The major indexes are having a tough time making up their minds today as the NASDAQ Composite (COMPX) 1,406 +1% and narrower NASDAQ-100 Index (NDX.X) 1,064 +1.04% are seeing gains, while the NYSE Composite (NYA.X) 4,965 -0.6%, Dow Industrials (INDU) 8,328 -0.88%, S&P 500 (SPX.X) 887 -0.4% and narrower subset of the S&P 500 has the S&P 100 Index (OEX.X) 450 -0.32% lower in this morning's trade, after all of these indexes opened higher in the early going.
The mixed look from the major indexes is most likely attributed to some "cash" starvation today as Treasuries see a somewhat mixed trade with buying found in the 10-year and 30-year maturities, while selling is seen in the shorter-dated 5-year bond. This makes for some marginal flattening in the YIELD curve, which is normally associated as being "bullish" for equities, but the net-buying again today in Treasuries most likely has the major indexes hard pressed to extend this morning's early highs.
In last night's Index Trader Wrap, we discussed the Market Volatility Index (VIX.X) 26.07 +0.11%, which started the morning off to the downside and "spiked" to a session low of 25.10 just after the Office of Homeland Security lowered its terrorism alert to "Code Yellow" from "Code Orange," but has since reversed from those lows, and now seems to be showing some "confirmation" to what we noted from Treasury buying in yesterday's session.
Sector action at this moment shows technology sectors to the upside with the Semiconductor Index (SOX.X) 320 +3.94% leading sector gains, as Intel (NASDAQ:INTC) $18.15 +6% holds this morning's most actively traded spot at 61 million shares traded. The GSTI Software Index (GSO.X) 106 +1.58% is getting a boost from Microsoft (NASDAQ:MSFT) $25.39 +3.21% after last night's earnings report and has MSFT holding the number two most actively traded spot at just over 50 million shares traded.
For a second straight session, healthcare sectors are under pressure with the Morgan Stanley Health Providers Index (RXH.X) 258.85 -2.3% extending yesterday's 5% decline, while the HMO Index (HMO.X) 522.32 -3.28% begins to show some "sympathy" trade with the RXH in this morning's session.
Shares of Dow component Coca Cola (NYSE:KO) $29.84 -6.32% weigh on the Dow Industrials today after the beverage giant reported earnings that were inline with consensus, but multiple downgrades from brokers on expectations that internal unit volume growth will continue to track "well below" the company's long-term target growth rate of 5-6% weighs on the stock in today's trade.
In this morning's market monitor, I made comments regarding the "potential" of a triangle to begin forming in the Dow Industrials. This has triggered multiple e-mail from subscriber that I will attempt to address in this chart. I've discussed this method of trying to "envision" a trade and today's inability of the Dow to trade 8,450 may begin to set up the pattern.
Dow Industrials Chart - 50-point box
There are a MINIMUM of 5 columns needed to set up a triangle pattern in a point/figure chart. Still, one of the "advantages" of p/f charts is that it can allow a trader to try and "envision" a trade or market action going forward. The "triangle" pattern is a NEUTRAL pattern, but will become bullish or bearish once the "buy/sell" signal is given. In the above chart, I've tried to show how a "triangle" pattern may develop in the Dow Industrials. By its nature, the "triangle" pattern is NEUTRAL, and this may be a "hint" to traders that really like to try and ANTICIPATE a direction and OVERLEVERAGE in one direction during the NEUTRALITY that they should be careful.
Yesterday and today's buying in Treasuries should give a somewhat defensive look toward equities, so it may make sense that we could envision a 3 or 4-box reversal in the Dow. On the above p/f chart, this type of action would be NORMAL. A 4-box reversal would be PREFERRED by TRADERS as it then allows for the 3-box reversal back higher to 8,350 and then allows a 5th column to be built. From there, the pressure begins to build as bulls and bears have made there bets. All a TRADER does is then wait for the break of direction and play the break. I've tried to show both the BULLISH and BEARISH trade breaks to represent the pressure unfolding.
How can YOU the traders use this? The first thing to do in a NEUTRAL pattern is to assess YOUR account/position risk. It is probably NOT wise for a trader (bullish or bearish) that anticipates a directional break to be FULL position.
If today's MIXED look for the indexes isn't a rather "neutral" type of trade action, then I'm not sure what is. The MARKET at this point look to be digesting earnings reports and economic data. They too have been "mixed."
Treasury action starts to have me building some caution from the bullish side of things, and now is a great time for traders and investors to begin assessing capital risk in their accounts and perhaps looking to take some profits off the table on a near-term basis from the bullish side of things.
Review your trading account/business plan and look for those positions that may now account for a greater than 10% of your account due to gains, and perhaps trim back some of those profits, get things back in line and raise a little cash.