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Industrials waver near 9,000

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A shakeup among top management at Freddie Mac (NYSE:FRE) $50.15 -16% has sent some shockwaves through the financial markets and sent the stock lower as the company's Board of Directors dismissed top brass after not fully cooperating with the company's internal audits toward past accounting.

After a reversal of gains on Friday, the major indexes trade lower on broader sector weakness with the Dow Industrials (INDU) falling back below the psychological 9,000 level at 8,993 -0.76% with a 69-point decline, while technology sector weakness finds the narrower NASDAQ-100 Index (NDX.X) 1,195.58 -1.44% down 17 points and its Tracking Stock (AMEX:QQQ) $29.78 -1.29% lower by 35 cents.

The broader S&P 500 Index (SPX.X) 977 -1.04% is falling 10-points with the Biotechnology Index (BTK.X) 461.55 -4.4% leading sector losses, with the Disk Drive Index (DDX.X) 102.88 -3.21% and Airline Index (XAL.X) 49.15 -3.09% lower by more than 3%.

Financial sectors have the S&P Banks Index (BIX.X) 304.21 -2.29% leading financial weakness after having traded our reverse head/shoulder patter objective of 308 last week. Today's news out of FRE most likely spurs profit taking in the banks as FRE is a large purchaser of residential mortgages, and some shakeup at FRE may temporarily delay some repurchasing of mortgages that regional banks count on in order to free up further cash for new mortgage originations.

With some technical weakness in today's session and weakness in financials, the S&P 500 Index (SPX.X) may have been a focus for a bearish trade among subscribers in this morning's early session.

S&P 500 Index (SPX.X) - Daily Intervals

In this weekend's "Ask the Analyst" column, we discussed the term "exhaustion gap" and bar chart of the NASDAQ-100 Tracking Stock (AMEX:QQQ) $29.63 -1.62%. With new WEEKLY pivot analysis retracement (blue) and existing MONTHLY pivot retracement (red) I think a technician can perhaps look to trade such a technical scenario. In today's market monitor at OptionInvestor.com, I profiled a bearish trade in the SPX with a near-term bearish target of WEEKLY S1 of 965. My trigger for the trade was a break below 982.00 and we got that earlier, but now need to get a move below 975 and the 61.8% retracement from our weekly pivot analysis. With the S&P 500 Bullish % ($BPSPX) still showing net gains in point and figure buy signals, I want to set by BEARISH targets rather conservative at this point to reflect the strong internals. Should we eventually see some internal damage taking place from the bullish % or our New High/New Low shorter-term indicator, then I may be willing to get more bearish with some downside targets.

It is still my thought that there will be some decent upside trading bounces as I think there are quite a few bears that may not have liked Friday morning's highs near 1,007 looking to cover on pullbacks.

One indicator that has been working well in recent months to find a pullback low has been Stochastics (5,3,3) at the oversold level, when we get an SPX pullback near a pivot analysis level.

Jeff Bailey

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