Option Investor
Market Updates

Stocks jump after President's Day

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In the past nine years, the Dow Industrials have posted gains on the first day of trading for February option expiration and have traded higher 6 of the last 9 years on the first day of trading following President's Day, which was observed on Monday.

Today's trade has the Dow looking to repeat a rather bullish history with a 142-point gain, but that doesn't necessarily mean that the Dow doesn't offer an attractive short/put entry point at current levels. Just recently, in the morning's market monitor, I profiled a partial position short/put opportunity in the Dow, especially for those bearish traders that took some bearish gains off the table on Friday, when the Dow broke above a steep downward trend, which to me, currently looks to be a very oversold bounce near-term.

Here's a quick look at the Dow Industrials (INDU) bar chart, with updated WEEKLY retracement levels set on the chart, along with its WEEKLY R1 and WEEKLY pivot level that serves as a bearish trade setup.

Dow Industrials Chart - Daily Interval

The Dow has had a very nice 2-day rally that really began late Thursday after coming very close to testing last week's S2 level of support. In BLUE, I've now set a retracement to this WEEK'S S2-R2 levels, but have left the MONTHLY retracement in RED. PINK retracement is shown in pink. Combined, the three retracement brackets give some "zones" of support and resistance, with a current "zone of resistance" from 8061-8054 currently being traded. I've proviled a bearish trade in the Dow, with a stop above the conventional 50% (PINK) retracement of 8,120. We currently see the Dow rallying back into a past level of consolidation that was found just prior to last week's "torrid" decline to the recent relative lows.

In this weekend's "Ask the Analyst" column (it has now been posted) I forgot to send in my commentary along with the picture of my trading screen setup for the various major indexes and sector symbols. This is now posted.

Only the Defense Index (DFX.X) 140.46 -1.12% currently shows a loss, with the broader sector action showing gains.

Sector winners this morning have the Disk Drive Index (DDX.X) 73.16 +3.65% leading today's sector gains, with other technology sectors, Semiconductor (SOX.X) 288.85 +3.10%, Software (GSO.X) 105 +3.05% along with Home Construction (DJUSHB) 324 +3.16% leading sector gains.

Treasuries are seeing selling across their major maturities, and I've made comment this morning that we've seen some technical resistance come into play in the 10-year YIELD ($TNX.X) 3.972% earlier this morning at its YIELD high of 3.995% at its rounding lower 50-day SMA. On a near-term basis, this has me looking at some technical resistance in the 10-year YIELD that might be correlative with the above Dow chart at its WEEKLY R1 of 8,053 and correlative "zone of resistance" noted.

Dollar action has been mixed, and just now, the U.S. Dollar Index (dx00y) 100.42 -0.01% edged marginally lower. This hints to me that while today's continue rally from late Thursday in stocks is impressive, the combined dollar/bond action is sign that market participants still remain somewhat cautious toward "war with Iraq" and I don't think these concerns have now been forgotten at this point. Similar technical action is at play in the Dollar Index (dx00y) as that seen in the 10-year YIELD ($TNX.X), with a test of a trending lower 50-day SMA at $100.085 in the Dollar Index (dx00y). I think traders can use the combined technical levels in the Dow along with Dollar/bond YIELD action to be somewhat "neutral" if not marginally bearish equities after the recent rebound from Thursday.

In our updated pivot matrix from Friday evening in the market monitor, all of the major indexes have seen a trade at their WEEKLY R1 levels of resistance. However, I will also note that the S&P Banks Index (BIX.X) 277.00, which has shown relative strength versus the major indexes in recent months and weeks has not yet tested its WEEKLY R2 of 277.60. It has come close with a session high of 277.32, but current action may hint that some institutional computer programs may have a "sell side" bias at current levels.

Jeff Bailey

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