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A bear's glass was left half empty

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A bear's glass was left half empty

It was a slow progression lower throughout today's session as bears looked to recoup the bulk of Tuesday's losses, but a late rebound from 03:00 PM EST into the close left a bear's glass half empty. For a bull, the glass filled with profits on Tuesday, remained half full.

Treasuries seemed to garnish the bulk of today's trading attention as action from the Fed in the form of it adding $994 million in permanent banking reserves by buying U.S. Treasury coupons dated June 30, 2004 through November 30, 2004, this "coupon pass" did jolt equities at the 10:40 AM EST mark. The "jolt" that sent the indexes to their lows of the session at that time was the thought that the Fed is actively trying to inject liquidity toward the banks. But why? Many believe the Fed has been actively pumping liquidity toward the banks, especially in the form of yesterday's $15 billion of overnight repos, due to the recent winter snowstorm on the east coast. Yet in an "uncertain" market environment, any type of "unusual" Fed action gets some attention.

Fellow analyst Jonathan Levinson wrote a nice "Trader's Corner" article on Fed activity in his "Recent Activity by the Fed" column early last week (Feb. 10, 2003), which was the last coupon pass.

It's interesting that fellow analyst John Seckinger in his 10:57:14 market monitor post noted... "Looking at a five-minute chart of the Dow, 11 out of the last 12 five-minute periods tested the pivot at 8008. Bears should definitely try to keep prices underneath both 8008 and 8000 if they are going to gather momentum. Bonds are rallying, the dollar is falling, and the Utility Index (UTY) is at 236 and under some solid resistance at 240. Usually this is enough for bulls to step aside, but a 'weird' underpinning bid seems to linger in the equity markets."

Mr. Seckinger's post came about 17-minutes after the coupon pass, and today's closing YIELD on the 10-year ($TNX.X) at 3.881% (see chart and comments in 03:15 PM EST Update) along with a Dow close at 8,000.60 (John Seckinger's 8,000-8,008 comment regarding the Dow) will make for a most interesting open tomorrow morning.

Bonds will give traders the "heads up" as they open ahead of stocks. A break lower in YIELD (further buying in bonds) may get some equity traders attention and have stocks vulnerable to today's session lows by their opening tick. Selling in Treasuries could have the opposite effect with stocks looking to challenge yesterday's highs.

From a technical perspective, a "wedge" formation is thought of as compaction, or "pressure" as bond bulls and bears work out their differences in the 10-year YIELD. In my opinion, the pressure cooker is "whistling" as it relates to the wedge formation in the 10-year YIELD and a break to the downside should drive equity prices in the same direction. A rebound from the lower YIELD support has the opposite effect and should at least find further short-covering in equities. As of tonight's close and 10-year YIELD, there's been no "resolution" to the wedge.

It's this thought process, which has me believing that the late recovery in the major indexes from the 03:00 PM mark (when the bond market closed) was equity short-covering by shorter-term equity traders.

The major indexes were rather range-bound today and daily highs and lows fell within Tuesday's trading range and represents some near-term consolidation. For the first time in several sessions, trading was limited to the DAILY S1 and Pivot levels.

Volume levels were the lightest seen this year with the NYSE turning just over 1.06 billion shares, while the NASDAQ showed anemic volume of just 1.16 million shares.

Here's a look at tomorrow's Pivot Analysis Matrix.

Pivot Analysis Matrix

I haven't marked some of the "correlation" found in the DAILY and WEEKLY matrix, but correlative levels of resistance are present in the DAILY R1 and WEEKLY R1 levels, with the exception perhaps being the more volatile NASDAQ-100 Index (NDX.X) 1,005.88 -0.88% and NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $25.08 -0.67%.

Should Treasuries open their session flat, then traders can be monitoring the R1 levels (WEEKLY/DAILY) closely.

Dow Industrials Chart - Daily Interval

Last night we "stepped back" a little and looked at the p/f charts. The Dow never really challenged its WEEKLY R1 of 8,053 today, but didn't come close to its WEEKLY pivot of 7,841 either. Similar looking chart to that found intra-day on Tuesday, but tomorrow, DAILY R1 of 8,050 is a "new" level of resistance for tomorrow. Add in the 21-day SMA and several levels of resistance look to be in play. If Treasury YILED crack lower at the open, bears will be looking to leverage off the Dow 8,055 level for perhaps one last leg lower when the Bullish % becomes too longer- term oversold to get much more bearish. There's still a support zone from the conventional 61.8% retracement of 7,902 to WEEKLY 38.2% retracement of 7,925 and a violation of that zone leads to a test of the WEEKLY pivot of 7,841.

Be prepared for "good news" that does have the Dow breaking above all the resistance levels mentioned. If we think the short- covering rally fro the recent lows was something, be prepared for some real short-covering above 8,120 with an initial bullish stop just below 7,900.

While I'm currently holding a more bearish posture right now, I'm still under the "uncertain" market environment type of trade and account management plan.

MACD and Stochastics Oscillators give me a "neutral" look as Stochs are now "overbought," but MACD has crossed ABOVE signal and somewhat bullish.

The Dow Industrials Bullish % ($BPINDU) saw no net change in its bullish % reading. Status remains "bear confirmed" at 16.67%.

S&P 500 Index Chart - Daily Interval

I've left the "thick" bold lines on the SPX chart which mark the WEEKLY S2, S1, Pivot, R1 and R2 levels. Similar near-term "zones" of resistance and support are found in the SPX as well as the Dow. The SPX did dip marginally into its lower support zone today, and the session low came at the strike of 03:00 PM EST, when the bond market closed.

Yesterday's jump in the SPX saw no net change in the bullish %, but today's little pullback finds the S&P 500 Bullish % ($BPSPX) actually rising 0.4%, or seeing a net gain of 2 stocks to point and figure buy signals. While this is very small and not that "meaningful" as it relates to the bullish %, there's been at least 2-stocks in the SPX that have been able to generate a p/f buy signal today. Still "bull correction" status at 35% and a reading of 42% is needed for the bullish % to reverse back up into "bull confirmed" status.

S&P 100 Index Chart - Daily Interval

I'm showing the OEX chart with ONLY the conventional retracement from the October lows to December highs, along with the WEEKLY pivot analysis levels. The OEX slid back to close below the WEEKLY R1 of 429.80, but closed above the conventional 61.8% retracement level and looks to have found 03:00 PM support from that level. One thing I meant to circle, but didn't was the OEX in relation to its 21-day SMA (think ping moving average). "Understand" this simple moving average and how it might of helped an OVERLY bearish trader back in October save some pain. While the OEX bullish % fell to 18% in October and reversed up as the OEX moved above that 21-day SMA, it did serve as a shorter- term moving average and stopping point.

Today's action saw no net change in the S&P 100 Bullish & ($BPOEX) and status remains "bear confirmed" at 29% bullish.

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

I was a bit "surprised" today when it was the QQQ and NDX that were the first indexes to trade their first DAILY pivot levels ahead of the Dow Industrials, SPX and OEX. While the other indexes quickly followed with violations of their DAILY pivots, this was a bit of DIVERGENCE I haven't seen in recent sessions.

The above chart of the QQQ has conventional retracement overlaid along with tomorrow's DAILY retracement. Both the longer-term 200-day SMA and intermediate-term 50-day SMA's serve near-term resistance. That technical resistance along with correlative retracement resistance near $25.34 and $25.33 makes for a decent short/put entry point in my opinion with a very tight stop above the $25.35 level for risk averse bears, or $25.55 for shorter- term bearish traders. An early bearish target would be the $24.50 level, which would have the QQQ looking to fill its gap from Tuesday morning. Further downside target would be WEEKLY S1 of $23.67 and the conventional 61.8% retracement level of $23.20, which served as a "zone of support" on Thursday of last week.

The NASDAQ-100 Bullish % ($BPNDX) saw a net gain of 1 stock to a reversing higher point and figure buy signals today. This has the bullish % still "bear confirmed" at 34%.

Jeff Bailey

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