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Dow Industrials hold triple-digit gain

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As the eastern seaboard digs out of a weekend snowstorm, equities continue to dig themselves out of a whole and build on Friday's "Valentine Rally" with the Dow Industrials (INDU) 8,054 +1.83% holding near its best levels of the session and a 146-point gain, while the broader S&P 500 Index (SPX.X) 851.41 +1.97% trades just 1-point off of its intra-day high and holding above our WEEKLY R1 level of resistance from this week's newly updated pivot matrix.

S&P 500 Index Chart - Daily Interval

In our 11:00 AM EST update, we noted the Dow Industrials (INDU) had rallied into a "zone of resistance," which was derived from retracement brackets placed at their WEEKL and MONTHLY S2-R2 levels. While the MONTHLY levels (red retracement) remain unchanged, new WEEKLY levels were established based on last WEEK's high, low and closing values for this major market index, which many institutional buy and sell programs are established from.

While I have not seen any buy/sell program premium levels triggered in the latter-part of this morning's trade or early afternoon session, it would be my thinking that the SPX, not unlike the Dow Industrials have entered into a "zone" where we see some sideway's trade and might not get further sign of a move unless we see the trades above SPX 855 or below SPX 850.

As the session has progressed, earlier notes in the 11:00 AM EST had me monitoring the 10-year YIELD ($TNX.X) 3.961% which is higher on the session on early morning selling, but has slowly been edging lower from its high YIELDs of 3.995% found just after equities opened for trading. The action in the 10-year bond doesn't depict that one of "overly bullish" or renewed optimism for stocks at current levels, and not unlike my earlier comments regarding the Dow trading into a "zone of resistance" I make similar comparison for the SPX.

It is my view that bearish traders that may have had some stops set just above downward trend on the above SPX chart, which was an aggressively downward trending trend, may begin implementing some partial position short back into the SPX once again.

As I write just now, I see the 30-year Treasury YIELD ($TYX.X) 4.876% dipping marginally red here, and this is a sign to me that we're seeing some buying in the 30-year Treasury, and perhaps a sign from the MARKET that it views the 4.875% YIELD of this "riskier" Treasury as "attractive." It would be my view that this action is a sign of CAUTION to a bullish equity trader, and may also get a bear's attention, with some rather tight stops available in the indexes just above current levels.

The passing of the 3-day weekend without any terrorist strikes here in the U.S. has most likely given some further bullishness to equities today, but in a still "uncertain" market environment, I think traders need to continue to stay disciplined in their account/trade management as discussed in Thursday evening wrap and simply look to trade levels with detailed stops and profit targets in mind.

In today's 11:00 update, my bearish trader's target for the Dow was the WEEKLY pivot near 7,841, with a stop just above the 8,125 level.

Similar trade setup can be found in the above SPX chart, with a stop just above the current "zone of resistance" at 857 and trader's target near the WEEKLY pivot of 828, and should tensions build with the U.S. and Britain still pushing for some type of military strike against Iraq and against any U.N. type of resolution that weapons inspections should continue in order to further a peaceful resolution, a downside target into a "zone of support" at 818-819, just above WEEKLY S1 would not be out of the question.

Market volumes are not overly "heavy" today, with NYSE volume just over 764 million shares, while NASDAQ volume turns 877 million shares at the 01:00 PM EST mark.

Sector action remains positive today with all of our sector indexes in the green, with the exception of the Defense Index (DFX.X) 140.75 -0.92% and Gold/Silver Index (XAU.X) 71.97 -0.24% trading marginally lower. The Gold/Silver Index has been hovering either side of unchanged for the bulk of the session, while the April Gold Futures contract (gc03j) $344.30 finished down $6.70, or 1.9% from Friday's close.

After trading post-split for a 2:1 stock split, Microsoft (NASDAQ:MSFT) $24.78 +2.65% is today's most actively traded stock in the market at just over 38.5 million shares. Cisco Systems (NASDAQ:CSCO) $14.19 +3.73% is the second most actively traded stock after closing above its longer-term 200-day SMA of $13.50 on Friday. Current technicals now have the stock above its longer-term 200-day SMA, intermediate-term 50-day SMA ($13.85) and shorter-term 21-day SMA ($13.66). This action once again looks to have the stock looking to test the recent highs near $15.00 and may have positive impact on psychology toward technology stocks.

The broader NASDAQ-100 Index (NDX.X) 1,011 +3.03% has moved back above the psychological 1,000 level and looks to test both its trending lower 50-day SMA and 200-day SMA near 1,020.

Jeff Bailey

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