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Index Wrap

Early trade in the Qs could set the tone

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Early trade in the Qs could set the tone

There is no doubt in my mind that today's reversal back to the downside in equities had anything to do with Mr. Greenspan's testimony in front of Congress, but was entirely due to the release of audio tapes by Al Jazeera that purportedly had terrorist Osama bin Laden expressing that the al-Qaida terrorist network was united with Iraq.

This may seem like an "obvious" observation to make, but if you the trader "believe" the above statement to be true, then you begin to understand how "emotions" and some "fear" impacted today's trade. This may be an important observation in the future should the major indexes be trading new lows and things look their worse.

How can I prove this? Or at least back up this thought with an observation? Remember our "oil service" stock Boots&Coots (AMEX:WEL) $0.48 +23.07%, which I rated as HIGHLY SPECULATIVE for bullish traders, but a stock for traders and investors to at least monitor as it relates to market psychology on thoughts that Iraq's President Saddam Hussein might implement a "scorched earth" policy in Iraq by blowing up oil wells? The stock was basically flat line the entire session at $0.42, but "caught a little fire" at 02:00 PM EST and closed near its session high of $0.49. This DIVERGENCE to broader market direction is certainly sign that that today's reversal back to the downside in the major indexes was "bin Laden related."

The "first news" of a bin-Laden tape (at least that I see from my newswire source) was at 11:25 AM EST (SPX trading just off its highs of 843 at 840) when Secretary of State Colin Powell told a Senate panel that what appeared to be a "new statement" from Osama bin Laden could underline a link to Iraq. I reviewed today's market monitor and see where OI analyst John Seckinger made first comments regarding this news at 12:26:41. While this was almost an hour after some other newswires, I didn't know of the "Bin Laden" stuff until about 03:11 or so.

While some traders/investors find it hard to trust recently announced concessions by Iraq's President Saddam Hussein regarding U-2 surveillance flyovers and banning of illegal weapons in that country, one might also wonder about Al-Jazeera's denying that it had a new Bin Laden tape (SPX rebounds 834 to 837) at approximately 12:00 PM EST.

Thirty-three minutes later at approximately 12:44 PM EST, the White House confirms it has received a new statement from Bin Laden (SPX falls from 837 back to 834 and heads lower... 832, 830).

Then... at 02:13 PM EST (SPX 830) Al-Jazeera confirms it has a Bin Laden tape, and will play it later in the day.

Now it is not to say that I don't try and keep an eye on the newswires during the day, but today I was pretty busy keeping an eye on the pivot matrix levels.

There was some bullishness that "surprised" me a bit, but didn't keep me from profiling a couple of bearish trades in the QQQ and semi-equipment maker Novellus (NASDAQ:NVLS) $27.79 -1.48% in today's market monitor, when both were showing some gains. While both showed some bullishness after profile and actually traded session highs after profile, the QQQ high of $24.61, which so happened to be the DAILY R2 of $24.61 held like a brick wall and NVLS, which "lagged" the QQQ bullishness all morning, lead the decline back lower compared to the QQQ by session's end (NVLS never did quite reach its DAILY R1 of $28.66).

For disclosure purposes. I currently hold a bearish position in the NVLS March $30 puts.

Here is the pivot matrix for tomorrow. You will note that I've left the color coding of green, blue and red in the WEEKLY and MONTHLY matrix to signal current levels of support (green) that were not traded today, blue for WEEKLY levels that were traded, and red for levels that were not traded and can be used as risk assessment levels. In the DAILY section, you will note that R1 levels are all colored red. It's my observation that all of these levels are VERY correlative as resistance with the WEEKLY pivots and to me, should be resistance levels tomorrow.

Pivot Analysis Matrix

You will note that I've also highlighted in "pink" tomorrow's QQQ pivot of $24.23. More aggressive or "less risk averse" short- term bears in the QQQ that held overnight to see how the market responds to Applied Materials (NASDAQ:AMAT) $11.94 -0.91% (last trade in after-hours was $11.56) after AMAT missed earnings by 2- cents and reported break even results, will want to monitor this $24.23 level closely in the morning.

Other index traders may also want to monitor this level closely as trading from this level, and I would "predict" selling, could dictate market action tomorrow, and into Friday's close. As an index trader, I should UNDERSTAND that the NDX and QQQ are still trading rather technically strong compared to the Dow, SPX, OEX indexes. As such, an index trading BEAR is always on the lookout for trouble. However, it is still my "belief" that the QQQ and NDX offer greater downside trading gains right now, especially for option traders.

Here's what I'm looking at in the QQQ, but I need to show you an intra-day type of chart on 30-minute intervals to get my point across on how this QQQ level of $24.23 might come into play.

If you're more of a "swing-trader" or investor, then read on as you can check against this at some point tomorrow to see how things are going.

NASDAQ-100 Index Tracking Stock (QQQ) - 15-minute intervals

I spent some time today commenting on the banking sector and the S&P Banks Index (BIX.X) 269.47 -1.2% as the major indexes moved higher from the open. The only thing that kept me somewhat interested in a bearish trade today was that the BIX.X didn't really seem to "lead" the early advance like I thought it should.

There's a lot of "lines" on the 15-minute chart of the QQQ, but there's some potentially interesting levels that show up in the DAILY pivot analysis that can tie in with the little "head/shoulder" pattern in the QQQ. Market makers are a tricky bunch, and I'm not sure the QQQ would rally on the AMAT numbers, but we just never know. If so, I don't want to "freak" out but be alert to resistance at the DAILY Pivot of $24.23, which is very close to the POTENTIAL "left shoulder" identified. I didn't see this until AFTER I drew up the chart, but the head/shoulder calculation if taken from the mid-point of the neckline at $23.90 and "head" at $24.60 is $23.20, which is smack-dab on the 61.8% retracement. The retracement shown in the above chart would be the same "conventional" type of retracement I showed in the NASDAQ-100 Index (NDX.X) 971.61 +0.17% in today's 01:00 Update.

Something else I haven't noticed before is the "volume spike" from February 6th in which 24.1 million shares traded from 09:45 AM to 10:00 AM EST that day. I went back and checked the newswires and at 09:38 AM EST, I saw a report on Briefing.com regarding CNN reporting that North Korea warned the U.S. that any pre-emptive attack by the U.S. on its nuclear facilities will spark a "full-scale-war" on the Korean Peninsula. For every buyer there's a seller and I can't know if that volume was a "big bull" liquidating or a "big short" looking to get a little more short. However, that volume spike on this time interval hints to me that there is some type of interest in the QQQ at these levels of trade.

That volume was a QQQ low of $23.86 and may be a "key" level tomorrow, which is close to the DAILY S1 of $23.84. A bear needs a 5-minute close below the $23.84 level tomorrow and if we see that, then I think QQQ trades $23.20 by Friday's close.

Volume spikes are sign of MAJOR disagreement between buyer and seller. The moves AWAY from that point of disagreement can then bring AGREEMENT in the direction of the move as the LOSING trade gives in.

While the BIX.X is a sector I'm closely monitoring to get a feel for strength/weakness in the major indexes, the QQQ and NDX are trading pretty tough. An index BEAR looks for "strength" to turn to "weakness" in order to "pile drive" things lower. In my mind, the QQQ should NOT trade above today's high of $24.61 tomorrow and a break below $23.84 should see some momentum to the downside.

Today's action saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Status remains "bear confirmed" at 37% bullish.

S&P 500 Index Chart - Daily Interval

The conventional 5-point box of the SPX shows today's rally to 843 carried the SPX just up into a recent base, where the SPX gave a rather bearish triple-bottom sell signal. If I had been a "big bull" at 845 and saw the recent decline to 825, I probably would have been selling some of that stock into the rally today. This might also be what some institutions were doing. In today's market monitor, I HL Camp & Company got their website back up and when I looked at the number of premium sell programs that were generated during the day, I counted 11 sell programs compared to 1 buy program, which came at the opening of today's trade when the cash (SPX.X) had to catch up to the higher futures prices at the open of today's trade.

Today's action saw the S&P 500 Bullish % ($BPSPX) fall 0.60%, so 3 stocks gave reversing point and figure sell signals. This has the bullish % falling to 41%. In the upper left hand corner of the above chart, I make reference to the December high bullish % reading of 68%, which was just under the 70% level deemed longer- term "overbought." With the bullish % still slipping lower and some room to the more "oversold" level of 30% bullish, there's still some bullish risk to be removed to that more oversold level.

S&P 100 Index Chart - 5-point box

In today's market monitor at 02:52:15, fellow analyst Linda Piazza made an "outrageous" comment when she said... "With today's OEX retest and failure at the bottom of that consolidation pattern, it's looking more and more as if that consolidation pattern was in fact a continuation pattern rather than a reversal pattern. As mentioned last week, continuation patterns tend to occur about midway through a move. On the OEX, this portends a fall toward the 380-390 area, if the consolidation occurred about halfway down the move. This also correlates well with the target projected by the H&S formation. Even if the target is met, I wouldn't expect a straight-down move without bounces along the way."

I thought... "390! Is she out of her mind?" Then I remembered the bearish vertical count that was put in place on the OEX 5-box scale after it had given a double-bottom sell signal at 440 in late-December and reversed up 3-boxes to 455 in early January (red 1). That had the bearish vertical count column hinting at 390. While not highly "correlative," I'm also noting the OEX MONTHLY S2 from the pivot matrix is 393.60.

Today's action saw no net change in the S&P 100 Bullish % ($BPOEX). Status remains "bear confirmed" at 37%.

Dow Industrials Chart - 50-point box

The p/f chart of the Dow Industrials (INDU) 7,843 -0.97% looks similar to the SPX chart in that it too has given a triple-bottom sell signal recently. If I take the recent support just under 7,950 and carry it across the chart to the right, it looks a bit like a "pivot." Today's rally to 7,985 came very close to a 3- box reversal back up, but similar to the SPX, that rally came back into overhead supply after a rather bearish break lower. The extension of that support has the WEEKLY pivot of 7,948.90 and tomorrow's DAILY R1 of 7,950 looking like it should be FORMIDABLE resistance tomorrow. Looks short with a stop just above 7,950.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Status remains "bear confirmed" at 20%.

Jeff Bailey

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