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Index Wrap

"Higher" was today's theme

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"Higher" was today's theme

What started out looking like another bearish day for stocks at the latter-part of this morning's session was reversed higher and stayed that way into the close after Iraq said it sent a letter to U.N weapons inspectors approving the use of US-made U-2 surveillance planes over previously designated "no fly zones."

The news out of Iraq helped alleviate some near-term fears of a U.S.-lead attack on Iraq. The issue of the U-2 planes being allowed to fly over restricted Iraqi airspace had been a key demand by weapons inspectors along with other issues, including Iraq's failure to pass legislation that outlawed weapons of mass destruction.

Iraq had previously blocked U.N weapons inspectors from using the planes, which they said they needed in their search for any weapons of mass destruction in Iraq.

Iraq's Ambassador to the U.N., Mohamed al-Douri, said that legislation would be passed next week and that Iraq would continue to encourage scientists to accept to accept private interviews with inspectors seeking information about Iraq's weapons program.

Today's news came after this weekend's developments when Iraqis gave chief inspectors more documents pertaining to Iraq's past chemical and biological weapons, prompting some top level inspectors to say they sensed a "good beginning" and a "positive attitude" in Baghdad.

By session's end, all of the major market averages finished with gains as did all equity-based sectors that we follow. Only the Gold/Silver Index (XAU.X) 72.11 -3.27% posted a loss, falling 2.44 points as the U.S. Dollar Index (dx00y) 100.27 +0.70% edged back above the 100 level.

While equities rebounded on the news out of Iraq, investors sold Treasuries across the major maturities. The March 10-year Treasury futures contract (ty03h) 114'055 -0.35% fell 13/32 with the benchmark bond's YIELD ($TNX.X) finishing higher with a 3.977%.

While a dip lower and reversal back to the upside made for a higher close, trade volume at both the NYSE and NASDAQ were light, and very similar to the lackluster volumes seen last Monday when both the NYSE and NASDAQ traded just over 1.21 billion and 1.26 billion respectively. Today's NYSE volume of just over 1.21 billion and NASDAQ volume of 1.21 billion both hint that traders are taking a cautious approach to today's news and were not overly aggressive with trading.

Market breadth was modestly positive and reversed a four-session slide in the advance/decline lines. The NYSE showed advancers outnumbering decliners by a 9 to 7 margin, while NASDAQ breadth was positive with advancers outnumbering decliners by a 9 to 7 margin.

The new highs versus new lows category was slightly improved from Friday's levels, but still shows lacking in any type of leadership, or aggression from bulls. The NYSE showed 43 stocks hitting new 52-week highs compares to 130 stocks at new lows (Friday was 33:127). NASDAQ indication from this breadth indicator had 42 stocks trading a new 52-week high, compared to 100 stocks trading a new 52-week low (Friday was 46:115).

With the conclusion of last week's trade, I've updated the pivot matrix WEEKLY levels. Today's action shows the WEEKLY pivot levels currently serving a resistance level, with only tests of this week's pivot levels having come in the NASDAQ-100 Index (NDX.X) 969.96 +1.34% and NASDAQ-100 Tracking Stock (AMEX:QQQ) $24.08 +1.13% at their WEEKLY Pivot levels.

Pivot Analysis Matrix

Today's rebound in the U.S. Dollar Index (dx00y) back above the 100 level could raise some eyebrows from bears near-term and a level to watch for resistance early tomorrow morning can be found in correlative resistance points for the SPX and OEX in their DAILY R1 and WEEKLY Pivots of 841 and 425 respectively. A break much above these two levels could spur a round of short-covering with a stronger Dollar and further selling in Treasuries like we saw today. The reason I think these two levels might be important to monitor, especially for bearish index traders, is a break much above these levels in the SPX and OEX has some upside to their DAILY R2's (846:428) and WEEKLY R1's (854:432). Some correlative levels of support show for tomorrow in the DAILY, WEEKLY and MONTHLY levels for the S&P 100 (OEX) at the 413 (Daily S2) 411 (Weekly S1) and 413 (Monthly S1), but I think we'd need to see some type of sharp reversal back lower in the U.S. Dollar and buying in Treasuries to see the OEX trade 411-412 and other indexes to do likewise.

Dow Industrials Chart - Daily Interval

Using the technique of placing two retracement from MONTHLY and WEEKLY S2-R2 levels, I'm looking for resistance between the 8,025 and 8,056 area in the Dow to hold as resistance.

On Dollar weakness and any buying in Treasuries, especially near the 8,025 level, that would be a good short/put entry point for a bear, with a downside target of WEEKLY S1 of 7,745, or correlative 80.9% retracement from the WEEKLY (blue retracement) of 7,749.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Friday's action did see this bullish % falling from Thursday's 26.67% level to 20% on Friday, which means 24 of the 30 Dow components currently have a "sell signal associated with their point and figure charts. Still "bear confirmed" here and defensive at some longer-term oversold levels.

A Dow bear holding full positions short shouldn't feel a bit "guilty" if he/she takes 1/4 or 1/2 off the table on a move above the 7,950 level to raise some cash in his/her account and look for an entry point back near 8,025-8,056.

S&P 500 Index Chart - Daily Interval

Hmmmmm.... I left that "thick yellow" line on the SPX chart, only because it was my "MAX WEEKLY decline" from last week. I won't claim that that level was really a "buy level" today, but there may have been some bears that have been holding some trades over the weekend with the 826 level still in mind and perhaps the WEEKLY S1 as a new bearish target. The rebound back above the 831 level (weekly 61.8% retracement) could have been used to lock in some gains on the "U-2 news." Tomorrow's DAILY S1 in the SPX is 827 and something a shorter-term SPX bear might monitor for support.

The comment in the above left corner about the SPX and other indexes not having been able to trade up through 3-levels of retracement may be a bit confusing, but from what we've seen the last couple of weeks, when the SPX has violated a retracement level to the downside on the WEEKLY retracement, the rebounds from that level have not crossed 3-levels back to the upside. This has me looking at WEKLY R1 of 854 as good resistance to be looking short/put the SPX, stops above 863.51 and then targeting WEEKLY S1 of 816.

I sure didn't see the "U-2" news coming and perhaps some reaffirming that we're dealing with a rather "uncertain" market environment where just about "anything" can happen. The only way I "know" how to trade such an environment is either with some neutral trading strategies like straddles and strangles, or to closely monitor risk management in the trade and account.

Today's action saw a net loss of 2 stocks to reversing lower point and figure sell signals. This has the S&P 500 Bullish % ($BPSPX) slipping to 41.6% and still in "bull correction" status. Friday's action saw the SPX lose 1.4% or see 7 stocks find reversing point and figure sell signals on their charts.

S&P 100 Index Chart - Daily Interval

Things got a little "interesting" earlier this morning when the S&P Banking Index (BIX.X) 272.77 +0.96% did trade the 269 level today, but it couldn't have been much more than 40-minutes after that test that the Iraq "U-2 news" hit the wires and a rebound was seen not only in the BIX.X, but the major indexes. By placing retracement brackets at the MONTHLY R2-S2 levels and WEEKLY R2-S2 levels, a zone of support between 412-413 is present, and this "fits" pretty close with this WEEKS S1 of 411. I found it "hard" to put on any bearish trades today (even in stocks) as I just didn't get a good bearish "risk/reward" feeling with the SPX and OEX so close to some WEEKLY S1's. However, that changes on an OEX rally back near 430-432 zone with a target of 412-413. That type of action might also allow stochastics to recover again from "oversold" levels. If holding full position put (especially February expiration) would close out 1/2 or 3/4 on a move above today's high or tomorrow's DAILY R1 but look for re-entry points back in the 430-432 level.

A rally back into the 430-432 zone, or near it, then keep an eye on the S&P Banks Index (BIX.X). If it is "lagging" a move upward and starting to roll lower from its WEEKLY Pivot of 273.60 to DAILY R1 274.40, then that could be hint that the "financials" aren't confirming the SPX and OEX bullishness as they near levels/zone of resistance identified. The BIX.X has acted like its been drug lower by the SPX and OEX, and should show strength under renewed bullish buying. However, if "bears are banking on a decline," then I'd look for the BIX.X to lag any rebound higher and NOT confirm the bullishness. That's when a bear begins to look short/put on OEX/SPX rally.

Today's action saw a net loss of 1 stock to a reversing lower point and figure sell signal. This has the S&P 100 Bullish % ($BPOEX) falling 1% to 37%. Still "bear confirmed" here.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

Tomorrow's DAILY S1 from pivot analysis is $24.35. This is pretty close to the $24.49-$24.39 zone of near-term resistance from MONTHLY and WEEKLY retracement work. The way I'd look to trade these levels is this. Should the QQQ look to rally tomorrow, then simply monitor the QQQ should it trade into the $24.39-$24.49 zone. Then, a more aggressive bear could short/put a 5-minute bar chart close back below the $24.39 level and look for confirming weakness back below the DAILY R1 of $24.35, or wait for a reversal back below the DAILY R2 of $24.35. Downside target this week looks to be a zone between $23.17 and $23.36. This might correlate with the WEEKLY S1 of $23.35.

Today's action saw a net loss of 1 stock to a reversing lower point and figure sell signal in the NASDAQ-100 Bullish % ($BPNDX). Still "bear confirmed" and now 37%.

In conclusion to tonight's Index Wrap title "Higher was today's theme." Most of you know by now that Dell Computer's (NASDAQ:DELL) $22.86 -2.05% "Hey dude, you're getting a Dell" spokesperson was arrested last night for possession of marijuana.

Jeff Bailey



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