Option Investor
Market Updates

Weak, but better than forecasted

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The major indexes are once again on the move higher with the Dow Industrials (INDU) 8,953 +1.16% gaining triple-digits and breaking above the 8,900 level, while the tech-heavy NASDAQ-100 Index (NDX.X) 1,208 +0.91% and Tracking Stock (AMEX:QQQ) $30.07 +0.9% benefit from further gains in the Biotechnology Index (BTK.X) 466.06 +3.7% as today's economic data was slanted toward a still anemic economy, but was better than economist's forecast.

At 10:00 AM EST, April construction spending showed a 0.3% decline, but was slightly better than the latest consensus forecast of a 0.5% decline.

In a separate economic report, the ISM Index for May came in at 49.4, which is still below the 50.0 reading and signals fractional contraction at the nations manufacturing level, but here too a slightly better than forecasted (48.5) was found. May's 49.4 reading was an improvement from April's 45.4 reading.

The S&P 500 Index (SPX.X) 972.87 +0.96% extends Friday's gains on broader sector bullishness. The Airline Index (XAL.X) 45.05 +5.5% holds today's sector winner, with the Biotechnology Index (BTK.X) 466.06 +3.8% boosted by gains in Genetech (NYSE:DNA) $69.14 +10.4%. Shares of DNA were profiled as bullish back on May 15 at the $40.00 level in our intra-day commentary, and in this morning's market monitor I've suggested that bulls still holding partial bullish positions raise stop to $64.92

S&P 500 Index Chart - Daily Interval

The S&P 500 (SPX.X) has achieved the 970 level and now exceeded this "blow off" upside level from our Thursday evening Index Trader wrap. New WEEKLY (blue retracement) and MONTHLY (red retracment) has near-term resistance coming in at 976. If the SPX can CLOSE above that level, I do feel further upside to WEEKLY R2 and the upper end of our regression channel exists, but I would have to look for some bullish profit taking there. Pullback support should be firm at 943.

This 943 level grabs my attention, as this was my bull target from two weeks ago on a bullish profiled trade from SPX 922. As the SPX did meet, then exceed that target, bulls may have decided to "roll" a bullish trade to the S&P 100 Index (OEX.X) 489.07 +1.21% at the 481 level.

In this morning's market monitor, I showed the following OEX chart on 60-minute time interval with new MONTHLY and WEEKLY retracement overlaid. I've suggested that OEX bulls from 481 now raise stops to slight profitability at 482.

S&P 100 Index Chart - 60-minute interval

We can perhaps see the OEX/SPX correlation of near-term resistance at their WEEKLY R1's, with OEX WEEKLY R1 at 489.90. Should the OEX trade the 489.90 level, I think it would be wise for bulls from 481 then further raise a stop up just under the December high (thick pink) of 487.94 at 486.

Jeff Bailey

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