Option Investor
Market Updates

Future dip lower on weaker productivity report

HAVING TROUBLE PRINTING?
Printer friendly version

Stock futures were down marginally before this morning's non-farm productivity report, but have extended those losses with S&P futures (sp03h) lower by 6 points to 838.50, while NASDAQ futures (nd03h) are off 6 points at 963.50 and Dow futures (dj03h) slip 55-poiints lower to 7,925.

The government said fourth-quarter non-farm productivity fell 0.2% at a seasonally adjusted rate, the lowest reading since a 1.4% decline in the first quarter of 2001. Economist's had forecasted productivity gains of 0.5%. The fourth quarter's 0.2% decline was a setback from the third-quarter's revised higher 5.5% gain (preliminary report 5.1%).

The decline in Q4 productivity was impacted by a 1% increase in hours worked, compared to a 0.8% increase in output.

Productivity in 2002 was up 4.7%, the biggest increase since a 6.9% gain in 1950. Productivity in 2001 rose 1.1 percent.

Other economic data released this morning had the Labor Department saying that first time requests for jobless benefits in the latest week fell 11,000 to 391,000 from last week's revised upward 402,000.

The four-week moving average of jobless claims, which tend to smooth out the week-to-week volatility fell by 500 to 384,750, its lowest average since the week ended November 30.

The number of Americans who continue to collect jobless benefits was 3.35 million an increase of 58,000 from the preceding week. The four-week moving average of continuous claims fell 22,250 to 3.33 million. The figures do not account for those individuals who've seen their benefits expire.

The insured unemployment rate held at 2.6%.

The Labor Department will release its monthly snapshot on the job market Friday. Economists are looking for the unemployment rate to remain at an eight-year-high 6%. They expect about 64,000 payrolls to have been added in January after more than 100,000 positions were slashed a month earlier.

Below are some observations and thoughts put together last night as I was looking at some charts of the major indexes.

S&P 500 Index Chart - Daily Interval

The above chart of the SPX has a conventional retracement overlay from the October 10th low, to December 2nd high. So far, the SPX has retracement 61.8% of its October-December rally. One thing I not is that the WEEKLY R1 of 869 is/was a level of past support dating clear back to late October. While this "WEEKLY R1" level was not derived until last week's trading was complete, it becomes apparent that this has been an important level. Current conclusion is that the 869 level is a MAJOR level of resistance. While the WEEKLY R1 of 869 has not beet tested this week, I do think a trader can short/put rallies using the WEEKLY R1 as formidable resistance. However, not how the 50% retracement level of 861.45 has really come into play this week. Here too, observation of resistance. At the "peak" of Collin Powell's address to the U.N. the SPX traded a high of 861.63, then got "whacked" lower.

In last night's Index Trader Wrap, we looked at the Dow Industrials with WEEKLY S2, S1, R2 and R1 levels from the pivot matrix and came to the "conclusion" that a trader feeling a little "whipsawed" in the past eight sessions, might assign themselves in trading strategy to a range-bound market. While I believes resolution from the recent 8-session consolidation will come to the downside as all of the Bullish % indicators from the point and figure charts have reversed into a column of "O" and are either "bear confirmed" or "bull correction" status and show continued internal weakening where supply is outstripping demand for stocks, the above chart of the SPX shows two levels of support currently in play at the WEEKLY S1 of 841 and 61.8% retracement of 839.54.

While being "patient" as a trader and an investor is a great attribute, some traders holding full position bearish that have seen a nice gain get reversed the very next day, might look to trade the strategy we discussed in last night's wrap, until some type of CONFIRMING technical break is found. A trader holding "full position" short/put in the SPDRS (AMEX:SPY) $84.88 or SPX might look to "lighten up" a bit to 1/2 position. Those traders that have been "pulling their hair out" with the range trade of 841-861 that have been looking for the break lower may eventually get it, but lets face it, we may have been looking for that break to SPX the past 8-session, and meanwhile have seen 15 to 20-point ranges trades a couple of times.

In a recent "Ask the Analyst" column, we discussed how a trader manages his/her account like a business. (See: Your account is your business).

I dare say. Cisco System's (NASDAQ:CSCO) $13.20 CEO John Chambers said in the company's recent quarterly earnings report that the current business environment is the "most challenging" he has ever seen. While Mr. Chambers may "look young" he's been around the block a couple of times and spent many years with Wang, before he moved over to Cisco, when most still thought Cisco was the distributor of food services vending company and confused the name with SYSCO Corp. (NYSE:SYY) $29.19.

Long story short. When I first started out as a broker back in the early 90's, I "found" this networking company Cisco Systems (CSCO) that made hardware to help connect the Internet together. When I'd ask a client or "prospect" if they were familiar with Cisco Systems, they'd say, "sure, I see their trucks all over city, but I'm not interested in a food services stock."

Anyway... As it relates to you and I running our accounts like a business and perhaps adjusting our trading strategy to fit the times, along with what John Chambers does by giving Cisco direction, you and I must also "adjust" to market conditions. While Lucent (LU) $1.60, and Nortel (NT) $2.30 are "penny stocks," I'd argue that Mr. Chambers has had little control over the economy. The ability for CSCO to trade above $10.00 is probably some type of statement at least to how Mr. Chambers has been able to manage the economic and geopolitical conditions that he and CSCO have been faced with.

In recent weeks' intra-day commentary, and even in last week's Ask The Analyst column, I said, or at least thought in writing, that the current stock market environment is "uncertain." Heck, in yesterday's 01:00 intra-day update, stocks were just off their highs of the session. I don't think I hit the "send" button on the e-mailer, but what it almost served as a "sell button" for the market as stocks sold off into the close.

I'm not sure that it "makes sense" to everyone that sometimes we as traders need to make some adjustments to our "trading style" to conform to the market environment. I would think if Cisco was still burning out the same number of networking switches and routers that they were 36-months ago, they too might see their stock trading below $5.00 today. However, Cisco must have made some type of "modification" to their business strategy to compensate for the changing economic environment.

Just so the various WEEKLY S2, S1, Pivot, R1 and R2 levels make some sense on the SPX chart above, here is the pivot analysis matrix we show in each night's Index Trader Wrap at OptionInvetor.com. To then "make sense" or understand how these levels are mathematically derived, subscribers can view the article "Pivot Analysis to define levels and ranges" in the Ask the Analyst column from 01/19/03.

Pivot Analysis Matrix

(Note: The DAILY S1, S1, Pivot, R1 and R2 will change after each day's trading is completed. Weekly levels change after the completion of a week's trade. Monthly levels were calculated using January's high, low and close).

I'm writing all of this (SPX chart and below) on Wednesday night. However, this time of night is when things are quiet and I can gather my thoughts. Some think I just talk/type to myself, and this may also be true.

For those that subscribe to the market monitor, I've also written up some observations late tonight on what may have happened as it relates to the pivot analysis matrix and Tuesday evening's observations that were made in Tuesday evening's Index Trader Wrap. Was it really what the Iraqi U.N. Ambassador said when commenting on Secretary of State Colin Powell's address to the U.N. that triggered the sell-off in the markets? Or was it some type of computer generated sell program set right at the SPX daily R1 of 859 and OEX R1 of 435 that triggered the real selling. It may well have been a "combination" of the two.

I also made note that yesterday's OEX low of 425.19 was also very close to the OEX's DAILY S1 of 424 and WEEKLY S1 of 425. I'll note here too that the SPX's low yesterday of 842.11 was very close to its DAILY S1 of 839, and even closer to the SPX's WEEKLY S1 of 841.

Jeff Bailey

Intraday Update Archives