy with Duke Energy (NYSE:DUK) $18.18 –13.38% after the company lowered guidance, but a quick browse of the news wires had a Business Week article from last last week mentioning that American Electric Power may be on the “bearish” list of professional shorts on the thought that the utility my be seeing a “cash squeeze” and the higher yielding dividend may be in jeopardy of being cut should fundamentals deteriorate further, and not leaving enough earnings at the bottom line to cover the current dividend

According to the Business Week Article, one bear is short at $25 and believes the stock has downside potential to the $14.00 level. In this morning’s market monitor at OptionInvestor.com, we did some quick work with the point and figure chart of AEP along with a relative strength chart of AEP versus the S&P 100 Index (OEX.X) 471 +0.13% and I thought I could envision how a reversing point and figure sell signal in AEP at $25 combined with a relative strength sell signal at that level could have the stock signaling some confirming technicals to the thought of the stock trading $14.00.

American Electric Power (AEP) - $1 and $0.50 box

After giving a “double-top” buy signal at $21, which would have added a net change of 1 stock to the OEX bullish %, shares of AEP have been hovering just under its point and figure bearish resistance trend and horizontal resistance of $31.

Duke Energy (DUK) $18.12 –13.6% has been a stock we’ve discussed with “bearish” thoughts in recent months that weakness in its business and the utility sector in general might have that stock “suspect” to lowering its dividend. While this morning’s guidance for 2003 EPS is still high enough to cover Duke’s dividend, what looks to be in play is a trend of lowering guidance, even guidance that had been lowered weeks ago.

This may also be a “concern” or reasoning among bears in this past week’s Business Week article that American Electric Power (NYSE:AEP) might succumb to a “cash crunch” and have its higher annual dividend of $2.40 at risk, should forward EPS fall below $2.40 and not provide coverage of its dividend. According to Yahoo Finance, trailing 12- months earnings for AEP is $2.57 per share, leaving little room in an earnings short-fall to provide annual earnings to cover the $2.40 dividend, which currently would yield 8.8% based on current stock price.

Traders will also want to monitor AEP’s relative strength chart, perhaps against the S&P 100 Index (OEX.X). In a recent “Ask the Analyst” column, we discussed the use of the point and figure charting method of charting relative strength in the column titled “Relative strength, but with X’s and O’s.”

Jeff Bailey

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