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Index Wrap

I may not want to, but I might just have to

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I may not want to, but I might just have to

A week ago, if you had asked the bearish of bears which way the market was headed this week, he or she would have emphatically said lower.

While that statement might be true, depending on what day and what hour the question was posed, the "degree" of correctness might be skewed by 200 Dow-points as that's been the trading range, give or take a couple of points, the past eight trading sessions.

While investors and traders around the world waited anxiously for some type of "resolution" to come from today's United Nations address by Secretary of State Colin Powell, there seemed little resolution on the issue of just what course of action should be taken with Iraq.

I wasn't sure what to expect when Secretary Powell began his speech. However, after viewing and listening to the bulk of today's U.N. address and comments from officials of the various nations, I can't say that I heard anything that "surprised" me.

That's not to say that the MARKET agrees with me on this point, but while the markets did see some up and down action, I'd also say there was little resolution to the 8-day trading range the Dow, S&P 500 and S&P 100 has been in. Of the major indexes covered in each night's Index Wrap, only the NASDAQ-100 Index (NDX.X) has shown ability to present a resemblance of some lower lows in the past 8 sessions, but not without some rather higher degrees of intra-day volatility than the Dow, SPX and OEX.

If I could say two things, based on observation, about the past eight sessions, it would be this. When the indexes have looked their most bearish, they have found buyers. When the indexes have looked their most bullish, they have found sellers.

As it relates to today's trading session, the markets seemed "relieved" the closer Secretary Powell came to concluding his speech. Yes. The "evidence" presented by Powell certainly had the look of Iraq trying to hide something. However, if you've ever had to perform "jury duty" you know your instructions were to try and maintain a unbiased view of the defendant, until all evidence was presented. Evidence by both the "plaintiff" and the "defendant."

But who's on trial here as it relates the U.S.'s allegation that Iraq currently possesses and is manufacturing weapons? As I understand things, its supposed to be Iraq proving and accounting for the destruction of past held weaponry, which it has not been able to do.

Stocks took a turn for the worse when Iraq's U.N Ambassador Mohammed Al-Douri dismissed allegations that Baghdad was hiding banned weapons and had links to terrorists.

I'll admit. It is very difficult for me to be "unbiased" as an American. When somebody "calls" my country a liar, Iraq's comments were very much slanted in that direction as if to say all of the "evidence" presented was conspiracy theory and didn't prove a thing.

If trying to be "unbiased," I can't say that I disagree with Iraq's allegation (again, trying to be unbiased here). If in Iraq's shoes and trying to buy some time, I too would question photos as to time taken, perhaps "doctoring of photos," and the hiring of "Arab-sounding" voice actors to create a tape.

Still, what I took away from today's U.N. meeting was the U.S. and Britain seem firm in their resolve to have Saddam Hussein removed from power, and Iraq defiant in ever giving in to any type of admissions. The latter makes sense, as any admission to "guilt" is cause for Saddam's immediate departure.

Suffice it to say. I didn't get a feeling of "resolution" from today's U.N. meeting, and from the looks of things, the markets didn't either.

Trade volume picked up into today's close, but by sessions end, today's market statistics, other than price action look almost identical to yesterdays.

NYSE volume was 1.4 billion shares, while NASDAQ was slightly below yesterday's volume at 1.36 billion shares. Decliners outnumbered advancers by a 9 to 7 margin at the big board, while NASDAQ breadth was marginally negative at 17 to 14. New highs versus new lows ending with the NYSE showing 49 stocks having traded a new 52-week high during the session, compared to 50 stocks trading new lows. NASDAQ was weaker in this category with 44 stocks trading a new 52-week high, compared to 79 stocks trading a new 52-week low.

Two thing happened in the bullish % indicators today. The most important in my view is that the very broad NASDAQ-Composite Bullish % ($BPCOMPQ) reversed into "bull correction" status as it slipped an additional 0.23%, which has this indicator reversing to 41.93%. As mentioned in recent wraps, the very broad NASDAQ- Composite Bullish % needed a reading of 42% to turn lower and follow the reversal seen in the also broad NYSE Bullish % ($BPNYA) from Thursday, January 30th.

For me, this now becomes somewhat of a "wet blanket" that now shows internal weakening building on a broader and perhaps more meaningful scale, as did the reversal lower in the NYSE bullish %.

The reversals lower in the very narrow Dow Industrials Bullish % ($BPINDU) from January 21st, NASDAQ-100 Bullish % (BPNDX) on January 22nd and S&P 100 Bullish % ($BPOEX) from January 23rd showed the more narrow and quicker moving bullish % showing internal weakening. Less we remember the broader S&P 500 Bullish % ($BPSPX) reversed lower on December 16th and never did see a brief reversal back higher like the DOW, OEX and NDX bullish %.

While not all that "significant," it is notable that the NASDAQ- 100 Bullish % ($BPNDX) did see a net gain of 1 stock to a point and figure "buy signal" today. That was from PACCAR, Inc. (NASDAQ:PCAR) at $49.00, which closed the session at $47.41. While this stock looks longer-term strong, it's double-top buy signal at $49 came right at the upper-end of its Bollinger band at $49.00.

For the first time in awhile, a quick glance at tomorrow pivot analysis matrix shows multiple correlations at some support and resistance levels in tomorrows DAILY and WEEKLY. With all of the bullish % charts now in a column of "O," which depicts a growing defensive posture, I've highlighted in "red" all of the MONTHLY pivot levels as a level of resistance, but also a good "risk assessment" point for bears to weigh against should they get overly aggressive.

My "color coding" in the weekly/daily correlations is "blue" for current correlative support levels, "pink" for levels that correlate and held as resistance by the close, but were tested in today's trade, while "red" are correlative levels of resistance that I'd deem as more significant levels of resistance near-term.

If you're a trader that is getting a "little frustrated" by the swings we've seen in the recent 8 sessions, here's a suggestion. If trading 1/2 position size or more, try going into a mode of taking profits in part of the position when an index, not matter how bearish or bullish looking it is, when an index hits a level where resistance can be found and serves as YOUR target.

Subscribers are trading different levels depending on their "style" of trade. My thinking here is that until there's some type of "resolution" to the apparent trading range the DOW, OEX and SPX are in, then trade the range. By always holding a partial position to your bias (my bias is bearish), allowing yourself to take a profit at a target, and look for re-entry back at a level of resistance (for a bear) may allow the trader to make some money as the indexes trade the range. Should the "big break" come in the direction of your original bias, then at least you've got a partial position in the "known" direction.

In an "uncertain" market environment like I think we're in (see this weekend's Ask the Analyst column) I think it poor account management to try and have an attitude of "all or nothing," type of trade/account management.

I don't know about you, but I'll take a "small gain" over a "big loss" on any trade.

Pivot Analysis Matrix

I'm seeing a lot of correlative resistance show up at tomorrow's DAILY R2's and WEEKLY S1's. "I may not want to short the SPX on a rally near 869, but in what's been a range-bound market, I might just have to if I'm going to make any money." While 869 seems a little "unreasonable," in the SPX, then I could have also highlighted tomorrow's DAILY R1 of 856 and WEEKLY pivot of 855 (both levels were traded through to the upside today).

Dow Industrials Chart - Daily Interval

Some traders may be ready to pull their hair out as they're getting "stopped" out of trades at their highs and their lows just before a nice move takes place.

If that's the case, STOP WHAT YOU'RE DOING SO IT DOESN'T KEEP HAPPENING!!!!!

I've said before, I HATE trying to trade options with stops. If you're getting stopped out because you have a bit too much capital at risk then cut your trade size DOWN.

Then, with SMALLER CAPITAL at risk due to reduced trade size, try just trading some levels of that look to current support/resistance.

In the above chart of the Dow, all I've done is placed this WEEK's R2, R1, S1 and S2 levels on the chart. I believe were headed more toward S2 than we are R2, but I've tried to outline how a trader can be short/put 1/2 position near Dow 8,167, but look to trade the apparent range between 7,927 and 8,167, until some type of BREAK of that range, or "resolution" is found.

Even if you're "flat" right now and don't have a trade on, I tend to be at least 1/4 position short/put the Dow (see today's market monitor entries at 02:30 PM EST and then 03:01 PM EST). In brief, my comments at 02:30 were to NOT be aggressively shorting DOW 8,040 as 10-year YIELD holding above 4.0%. Then at 03:01, thoughts turned to "want at least partial short/put" at DOW 7,980 as 10-year YIELD had slipped back below 4.0%.

One thing I want to note in tonight's chart of the Dow, is that the Stochastics are looking to roll a bit, right at the mid-point that we wanted to monitor for earlier in the week. I don't put a lot of weight in Stochastics, but this is action that we wanted to monitor for sign of further bearishness like that dating back to mid-December when the Dow had one little more decline from 8,500 to our current WEEKLY R2 of 8,283. Currently, I see similar type of setup for the Dow to dip down near WEEKLY S2 of 7,801.

I had some chart problems tonight and didn't get them up and running until late tonight.

The indexes all traded INSIDE of yesterday's range of trade. And while I'm not making excuses for not having all the index charts in tonight's index wrap, I could probably have erased today's bars and some traders might not have noticed that today's bar was missing. I know I wouldn't have noticed.

Anyhow, if you're on the "brink" of pulling your hair out with the whipsawing action that has been taking place in the recent 8 sessions, then make some adjustments to your trading technique near-term to compensate for the current lack of trend and more range-bound trade.

As mentioned, with the Bullish % charts now in all in a column of "O," I still think it best to be more cognizant to downside action. In fact, other than Forest Labs (NYSE:FRX) $50.18 +0.46%, which has edged lower with the broader market, I can't remember looking at a call option in any other stock for the last couple of weeks.

Don't feel like your "going against" the grain however, if you have a "neutral" stance at a support level by holding 1/4 call and 1/4 put in a trade when you're at a level deemed technical support. This could also be 1/2 put and 1/2 call, but when market internals are weakening, I wouldn't want to be 1/2 position call right now, at least on a 1 to 2-month expiration basis.

Jeff Bailey



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