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Bulls still holding onto Valentines

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Bulls still holding onto Valentines

It was with great anticipation that I gave my "true love" Sherry Wilson a valentine in first grade. My palms were a bit clammy and my heart raced as my lack of confidence had me fearing rejection. Would she accept my valentine, or reject me by tearing the 5-cent piece of paper that I had carefully adorned with red glitter in half?

At the end of today's session, the major indexes (except for the NDX and QQQ) closed right near their "Valentine" Friday's close. While I'm not looking for traders to tear the markets in half tomorrow, I am looking for some bulls to grow less fond of equities again tomorrow.

While Sherry Wilson didn't rip my valentine in half that eventful day, a severe head injury (10 stitches to my forehead) that I encountered after tackling a jungle gym bar during a game of flag football at recess, sent Sherry scampering to a more visually appealing and unscarred young whippersnapper.

Today's trade was almost an exact replay of Wednesday's when stocks rallied early in the session, but faded lower into the day. The main difference today? When the bond market closed at 03:00, the major indexes rallied from their session lows once again. However, the Dow Industrials (INDU) 7,914 -1.07%, which has been the "weaker" index as it relates to the pivot levels wasn't able to reclaim its DAILY pivot like it did yesterday, and found willing sellers at its DAILY S1 of 7,942 to close back near its low of the session. The broader S&P 500 (SPX.X) 837.10 -0.95% did rally just above its DAILY S1 of 838.90 to 840.75, but it too found sellers into the close.

In today's market monitor, just before the 03:00 PM bond market close (02:46 PM EST), I mentioned that I wanted to closely observe the major indexes at the bond markets close. While we saw some SIMILARITY in that the major indexes recovering from their session low as the clock struck 03:00 PM EST, my observation that the recovery didn't extend to DAILY pivot levels in the weaker Dow and S&P's (relative to the NDX/QQQ) like they did yesterday has me looking for a break of today's lows to have equity bulls returning their Valentine's day gifts.

Some observation made in tomorrow's pivot matrix might be worthy of note tonight. Today's indexes closes are below tomorrow's DAILY pivots. I mention this observation has this gives me the "impression" that the short-term (DAILY) now shows some resistance at the DAILY pivot level. The last time we saw this was in last Wednesday's Index Trader Wrap and on the following day (Thursday, 02/13), the major indexes had closed above the next day's Pivot ,which may have signaled a shorter-term type of bias back to the upside.

I can't say for certain, but while I was still bearish the major indexes that Thursday evening, I did take some time to put together some bearish trader's risk management stopping points. I will admit that I made an observation to myself that the indexes had closed above their DAILY pivots, but was not certain that it meant anything. The rally that took hold the following Friday now has me at least "curious" to this type of change as the shorter-term part of our matrix has the indexes below their DAILY pivots.

Here's a quick look at tomorrow's pivot analysis matrix.

Pivot Analysis Matrix

I've "highlighted" in green and red some correlative support and resistance levels between the DAILY and WEEKLY levels. "Key" levels to be looking for support may be SPX 828.20 along with our "key sector" in the S&P Banks Index (BIX.X) 274.33 -0.54%. The BIX.X is the only index/sector on the above matrix that gives us BOTH correlative support and resistance levels.

For correlative resistance, DAILY R2 and WEEKLY R2 levels are found in both the NDX and QQQ. As a QQQ bear (shorted some Q's at $24.93 today and continue to hold overnight) my thoughts are that there are levels between tonight's close and DAILY S2 where a trader can set some stops depending on tolerance for risk.

In today's 03:15 PM EST update, I commented on the 10-year YIELD ($TNX.X) finishing its session below our upward YIELD trend and how this bond, while giving us a heads up to potential weakness in stocks on Tuesday, had slipped below its 61.8% retracement and the Dow, SPX and OEX have tended to follow this action, yet the NASDAQ-100 (NDX.X) and QQQ have not. I cannot for the life of me explain this action unless it has something to do with option expiration in the Q's tomorrow. Heavy open interest exists in the Feb. $24 and $25 call/put strikes.

The fundamental side of me states that technology stocks won't benefit from capex spending until the deeper cyclicals that would benefit first from an economic recovery (and show bullishness on this thought from the MARKET buying this group). While the technicals still show resistance holding just above current levels in the NDX and QQQ, I'm rather "baffled" as to why the NDX/QQQ aren't at their 61.8% retracement like the 10-year YIELD, Dow, SPX and OEX.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

If there's any index in the market that has me alert to any type of bullishness, it's this darned QQQ/NDX index. In recent sessions, several brokerages/analysts have been making bullish comments on the Semiconductor Index (SOX.X). Unlike some other times in recent years, I can't say as though I totally "question" some of these analyst's bullishness as Dorsey/Wright and Associates' Semiconductor Bullish % (BPESEMI), which is a large basket of semiconductor-related stocks is currently "bear alert" at 22% after reversing lower from 74% bullish in early December (remember 70% or above is "overbought" while 30% or lower is "oversold") and is at least below the 30% level. In the past couple of years, I've heard from analysts that "the semiconductor sector is oversold and attractive on this pullback" when the sector bullish % was in a column of O at 50% having fallen from the 70% level. It would take a bullish % reading of 28% to have the semiconductor bullish % reversing back up to "bull confirmed" status. In August and late September of last year, this sector bullish % fell to relative low reading of 8%.

I've said before that the MARKET is never wrong. While I think the MARKET is a little "out of whack" based on retracement, I'm willing to admit I'm wrong should the QQQ trade above $25.43 at this point.

Today's action saw no net change in the NASDAQ-100 bullish % ($BPNDX) and status remains "bear confirmed" at 34%.

S&P 500 Index Chart - Daily Intervals

The "pink" retracement is conventional retracement from the SPX October lows to December highs and can be compared to the 10-year YIELD chart shown in today's 03:15 intra-day update. Again... the retracement RANGE shows that the 10-year YIELD is just below its 61.8% retracement of the Oct-Dec. RANGE, as is the SPX.

Today's action saw a net loss of 0.2% or a net loss of 1 stock to a reversing lower point and figure sell signal. This isn't that much of a change. Still "bull correction" at 34.80%.

A subscriber asked me today if the stock market trades off the bond market, or is it the other way around? It's my belief, based on historical observation, that the stock market tends to trade off the bond market. This isn't ALWAYS the case, and sometimes there can be a 1-2 day lag. On Tuesday, when the SPX was trading near its session highs, the bond market reversed a course of selling that turned into buying, which was what I took as an "alert" to POTENTIAL weakness for equities. Here's that intra-day update.

S&P 100 Index Chart - Daily Interval

With conventional retracement overlaid on the OEX like we showed last night, today's close back below the 61.8% retracement looks bearish. Traders that rely heavily on MACD and Stochastics will note some "similarity" in current Stochastics that are "overbought" and a MACD that has crossed above signal as it relates to the OEX having sees distribution into the end of the year, a sharp rebound in early January (similar to that seen beginning on Valentines day) then a little 2-day pullback into 50-day SMA support (OEX has pulled back 2-days now). I point this out tonight so that bears aren't sitting back in their rocking chairs and tearing up their Valentines at this point.

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

Dow Industrials Chart - Daily Interval

A "Dow bear" would have probably preferred a close below the 7,902 level, but intra-day trading below that levels suggests lower price action in my opinion. The "post bond market close rally" in the Dow was to 7,938. Tomorrow's DAILY Pivot is just above at 7,945 and would be a level to monitor should the bond market open "flat" and not be seeing continued buying tomorrow morning.

By pointing to the 7,691 level, this is not a forecast for Dow action tomorrow. However, since I'm still leaning toward the bearish side of things in the indexes, we will note three levels of crisscrossing support at "old" downward trend, 80.9% retracement from MONTHLY pivot analysis retracement and the rising lower Bollinger-band. A trader that may have short/put the Dow on Tuesday from my 11:00 Intraday update based on bond market observations might take some profits off the table should such a trade take place. Under "uncertain" market conditions, anything can happen and traders need to be alert an not be "greedy" if opportunity presents itself.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bear confirmed" at 16.67%, and at more longer-term "oversold" bullish % conditions.

Jeff Bailey

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