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Index rise as war jitters subside

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Index rise as war jitters subside

Stocks posted strong gains for a second consecutive session, albeit on light volume, as war jitters subsided and renewed hope that a war with Iraq may not be imminent.

Today's gains came on the lightest volume found in February and perhaps hinted that sellers were not necessarily eager to jump in front of what looks to be a near-term "oversold" market. NYSE volume was the lightest seen this month with just 1.17 billion shares traded on the NYSE, while big board breadth showed advancers outnumbering decliners by a 23:9 margin. New 52-week highs compared to new 52-week lows was slightly negative at 36:41, but greatly improved from Thursday's 22:204 new high/new low breadth where the bottom looked to be falling out.

While NYSE volume was light, NASDAQ's 1.28 billion shares matched Friday's levels. NASDAQ breadth showed advancers outnumbering decliners by a 2 to 1 margin, with 72 stocks hitting new 52-week lows compared to 72 stocks hitting new 52-week highs. Here too, new highs versus new lows improved from Thursday's weakest reading of the month (41:150).

While Treasury bonds reversed early session declines into their close, and had the longer-dated 30-year Treasury (us03h) $112'200 +0.25% posting a modest gain, stocks looked to follow a somewhat "cautious" move back toward treasuries late in the session with the Dow Industrials (INDU) slipping back to the 8,000 level after a 01:00 PM EST high of 8,075.95. However, a late rally into the close found the major indexes back near their early-afternoon highs as if some bearish traders looked to further square some positions ahead of tonight's North American Semiconductor Book- to-bill ratio.

In after-hours trading, the NASDAQ-100 Index Tracking stock (AMEX:QQQ) $25.25 +3.1%, which traded as high as $25.34 just prior to its 04:15 PM EST close, edged up 5-cents to $25.30 after the North American-based manufacturers of semiconductor equipment posted $742 million in orders in January (three-month average basis) and a book-to-bill ratio of 0.92. The 0.92 book-to-bill means that $92 worth of new order were received for every $100 of product billed for the month.

The report showed the 3-month average of worldwide BOOKINGS was 15% above the $645 million $645 million in orders posted for January 2002, while BILLINGS in January 2003 of $806 million, was 1% above the January 2002 billings level of $800 million.

Recent final book-to-bill ratios had August 2002 at 1.02, September 2002 at 0.80, October 2002 at 0.78, November 2002 at 0.80, December 2002 at 0.94. January's preliminary 0.92 shows a slight decline in booking, which isn't that much of a surprise considering past comments from Intel (NASDAQ:INTC) $16.71 +3.46% that it was cutting capex expenditures for 2003, and Applied Materials (NASDAQ:AMAT) $12.74 +2.74% warning that recent bookings for equipment had fallen below previous guidance given to analysts. Shares of Intel (INTC) added 8-cents to $16.80 in tonight's after-hours session, while Applied Materials (AMAT) edged 3-cents lower to $12.71.

Today's index action got off to a bullish start and stayed that way the bulk of the session, with the major indexes all trading their DAILY R2 levels of resistance and never really looked back to their DAILY pivot levels.

A change from last week was seen today, with the indexes, along with the S&P 500 Banking Index (BIX.X) showing the ability to trade their WEEKLY R1s.

While a mixed look from the Treasury market in today's trade has me thinking that the bulk of today's upside action in equities was greatly attributed to short-covering, the ability of the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $25.25 +3.10 to briefly trade its MONTHLY pivot of $25.31 just prior to its close, certainly hints that there are either some "jumpy bears" or very "aggressive bulls" in larger cap technology stocks and a move much above today's highs could trigger further short covering.

I think "short covering" was the greater amount of buying today as bonds were rather flat by their close, and the U.S. Dollar Index (dx00y) 100.53 +0.09% edged marginally higher, but didn't indicate a rush of foreign capital back into U.S. currency, which might find its way into stocks.

Here's a quick look at our pivot analysis matrix. The WEEKLY S2, S1, Pivot, R1 and R2 levels have been changed to reflect last week's trade.

Pivot Analysis Matrix

That "pattern" of the NASDAQ-100 Index (NDX.X) 1,014.91 +3.34% showing some relative technical strength as it relates to the pivot analysis level last week during a decline, was present today, especially just before the close when the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) managed a brief trade above its MONTHLY pivot of $25.31.

In Thursday evening's wrap, I expressed some "concern" from a bearish point of view that QQQ exhibited some technical support from an "old" downward trend. With that in mind and a strong rally having taken place the past two sessions, I would monitor the QQQ and NDX for that matter closely tomorrow. While the book-to-bill numbers have gotten little response in after-hours trading, the ability of the QQQ to trade its MONTHLY pivot of $25.31 would have me assessing similar level of trade in the Dow, SPX and OEX at this point.

For weakness, late session trading in the Dow Industrials (INDU) back near the 8,000 level did have the other major indexes looking to follow the Dow's softening just prior to a rebound into the close. Right now, the first sign of any renewed weakness and abating of a "short-covering" rally would be found on a break below the DAILY pivot levels. As it relates to the Dow, this would be the 8,008 level, or this afternoon's little pullback to 7,995.

In today's intra-day updates, I showed both the Dow Industrials chart and S&P 500 (SPX) chart with retracement from WEEKLY and MONTHLY pivot analysis overlaid.

Let's take a look at the Dow Industrials point and figure chart to step back a bit and get a "bigger picture" of things.

Dow Industrials Chart - $50-box

After coming very close to last WEEK's S2 level of support, the Dow has rallied back into a previous base formed in late January and early February (red 2 on p/f chart). This WEEK's S2 of 8,198 ties in nicely with recent horizontal resistance below 8,200 and a FULL POSITION bear does NOT want to see a Dow much above 8,200. The rally from 7,650 (early Thursday's lows) shows that the MARKET might actually believe in some type of "Iraq resolution" that doesn't include war.

On a break above Dow 8,200, I would NOT be overly bullish, but would consider a bullish position for options traders that are willing to BUY TIME and look out to APRIL expiration MINIMUM with 1/4 bullish positions ONLY.

Today's action saw a net gain of 3.33%, or 1 Dow stock to a reversing HIGHER point and figure "buy signal." This came "artificially" as Microsoft's 2:1 stock split adjustment, now has MSFT's p/f chart showing a point and figure buy signal associated with its chart. Still "bear confirmed" at 16.67%.

S&P 500 Index Chart - $5 box

In today's 01:00 intra-day update, I showed a bar chart of the SPX, which had the SPX trading into a "zone of resistance" between 850.76 and 854.65. The bar chart helps me understand that my profiled short/put in the SPX can be followed with a rather tight stop just above the 855 level. In that same chart, I also colored in "yellow" another potential "zone of resistance" from 861.49-864.80. That zone would better-correlate with the above p/f chart "zone" around the 865 level. The retracement work shown in the 01:00 Update from 818.47-819.37 would be pretty close to the POTENTIAL bullish support trend (blue dots) where a some overly short/put SPX bears might look to cover on any type of pullback.

Today's action saw no net change in the S&P 500 Bullish % ($BPSPX). Status remains "bull correction" at 34.6%. I would NOT want to be full position short/put the SPX on a trade above 870 should the bullish % reverse back up to 42% and "bull confirmed" status.

S&P 100 Index Chart - Daily Interval

While the Dow and SPX both rally back up into some overhead supply, the OEX hasn't done so on its conventional $5-box scale chart. Still, I'm left with the impression that there may still be 5-points of upside "heat" minimum for an OEX bear.

The MAIN reason I profiled partial short/put new entry points in the Dow and SPX today was that I wasn't seeing a "rush" out of Treasuries. Suffice it to say, a BEAR wants to see some buying in Treasuries to have short-covering subside. I still think OEX 390 and the bearish vertical count is in play, but from 410, it may well have been that there just wasn't favorable risk/reward left in the OEX at that level, especially after Blix's report that seemed to favor the furthering of weapons inspections instead of military intervention with Iraq.

Today's action saw a net gain of 1 stock to a reversing point and figure buy signal. I haven't looked at all 100 charts, but one surmise that Microsoft (MSFT) would have been the one stock that accounts for the net change. Still "Bear confirmed" at 29%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

The "gap above" the $24.50 level and a "zone of resistance" now becomes support. I put on a bearish trade for small 1/4 position in the QQQ March $25 puts today and look for resistance to hold at the WEEKLY R2 of $25.43. I'm starting to lose my "flavor" for bearishness in the QQQ/NDX and while it tends to outperform on a percentage basis in a downward move, the same is true for upward moves. Lots of stock now at a loss from the short-side of things below $24.50 and any type of "market event" that has the QQQ below that level should have some bears looking to cover some short positions. On a technical basis, QQQ might look to "fill to the downside" today's gap higher from $24.50-$24.70.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) show a net gain of 1 stock to a reversing higher point and figure buy signal. Again, thinking here without reviewing all 100 is that Microsoft (MSFT) was the net gain to a buy signal. Still "bear confirmed" at 33%.

Jeff Bailey

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