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Testing of S2

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Obviously there is a time delay when preparing an intra-day update when a screen capture is taken and when the update gets published and while the major market indexes have not tested their intra-day lower levels of S2 support and started to firm up a bit, then perhaps it instills in all traders how the intra-day pivot analysis that John Seckinger has introduced us to comes into play.

For premierinvestor.net subscriber, these comments may be "Greek" to you, but don't worry, we're going to put together some of John's articles on these intra-day pivot analysis and support resistance levels. They are not just useful for the major indexes, but for stocks too, as professional traders and institutions will use this tool on an intra-day basis as they manage positions and inventories.

My current analysis is that 90% of today's action has simply been technically driven. As discussed in today's market monitor at OptionInvestor.com, I was working last night with some of John's pivot analysis and applying it not only to the daily highs, low and close levels of the major indexes, but also "building out" to last week's high, low and close, along with December's monthly high,low,close.

While today is the "first observation" of this type of analysis, we began discussing how there were some suspicious correlations at resistance levels from the pivot analysis.

I share this observation as simply that. An observation that looks to have "worked" today. We will take some notes, but I am not suggesting that today's trading is deemed "proof" that traders can OVER LEVERAGE similar finding in the future.

However, I'm going to show the below "matrix" of daily, weekly and monthly pivot analysis and let you be the judge if today's higher open that got sold hard is due to some type of "market event" or simply technically driven where we may have been near some short (daily) intermediate (weekly/monthly) levels of correlative resistance.

Pivot Analysis Matrix

I've simply taken John's formula for deriving intra-day pivot, support levels (S1 and S2) and resistance levels (R1 and R2) and noted some commonality in the various R1 levels last night. Since last night was the first time I really put this type of data together and found so many correlations at a level, I did not feel comfortable displaying the data and having traders rush to trade the levels. However, this observation made today has be thinking that this morning's "higher open, then dump lower" may well have been more technical than anything.

I've also gone through the above matrix and underlined in "pink" those levels that have been traded today.

What this "matrix" may do is help us understand this. We are at the low end of today's "range" of pivot analysis as all S2s have been traded.

Then, by looking at the weekly levels, which are derived by taking last week's high, low and close and developing "weekly pivots" I begin to make the observation that the indexes are in the "middle" or pivot of last week's range. Any new long positions here would immediately understand how the R1s become initial targets and would need to be broken to the upside to have higher levels of R2 coming into play. For BEARISH traders, the weekly data give you a quick snapshot of "field position" and an understanding of risk, to R1 and potentially R1 and can be weighed against potential targets of S1 and S2.

The monthly data gives an even "wider" look at things and where the indexes are trading relative to December's monthly range. If you're a BEARISH trader that prefers to buy put options several months out, it would be this part of the matrix that you would focus on and each level (pivot, R1 and R2) serve as your targets.

Anyway... this is something I was working on last night, wanted to observe today and found very interesting as today's action unfolded.

It is interesting to note that the QQQ traded a low of $26.58 today, and has been trading rather sideway in the 90-minutes and currently trades $26.68.

Today's trade sees the bulk of the sectors trading red with the Semiconductor Index (SOX.X) 324.54 -3.6% leading declines. While I truly believe the bulk of today's market action is technically driven, I do think some "fundamental" bearishness is displayed in the semiconductor sector as it relates to Intel's (NASDAQ:INTC) $17.55 -1.34% comments last night that it hasn't seen much "economic rebound" for its products. However, I thing SOX bearishness today is more fundamentally driven when Intel said it was cutting its capex budget for 2003, which is a negative for semiconductor equipment company's that rely on Intel to order new equipment.

The "big gun" and semiconductor equipment giant Applied Materials (NASDAQ:AMAT) $14.39 -6.25%, the KLA-Tencor (NASDAQ:KLAC) $38.22 -3.6% and Novellus (NASDAQ:NVLS) $32.37 -3.22% are the major semi-equipment players and see their stocks hit by selling after Intel's capex comments.

Sectors showing gains are limited to the Oil Service Index (OSX.X) 83.41 +3.6%, Natural Gas Index (XNG.X) 166 +1.36% and Gold/Silver Index (XAU.X) 74.55 +1.07%.

In some of yesterday's commentary, I noted the XAU gave a point and figure "sell signal" at 75.00 which looks to have downside risk to 67.00. However, it is notable that the XAU.X trades at its lower Bollinger band (21-day SMA with 2-std. deviation), which is just the opposite of what we've seen in the major equity indexes. It has been our observation that the gold/silver index tends to move INVERSE the major equity indexes and I would think broader-market equity traders will continue to monitor things here.

In this morning's 09:00 update, I mentioned the possibility that the major equity indexes could indeed challenge December's highs and perhaps take them out to the upside for one more leg higher. I would look to perhaps test that thought in the coming week and under such an unfolding of events, then I would think the XAU.X drifts back lower to test its bullish support trend near 67.00 or 68.00.

Then, should the major market averages indeed test their December highs or take them out to the upside, I would look to turn focus to the bullish % charts we monitor for a more "overbought" reading above 70% (SPX, OEX, NDX, INDU) as potential exit points.

Again.... I will continue to monitor the bullish % charts on a daily basis to get a feel for the market internals, which in recent sessions have started to improve and has me currently leading toward near-term bullishness, but not OVERLY bullish in my trading account.

Jeff Bailey

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