Indexes hold tough despite "bad news"
If there's one thing I learned in today's session, its is that somebody a lot bigger than most of us is selling out-the-money puts and this hints that institutions are selling premium and perhaps looking for the major indexes to stabilize in the not to distant future.
I'll explain the above observation later in tonight's Index Wrap as it relates to a frustrating experience I've had in the past 5 sessions as the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $24.77 +0.12% was about 4% from an out-the-money option trade I initiated several days ago, and while the QQQ falls, the out-the- money's aren't holding their premiums and there looks to be some willing sellers of "size," that seems have other traders looking for limited downside by next month's expiration. True, for every seller there's got to be a buyer, but despite some rather "bearish" news with North Korea launching a missile into the Sea of Japan last night and a much weaker than expected consumer confidence number, the indexes held tough by their close.
Last week we witnessed tests of the WEEKLY S2 support levels on an intra-day basis, only to find a rally take hold from those WEEKLY pivot levels. Today's action did see downside violation of both WEEKLY and DAILY S2's, but buyers stepped in, as if equity shorts are becoming more aggressive and locking in gains when things look the bleakest.
Volume levels reached the 1.46 billion mark on the NYSE, and this is the highest level of volume since the NYSE traded 1.45 billion on Thursday, February 13th. NASDAQ volume finished at 1.37 billion shares, which matched volumes of 1.38 and 1.36 billion of February 4th and 5th.
While today's volume wasn't "heavy," nor does it give us any type of clear "back test" to market direction (indexes fell from Feb 4-5 volume increase in NASDAQ, while they rallied from Feb. 13th NYSE increase) the increase in volume does tell us that there was some interest from traders.
One area of breadth that may have a bearish trader jittery is the new highs versus new lows category. On February 12th, the NH/NL (New High/New Low) breadth for the NYSE was 28:154 and on February 13th deteriorated to 28:204, which is the last day the NYSE traded over 1.45 billion shares. Today's NH/NL breadth wasn't as negative as that found on February 13th, but at 52:168 is somewhat similar in this indicator when the bottom (52-week lows) looked to be falling out a bit.
By no means would I day the internals look bullish, but like most bearish traders (I'm still bearish the indexes) a good round of "bad news" probably didn't get the type of result most had looked for by session's end, with the major indexes finishing in positive territory, and not unlike a couple of weeks ago when the indexes had traded a 2003 yearly low, the WEEKLY S2's from our pivot analysis work held support by session's end.
Pivot Analysis Matrix
There are few correlations present in our pivot analysis matrix, with the exception being the Dow Industrials (INDU) WEEKLY pivot of 7,982.80 and tomorrow's DAILY R1 of 7,980.10. While the major indexes and S&P Banks Index (BIX.X) 267.39 +0.64% did traded their WEEKLY S2s when consumer confidence was released at 10:00 AM EST, the indexes hovered near these WEEKLY S2 for the bulk of the late-morning session. During this time, we noted (in today's market monitor at 12:03:31) "conflicting" buy/sell premium alerts near the SPX 822 level and looked for a break in the SPX of 817 to confirm further weakness. Unfortunately for bears, that didn't happen.
Last Tuesday I showed point and figure charts of the major indexes and tonight is a good time to perhaps check these charts as a comparison against last week. I see nothing overly "bullish" in the supply/demand picture, but we did see some levels come into play as support today as it relates to last Tuesday's wrap, but resistance levels continue to hold strong.
Dow Industrials Chart - 50-point box
Last Tuesday, the Dow's p/f chart showed a column of X to 8,050 and today's action had the Dow down at 7,750 and close to the lower end of its Bollinger band (21-day SMA, 2 Std. Deviations). Similar to what we did in the SPX chart, I've "dotted" a potential upward trend that would be very short in duration, but would be considered a trend where jittery bears might be found that didn't like the rally back near 8,000 and previously mentioned "low pole warning" that had taken place.
Today's action saw the Dow Industrials Bullish % ($BPINDU) fall 3.33%, or see a net loss of 1 stock to a reversing lower point and figure sell signal. This has the bullish % still "bear confirmed" for this very narrow indicator of just 30 stocks and now reading 13.33%. Technical resistance should be formidable below 8,200, but a trade above the 8,200 level would be deemed potentially longer-term bullish with bearish risk being assessed to 8,400.
My current feel, based on observation, is that Dow bears are looking for one-last wave lower as the bullish % becomes deeper "oversold" and RISK for bears runs high. I will discuss how the S&P 100 Index (OEX.X) 424.88 +0.8% would most likely be the correlative cover level in the Dow Industrials in the commentary below.
S&P 500 Index - 5-point box
The "dashed red line" on the S&P 500 (SPX.X) 838.57 +0.71% should provide near-term resistance, and tie in rather well with the WEEKLY Pivot of 844.20 from our pivot matrix. I think SPX bears holding FULL position short/put want to see the benchmark 10-year YIELD ($TNX.X) stay below the WEEKLY pivot of 3.9%. I've placed 3 blue question marks on the SPX chart to simply reflect where the SPX closed as it relates to today's low trade of 819, which has the point and figure chart charting 3 O's down to 820. First sign of renewed strength after the double-top buy signal at 845 would be a trade at 855.
Today's action saw a net loss of 7 stocks to reversing lower point and figure sell signals as the S&P 500 Bullish % ($BPSPX) falls to 33.0%. Still "Bull correction" status here and internals don't look to be improving.
S&P 100 Index - 5-point box
As mentioned last Tuesday when we looked for some resistance in the OEX to take place at that WEEK's R2 of 436.90 and buying in Treasuries to see that resistance hold. In the above chart, I've tried to show SIMILAR trading pattern currently underway in the 5-box chart as that found last fall as the OEX fell, rallied, and fell again on its way to its bearish vertical count of 390. We still see SIMILARITY in current trade, and the current bearish vertical count of 390. As long as I see SIMILARITY, I'd continue to be bearish the OEX and the major indexes. However, if I see DIVERGENCE and a trade at 435, I would immediately be alert to change. I'm noting WEEKLY R2 of 434.30 in the OEX WEEKLY pivot matrix, which isn't too far from the 435 level.
Today's action saw a net loss of 1 stock to a reversing point and figure sell signal in the S&P 100 Bullish % ($BPOEX) and has this bullish % slipping to 33% and the lowest reading during the current decline for this bullish %. Still "bear confirmed."
Should the "first bomb" drop in Iraq and should the OEX trade 390, I wouldn't argue in the least with a 1/4 call option at the 400-strike, with a MINIMUM 3-month expiration.
NASDAQ-100 Tracking Stock (QQQ) - Daily Interval
The low price of the QQQ doesn't allow for good "conventional" p/f chart analysis on $1-box scale. However, the DAILY chart using similar WEEKLY retracement (blue) and MONTHLY retracement (red) shows a similar "zone of resistance" from $25.22-$25.31 that was found in last Tuesday's Index wrap.
Oscillators on the DAILY chart look more bearish this Tuesday than they did last Tuesday, and bears want to see resistance in the $25.31-$25.22 zone hold and have MACD rolling lower below the zero level.
I will say this, based on my own experience. When I profiled the indexes as "bearish" last Tuesday for new partial position bearish entries, I bought some out the money puts in the QQQ with a March $23 expiration/strike. I tried to patiently bid this contract at $0.45 and couldn't get a fill, so I "paid up" at the offer of $0.50. While the QQQ has fallen from the $25.22 level, at the end of today's trade, I feel "lucky," yet highly frustrated that while correct on QQQ direction, the somewhat surprising erosion or lack of premium benefit during a $1 QQQ decline has me sitting at break-even, or should I say a loss of commission. As such, I'm not looking at any OUT THE MONEY option contracts in the QQQ, or major indexes. The last couple of sessions, including last week, I've seen what looks like some rather "large" crosses or trades in out the money contracts and this hints to me that institutions are at least selling the further out the money puts in the Q's. If so, then them selling the $23.00 for $0.50 on average the past 4 sessions, may have a March QQQ floor of $22.50.
Today's action saw a net loss of 2 stocks to reversing lower point and figure sell signals in the NASDAQ-100 Bullish % ($BPNDX) and has the bullish % slipping back to 33% bullish and still "bear confirmed." On Thursday, February 13th, the bullish % reading was 32% and it was last week's 2-for-1 stock split in MSFT which had the bullish % edging up 1% to 33%. While the other major index bullish % continue to deteriorate, the NASDAQ- 100 Bullish % is trying to hold steady at 33% bullish the past 8 sessions. As such, I would NOT risk a move above QQQ $22.35 or WEEKLY R1 of $25.52.
Disclosure: I currently hold a bearish trade in the QQQ from today's entry in the underlying stock at $24.51.