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NASDAQ tries to buck the trend

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The Dow Industrials (INDU) 7,924 -0.75% fell to a session low of 7,892 and had some technical damage being done to its chart which portents bearish things to come after North Korea, which has restarted some of its nuclear facilities, warned that any pre- emptive attack by the United States on its nuclear facilities will spark a "full-scale war" on the Korean Peninsula.

While the news out of Korea sent the major indexes to their session lows and had the Dow Industrials, S&P 500 Index (SPX.X) 836.29 -0.86% (range 844.23-833.25) and S&P 100 Index (OEX.X) 421.75 -0.99% (range 426.01-420.38) breaking some major levels of technical support this morning, the relatively "resilient" NASDAQ-100 Index (NDX.X) 968.27 -0.07% (range 977.00-961.36) tries to stem the major index declines and holds some key support levels that trader will want to monitor.

With the Dow, SPX and OEX now looking to have their WEEKLY S2 levels of support in play on the downside of 7,850, 830 and 418 respectively, traders will look for some "confirmation" of index weakness from the NASDAQ-100 Index.

NASDAQ-100 Index Chart - Daily Interval

Current levels that look in play are from conventional use of retracement on the NDX from the October lows to December highs at 50% retracement of 975.46 as resistance, with support coming in from the WEEKLY pivot analysis level of S1 at 960. With the Dow, SPX and OEX breaking their weekly S1's, it is my opinion that the NASDAQ-100 will eventually give way, but a trader that may. In last night's Index Trader wrap I briefly mentioned that the NASDAQ-100 Index was the only major index we cover that hadn't really been in a consolidation base like the Dow, SPX and OEX had been as the NDX had been setting some lower lows in recent sessions. Still, like "domino theory" today's relative strength from the NASDAQ-100 is marginally impressive, but similar to thought in the Dow, SPX and OEX that resolution from consolidation would see lower price action, has me looking for the same in the NASDAQ-100 to its WEEKLY S2 of 937 in coming sessions and might also tie in with some correlative support from retracement at 61.8% retracement of 932.93.

In the above NASDAQ-100 Chart, I do mention a trader holding full position short in the NASDAQ-100 may look to limit some exposure near-term, take a profit in 1/4 or 1/2 position near current support, "just in case" some type of unforeseen "event" takes place which might see a rally take hold. Risk assessment currently would be back to today's highs and the WEEKLY pivot of 979.

Treasuries are seeing a nice round of buying today, so lets take a quick look at things here. What I'm doing in the below chart is placing conventional retracement on the 10-year YIELD ($TNX.X) to also market its October-December YIELD range. Just remember, higher YIELD has the bond seeing selling and freeing up cash that can flow to equities, while lower YIELD has the bond finding buyers that can starve equities from cash.

10-year YIELD Chart - Daily Interval

While the major equity indexes hover near their 61.8% retracement levels, the YIELD of the 10-year Treasury ($TNX.X) is hovering around its 50% retracement level. In past commentary it was my thought that a 10-year YIELD below 4.0% would be a signal for continued weakness in equities as that looked to be a level where the apex of a large wedge was forming.

It's also my thought that stocks tend to "over swing" highs and lows as general media events can really impact market psychology. While history has shown that the bond market can also become susceptible to some swings of "emotion" there usually aren't as many "mom and pop" traders like you and I trading bonds on a daily/weekly basis like we might see with stocks.

While I can't say the stability in the 10-year bond's YIELD is a sign of stability to come for stocks (deflation or inflation could see selling in Treasuries and higher YIELD) we're not seeing a mad rush back into bonds that would have YIELD falling on price gains.

For me, should YIELDS hang around current levels in the 10-year YILED and Index traders or stock traders that are bearish in their trading account see some downside targets achieved, then look to lock in gains on the weakness.

Jeff Bailey

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