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Gains hold, despite fade into the close

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Gains hold, despite fade into the close

The major indexes held on to post gains for the session, as early morning gains from stronger than expected economic data on construction spending and growth in the industrial sector gave investors something other than "war with Iraq" to be focusing on.

President Bush's 5-volume budget proposal may have made for a difficult read among the fiscally conservative as stocks gave back part of their early session gains into their close after President Bush submitted his $2.23 trillion budget plan for fiscal 2004, calling on lawmakers in Congress to boost spending on defense and overhauling key social programs while enacting near $670 billion tax cuts over the next 10-years. President Bush said, "The budget for 2004 meets the challenges posed by three national priorities. Winning the war against terrorism, securing the homeland and generating long-term economic growth."

The PHLX Defense Index (DFX.X) 147.38 -0.64% held rather firm despite today's weakness in sector components Alliant Techsystems (NYSE:ATK) $48.02 -11.66%, Boeing (NYSE:BA) $31.11 -1.51% and Lockheed Martin (NYSE:LMT) $49.55 -2.93% after this weekend's Space Shuttle Columbia tragedy. Near-term concern regarding NASA's spending was partially offset by the Pentagon's budget request totaling $379.9 billion, a 4.2% increase from this year's current fiscal year budget, which doesn't include additional funds that would be needed in the event of war with Iraq. The $15.3 billion increase in defense spending accounts for half of the overall proposed spending increase for the entire federal government.

Today's trade saw lighter volume that traders have seen in recent weeks with NYSE volume at 1.21 billion shares, while NASDAQ volume turned 1.26 billion shares traded.

Breadth was marginally positive on the NYSE with advancers outnumbering decliners by a narrow 17 to 15 margin, while NASDAQ breadth was weak with decliners having the upper hand on advancing issues by a 17 to 14 margin.

While total breadth was positive at the NYSE and negative at the NASDAQ, similar daily results were found in the category of new highs versus new lows. NYSE reported 74 stocks trading a new 52-week high compared to 39 stocks achieving a new 52-week low, while NASDAQ ended the day with 60 stocks recording a new 52-week high trade compared to 67 stocks trading a new 52-week low.

In today's 03:15 EST Intra-day update I made note of today's breadth indicators with the thought that market makers on the NASDAQ might be a little "bearish" or have a bit of a sell side bias toward 4-lettered stocks they make markets in. While the major indexes did trade their daily R1 levels from DAILY pivot analysis, the NASDAQ-100 Index (NDX.X) 987.07 +0.4% session high was 997.12, just barely above today's R1 of 996. However, the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $24.49 +0.2% fell suspiciously short of its DAILY R1 of $24.81 with a session high trade of $24.79 and may indeed hint that this "hedge security of choice" among NASDAQ market makers may be seeing some sell-side bias as market makers look to hedge some "overly long" inventories in stocks they make markets for.

Here's a quick look at our pivot analysis matrix. Subscribers will note that I've added a "Points from Pivot" column to the matrix to provide quick reference to where the major indexes closed TODAY, relative to their DAILY, WEEKLY or MONTHLY pivots. Also note that the WEEKLY levels have been updated to reflect last week's high, low and close as have the MONTHLY pivots and level to reflect January's high, low and closing values.

Pivot Analysis Matrix

Friday's close saw the major indexes all close above today's pivots, and today's pivot levels held as support or were not tested. The NASDAQ-100 Index (NDX.X) did test its daily pivot of 982 and QQQ tested its pivot of $24.41, but neither were able to muster a 5-minute close below these levels. Tomorrow's DAILY pivots may come into play early and dictate market action ahead of tomorrow's post-market earning's announcement from Cisco Systems (NASDAQ:CSCO) $13.48 +0.82%.

Dow Industrials Chart - Daily Interval

In "red," I've taken retracement from this month's R2 and S2 levels, while in "blue" taken retracement from this week's R2 and S2. This type of retracement work gives some levels that look to be a range between 8,050 and 8,285 for the Dow Industrials, where a continuation "oversold bounce" could well see a test of the 8,285 level. The 8,050 level has been a level where the Dow has been flip flopping back and for of and settled at/near on Friday's close. Almost as if the Dow is trying to seek out the equilibrium of this week's pivot.

Tomorrow will be interesting and here's what I'd look for as it relates to the Dow, as well as other indexes. I'm not sure if market makers in the NASDAQ tipped their hands today when the QQQ couldn't trade their daily R1's, while the major indexes did, but any weakness early tomorrow back below the 8,042 WEEKLY pivot level (say 8,032 to be safe) would be a negative in my book and have the Dow vulnerable to this WEEK's S2 of 7,801. The Dow does have the look of near-term bullishness and today's trade at 8,150 did generate a "double-top" buy signal on the Dow's p/f chart and may have some rally potential back near the 8,285 level of correlative resistance from the above retracement.

I went back and looked at some of last week's Index Trader Wraps and make note that we were looking for resistance in the Dow near 8,300 as Stochastics (5,3,3) recovered from "oversold" levels back near 50.

Today's action saw no net change in the Dow Industrials Bullish % ($BPINDU) and current reading remains "bear confirmed" at 30%. On Friday, the Dow Bullish % saw a net loss of 2 stocks to reversing point and figure sell signals as it fell from Thursday's reading of 36.67% to Friday's 30.0%.

In Friday night's Market Monitor, I posted the updated pivot analysis matrix, and also took the opportunity to post similar retracement work performed above in the Dow, with the S&P 100 Index (OEX.X). Friday night, I thought the OEX looked a "little neutral" near-term as this silly index closed right on this WEEK's pivot of 432.50, but shouldn't have traded much more than 436 today, otherwise, it had rally potential to 442-444. Here's what I'm looking at and if the OEX were to make another move higher tomorrow and take out today's high of 438 (tomorrow's DAILY R1) then I think the OEX can make it into the 442-444 zone before a resumption of downward trend resumes.

S&P 100 Index Chart - Daily interval

The OEX traded 437 three separate times today and just couldn't manage a break-through much above that level with a high of 437.92. Tomorrow's early session will have me monitoring the OEX at its daily R1 of 438, which marks today's highs, should the OEX fail a rally at that level, then back below its DAILY pivot of 435, I'd look short/put on the break lower.

Today's action saw no net change in the S&P 100 Bullish % ($BPOEX). Status remains "bear confirmed" at 43%. Friday's action did see the OEX Bullish % fall from 45% to 43%.

Keep an eye on the U.S. Dollar Index (dx00y) 99.83 -0.08% as I think an index BEAR wants to see weakness in the U.S. Dollar. On an OEX break back below the DAILY pivot of 435, the correlative level of 432.50 becomes a bear's first "hurdle" of support he/she would want to see broken to the downside. I would not be an "eager" short/put in the OEX on a break lower of 435 on any type of dollar strength.

For those than can also monitor treasuries, I'd think an index bear would also want to see buying in Treasuries. Treasuries saw more selling in the shorter-dated maturities today, with fractional buying in the longer-dated 30-year Treasury. This action hints of some "YIELD bulls" looking to still park some cash in the higher YIELDing 30-year and may hint that investors are willing to assume "greater risk" in the 30-year Treasury for the higher YIELD, while trying to avoid some type of "risk" in equities.

In summary, a weak dollar, buying in bonds, has not been kind to equities and may be some markets away from the stock indexes to be monitoring. If we see a weak dollar, strength in bonds and start seeing some index levels violated to the downside, then a bear takes some action. The OPPOSITE could also be true for the Indexes to recover back to "zones" of resistance identified above in the Dow and OEX.

S&P 500 Index Chart - Daily Interval

Similar to the OEX, the SPX finished Friday's session smack dab on this week's pivot level of 654.51 and made for somewhat of a "neutral bias" into today's session. Better-than-expected economic data kept the SPX above this weeks pivot, and if not for some "bad news" and weakness in the HMO Index (HMO.X) 508 -3.14% and Morgan Stanley Healthcare Index (RXH.X) 270 -1.06, which generally depicts broader healthcare, the SPX and OEX would most likely have been today's index winners in percentage terms.

Today's action saw no net change in the broader S&P 500 Bullish % ($BPSPX). Status remains "bull correction" at 46%.

NASDAQ-100 Index Tracking Stock (QQQ) - Daily Interval

Friday's "warning" on weaker than expected quarterly booking looks to have taken some of the "leadership" of relative strength out of the NASDAQ-100 and technology stocks. With "fears of war" weighing on investor psychology, some technology bulls may be parked on the sidelines for the awhile. Tomorrow night's earnings from Cisco (CSCO) will be closely monitored to see if this technology bellwether in the networking sector can buck the trend of "lackluster near-term growth prospects" that Intel (INTC) and Applied Materials (AMAT) have been mentioning.

I'm looking for further QQQ weakness below $24.30, but wouldn't mind finishing tomorrow's trade ahead of CSCO's numbers with 1/2 bearish position. Then, should CSCO give modest upside surprise, will have some powder dry for potential bearish entry in the $25.31-$25.52 zone, with firm resistance near $26.00.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) see a net loss of 1 stock to a reversing point and figure sell signal. This has the NASDAQ-100 Bullish % still "bear confirmed," but slipping to 46%. On Friday, the NASDAQ-100 Bullish % slipped an equal 1% from Thursday's 48%.

Jeff Bailey

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