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Indexes get a "pop" after terror threat level lowered

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The major indexes got a "pop" higher late this afternoon, but have been hard pressed to advance much above their session highs after FOX News reported that the nation's terror alert level was lowered from orange to yellow.

The news comes after the alert level was raised to "high" on May 20 following the homicide bombings in Rihadh, Saudi Arabia.

The Dow Industrials (INDU) 8,838.70 +1.46% jumped to a session high of 8,868.33 on the news, but has been unable to extend those gains. The intra-day action certainly looks to have brought in some momentum bulls on the break higher, but the session's high wasn't sustainable as if the market participants didn't really care, or don't have any type of trading scenarios set up for concern on terrorism.

It's been a struggle for the indexes to really make any type of move higher since the 11:00 AM EST mark in today's trade, and one would think today's trade is more like what we'd find ahead of an extended weekend, than a "normal" 2-day weekend.

While I scour the indexes for some type of "catalyst" sector to give any type of hint to further gains, or giveback of today's gains, it seems that even the more micro parts of the market are "happy" with their current level of trade.

Perhaps the best performing sector since the 11:00 AM mark has been the Gold/Silver Index (XAU.X) 72.89 -0.35%, which has been edging back toward the unchanged level after falling to a morning low of 71.50. I still find this sector attractive for bulls and the recent 3-day pullback and consolidation at the rising 21-day SMA, 50% retracement (August 2002 low to June 2002 high) and an "old" upward trend I've left in place from the July low, still gives sign that this sector is finding buyers and perhaps a more attractive risk/reward type of trade for bulls.

Gold/Silver Index (XAU.X) - Daily Interval

I will have to show the above chart in a later update, as my attempts to upload the chart to the web site have failed.

Some sectors currently look a little overextended on their bar charts and can make it difficult for a bullish trader to "pull the trigger" with downside risk to a trend or "level" further below. The Gold/Silver Index (XAU.X) looks to be in a rather "tight range" from 76-72 and at the lower end of this range. Despite early morning weakness, the group has managed to hold tough at its 50% retracement and shorter-term 21-day moving average.

As you can see, the Gold/Silver Index (XAU.X) along with the AMEX Gold Bugs Index ($HUI.X) 140.14 -0.04% are sectors that tend to trade off momentum. While I've been more bullish the sector in recent weeks, I'm tentatively so, but the bullish % continues to show internal strength building, and I like some of the technicals in play for bulls to trade long with tight stops just under the recent lows in BOTH the XAU.X and $HUI.X. The catalyst for the upside move I think would best come if the POTENTIAL head/shoulder top, sees the right shoulder in the XAU.X violated to the upside, where a "gold bear" would most likely then look to cover a position as upside momentum builds.

Jeff Bailey

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