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Index Wrap

They Announced, They Cut, We Yawned, We Rallied Big, We rested.

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They Announced, They Cut, We Yawned, We Rallied Big, We rested.
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And on the eighth day, the Fed created a bull market. Seems almost biblical, does it not? Well, at least if you are in bullish plays. As Austin duly noted in the Swing Trade Model update at 3:00 p.m., while near-term pullback is certainly due, traders making peace with incredible changes created today's healthy consolidation that can only be described as bullish over the long term.

What about the short term? On both the Down and SPX, we still consider pullbacks in oversold oscillators on the 10/5 minute charts as bullish daytrading opportunities, and similar conditions on the 60/30 charts would be good for Swing Traders.

The only fly in the ointment that we can see is the 2200 level on the NASDAQ Composite (COMPX) has held as a stubborn point of resistance. The difficulty for tech stocks seems to lie in the networking sector. While CIEN came out with better than expected earnings this morning, the pre-market glory soon faded as the words, "pricing pressure" flowed off the lips of management in the conference call. Still downside was limited to $2.15 as CIEN closed out the day at $56.75.

Further downside came in the sector though as analysts took comments from JNPR at a CSFB conference to be a change in guidance. Not only did that whack JNPR for over a $4 loss, the sentiment crept into CSCO as well. Add to that that MSFT lost $1 today and INTC eked out only a fractional gain, and you have an index with some difficulty in singing the tune in concert with the other major indexes. In short, after a burst up to 2216, shorts stepped up with some conviction to keep the concrete ceiling intact for the NASDAQ.

Without participation from CSCO and MSFT, troops will be unlikely to carry the water very far for the generals. Nonetheless, a solid showing from biotech, energy stocks in fuel cells, coal, oil, and nuclear power, as well as cyclicals kept sellers in check. Noticeably absent though were the financial issues despite Citigroup's (C) offer for Mexico's second largest bank, which should have theoretically lit a fire under other lenders.

Frankly, this is just the kind of day investors were hoping for with lots of volume, and stable prices following a big breakout and huge gains of yesterday. It sooths the nerves of those nervous that yesterday's gains would be met with a tidal wave of selling for having come so far so fast. Again, we are seeing not so much the presence of bull (though that may be debatable related to analyst comments in general), but an absence of bear. Consolidation is good on heavy volume, which amounted to 1.34 bln on the NYSE and 2.14 bln on the NASDAQ - an overall welcome performance.

But wait - this just in from the newsroom. . .Agilent (A) missed already downward revised earnings and warns of a bigger than expected sequential downturn in Q3 (only $2 bln vs. estimates of $2.5 bln). No fear though. They have taken their predecessor's (HWP) cue and noted they see a bottom and that things will be better at the end of the year. Only for A, the plan did not work as it is now trading down $4 from its close. You cannot hide an elephant in a cherry tree.

How about DELL? Earnings came in at $0.17, in-line with downward revised estimates. After-hours trades going off with no change. So far, as of 4:45 ET, it has dodged a bullet. But others in the tech sector, along with A above, have not fared as well. AutoDesk (ADSK), Analog Devices (ADI), and Palm (PALM) have all reported weak earnings or warned of shortfalls to come (PALM). Tech could be hit (read that NASDAQ) tomorrow. Only the morning will convey the ultimate direction of the day. We have learned not to rely on what happens the night before. Stay tuned.

As for the charts, this will be fine exercise in tealeaf reading. Let us take a peek.

Dow Industrial chart (INDU):

There are two ways to look at this chart. Bears would say the daily candle is practically a doji and the market cannot make up its mind. This usually portends a downturn especially after such a big day yesterday. The 60/30 min oscillators too suggest a downturn has already begun and that a nice position or swing trade put could have been initiated two hours before the day's close.

Bulls have a valid argument too in that after such a strong run yesterday, the fact that the index did not fall back shows a nice consolidation. So too does the support on the 60-min chart (evident on the 30-min chart) even while the oscillators fall. The oscillators on the daily chart too show a nice turn back up and any put play should be viewed as suspect, and short-lived, as support at roughly 11,225 is holding.

As for the NASDAQ, this is definitely the weakest link (Hey, what a great name for a game show! Wish we thought of it!).

NASDAQ-100 chart (NDX):

Take a look at the daily chart and notice the overhead resistance around 1950. That will not be easy to penetrate in light of the sorry state of NASDAQ's largest stocks' refusal to come to the party, not to mention the crummy news coming from A, ADI, ADSK, and PALM. The candle too shows lack of strength by trading up and falling by more that half the length of the candle formation for the day. Similarly, the 60/30-min oscillators are in decline.

But the same bullish story as the INDU applies here too - support is holding on the 60/30 charts even as the oscillators sink, and the index should have fallen like a lead Zeppelin (Hey, what a great name for a rock group! Shucks, already taken.) given yesterday's big white candle. But it did not - just consolidative strength. Maybe the candle represents further weakness? Daytrading puts can be profitable, but at the bottom of that trade, buying calls on the dip is the higher odds, longer-term play.

That leaves only the SPX, which blends both the cyclicals and the tech issues.

While we do not show it here, a retracement bracket starting at the peak in early September and ending in mid-March puts 1303 at the 50% level. That alone could offer resistance. But when you couple it with an upper level Bollinger band penetration and the candle's position at the top of the daily chart channel (green), there is a pretty strong bearish case. The falling 60/30 oscillators confirm the short-term weakness for a put play started late in the trading day.

On the bullish side though, just like the other two indexes, intraday support not only remains intact, the lows are getting higher even as oscillators fall! The daily stochastic clearly says the market is rewarding SPX's strength. It looks like consolidation rather than indecision. Puts may be playable for a short daytrade, but at the bottom of the 60/30 cycle, calls look like the longer-term high odds play.

We need to start paying attention to the VIX again too. It touched just under 27 today and fell back. That was a point of previous support from which it would rise as the market sold off. No more. It may very well become a point of resistance for the foreseeable future that will show us the bullish inclination the market is taking. The next stop at support may be around 23.50, but the Bollinger band at 24.50 might make that a pipe dream. If that is so, then the VIX may very well be signifying the top is near and to look for a decent pullback. Sure are an awful lot of bulls compared to what we have seen in the past.

Bottom line? Bulls in control with daytrade puts available for the taking. That may be the ticket to profits tomorrow too as some may want to flatten out over the weekend following this weeks strong rise. I would suspect mostly selling as a result, but anticipate the absence of bears to keep the downside in check, thus setting the markets up for slightly more gains following a consolidation. If the past 6 weeks is any indication, downside damage has been mostly limited. Expiration day too may curb what would otherwise be possible downside damage.

The bell will tell! See you at the morning update.

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