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Fret About Debt

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       7-10-2001          High      Low     Volume Advance/Decline
DJIA    10173.08 -123.76 10335.63 10162.71 1.24 bln   1223/1861	
NASDAQ   1963.00 - 63.92  2045.12  1960.15 1.62 bln   1370/2364
S&P 100   608.43 -  9.50   620.96   607.59   Totals   2593/4225
S&P 500  1180.93 - 12.26  1203.43  1179.93             
RUS 2000  478.12 -  7.84   487.38   477.50 
DJ TRANS 2775.98 +   .98  2789.17  2764.15 
VIX        26.53 +  1.98    26.70    24.31 
Put/Call Ratio      0.94

Fret About Debt
Contact Support

While Evita Peron is not singing, "Don't cry for me, Argentina", Argentinean debt default prospects have some lenders singing the blues. Accordingly, the BKX or banking index got clobbered nearly 24 points to close at 870 with most of the major U.S. banks taking a hit in the process. It rubbed off all over the market, including nice gains for bonds, a result of a general flight to safety.

Meanwhile the prognosis for recovery in the optical sector (aka telecom, telecom equipment, internet infrastructure, etc) keeps getting pushed further and further out, this time 12-18 months away in late 2002, according to the latest warning by Corning (GLW) issued last night. Job cut announcements at Alcatel did not help either.

Also getting whacked today were the biotech and pharmaceutical sectors as the FDA requested more information on Genentech's (DNA) Xolaire, a product DNA announced just one month ago would be a shoe-in for approval. They spoke too soon. Without a commissioner, today's thinking is that the FDA will be more willing to put approvals on hold for other drugs in the pipeline, which took the sector down.

So, should we be crying the blues too? Not on your life! As noted in last night's Market Wrap and Trader's Corner, we do not have to be bullish to make money. In fact, those capable of ditching the feedlot bias (a place where cattle fatten up before slaughter) now have a tasty pot full of honey firmly ensconced on the ends or their collective bearish snouts! Rejoice in the moment rather than long for a bygone era! For as sure as the sun rises in the east, today will be a bygone era too at some point in our future.

Speaking of a bygone era, Merrill Lynch fired a shot across the bough of its analysts today, which requires that they not own any of the shares they tout, er. . .recommend. The theory is that they will not then have the financial incentive to make ridiculously bullish calls as the market caves in. Sounds to me a bit like Brair Rabbit asking his captor not to throw him in the Briar Patch. Perhaps a more severe punishment would be to require them to invest heavily in anything they recommend. In other words, put their money where their mouth is AFTER they make the recommendation. Nothing like being forced to walk the plank you build for others.

Anyway, back to reality. Look over my shoulder as we dive into some charts for a clue to the future. Major technical damage is the order of the day starting with the NASDAQ-100.

NASDAQ-100 chart (NDX):

The daily chart looks sloppy, but it is packed with info. Sure the gap filled last Thursday and that is good for bulls. But bears do not care. Weekly and daily stochastics are pointed deep south, support at 1650 is broken, which will likely become resistance, and bearish divergence is ever-present as shown by the thick red lines.

The only thing showing the possibility of some relief is the 60/30 stochastics in oversold. While it may be playable for a small bounce, the better odds play is to the downside once any strength exhausts itself. We used to buy the dips. Now why not short the spikes?

Dow Industrial chart (INDU):

The Dow has a similar, but slightly better technical picture. Yes, long-term stochastics are still pointed down, but there is no divergence. Running in favor of the bears is the failure to hold above 10,300, then the violation of 10,225-10,200 support. Volume is not that heavy, but buyers are nowhere to be found. Perhaps reprieve is possible if only for a short while as suggested by the oversold 60/30 charts. Shorting any bounce looks like a higher odds play.

S&P-500 chart (SPX):

Ditto for the SPX. Bulls might be hoping that 1180 holds on the weekly chart on the premise that old resistance equals new support. But the institution selling 1850 contracts of the July 1225 call and buying 1850 contracts of the July 1225 put today will likely see to it that that does not happen. 60/30 charts in oversold may ratchet back up to overbought, but we might then consider it a shorting opportunity, especially failure at former support of 1190 or 1200.

The VIX is doing what it is suppose to do - showing an increase in put buying as noted by the closing value of 26.53, up significantly form the 20 range just one week ago. The stochastic curve says it has a head of bearish steam too burn off before it reaches extreme conditions too, generally considered at 30 or over.

All signals point toward down, including COT report that showed the pros inching up their short positions last week. We would do well to bet with them. That said, remember that oscillators oscillate and short-term charts are oversold, which could provide a bounce if only for a short while.

Still, the comments from DCLK after reporting earnings this evening suggest more bad news is to come, at least in the tech sector. They warned going forward despite beating estimates by a penny noting that recovery might not come until next year. CPQ will likely have a larger affect as it halted trading and noted that overseas business is really starting to slow up. Bears rule for now! Look at any bounces up or gaps as an opportunity to fade the rally.

Yahoo! (YHOO) and Motorola (MOT) report tomorrow and will likely mirror DCLK and CPQ with their news.

Bears rule for now! See you at the bell.

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