Option Investor
Index Wrap

I was a bull... for about 55-minutes

Printer friendly version

I was a bull... for about 55-minutes

I thought I'd forgotten how to place a "buy order" in a security with the letters QQQ, but that's what I did today when the QQQ moved above an intra-day "zone of resistance" between $24.80 and $24.81, which is something I just didn't think the Q's would have done today.

Fifty-five minutes later, I was wishing I had forgotten how to enter a bullish trade in the Q's as it couldn't have been 10- minutes after I had entered a limit order to buy the QQQQ at $24.83 on a little pullback from the soon-to-be session high of $24.94, the BBC reported that Turkey's government had halted the movement of oil tankers through its borders with Iraq and its ambassador to Iraq had pulled out of Baghdad. That was enough to send the Q's not only through my limit buy order like a hot knife through butter, but have the major indexes reversing marginal gains and session highs, and falling below their DAILY pivot levels to eventually close near their lows.

It was perhaps "foolish" of me to enter a standing order for a slated short-term trade, and I usually don't do such a thing when I'm able to watch things closely, and while I could see the decline coming and new "something's up" as Treasuries quickly reversed their earlier selling, by the time I found the news and began typing it in the market monitor (see 10:42:46), bears had carved this short-term bull into a moist morsel and it was only matter of time (roughly 55-minutes from entry) that the QQQ slid below its DAILY pivot of $24.60. From that point on, the Q's never saw the light of day back above $24.60. I said, "never saw the light of day ABOVE $24.60." The Q's traded $24.60 in early afternoon trade for about 1-minute on two separate occasions, but that was it.

Treasuries turned more bullish (a defensive move by market participants) immediately following the news out of Turkey, and finishing touch of buying, which sent YIELDS to their session lows into their 03:00 close, sent the major indexes to their lows of the session, and triggered a "second-leg" of "Turkey" dinner for index bears, as the indexes fell to their close. For good measure, the QQQ's traded an after-hours low of $24.16, which was our WEEKLY S2 level of support.

Here's a tabulated review of what I saw today, between the QQQ and the 10-year YIELD. While I didn't profile a bearish trade in the QQQ on my "yield" alert at 02:52:02 from the market monitor, I was able to get off a short in the QQQ at $24.47 and covered in after-hours trade at $24.16, which just about made up for earlier bullish loss from $24.83 to $24.48 (I thought I typed in a stop of $24.58, but typed $24.48 instead).

10-year YIELD/QQQ Comparison - 5-minute interval

I've set the "black boxes" on both the 10-year YIELD chart ($TNX.X) above and the NASDAQ-100 Index Tracking Stock (QQQ) at the 02:40 PM EST 5-minute bars, which helps show how the break to a session low in the 10-year YIELD gave a "heads up" to weakness, not only in the QQQ, but major indexes as well. There are two "downside" zones to be looking for by week's end in the 10-year YIELD, that if traded (I think they will be ahead of the weekend) should have stocks following lower.

Let's face it. I'm going to call the QQQ $24.16 level from WEEKLY S2 a substantial hurdle near-term as this level proved formidable support yesterday, from which the QQQ was able to rally back to $24.77 by Tuesday's close.

In tonight's post-market trade, the QQQ's did trade a low of $24.16, and after a "rough day" of trading the QQQ for me, I wanted to see if I couldn't get filled on a short-cover. It took some doing with partial fills, but eventually got covered at that level.

Tomorrow, look to use the QQQ (stronger index on pivot analysis in recent weeks) along with the 10-year YIELD (has been a pretty good equity direction indicator) for market direction into the weekend. Should the 10-year YIELD see further defensive buying into the weekend and seek out a lower target zone of 3.738%- 3.742%, then QQQ's look vulnerable to $23.71. Look for 10-year YIELD resistance (buying in Treasuries) near YIELD of 3.8% on any type of rally in equities. This might be correlative with QQQ of $24.60-$24.71.

Lets take a look at tomorrow's pivot matrix. From this, I'm going to predict a Friday close in the S&P 100 Index (OEX.X) 418.72 -1.42% of between 416.60-413.30, which is our WEEKLY S2 and MONTHLY S1 pivot analysis support levels.

Pivot Analysis Matrix

There are suddenly quite a few levels of correlative support and resistance as we near the end of this MONTH's trade. After Friday's close, I will recalculate not only the WEEKLY pivot levels again, but will also recalculate a fresh set of MONTHLY pivot levels.

It was actually the previous charts of the TNX.X/QQQ comparison with retracement levels from the tomorrow's DAILY (gold/brown retracement levels) that really peaked my interest. Almost as if the MARKETS were perhaps trading one-day ahead of me.

This had me quickly punching in some "closes" as if trying to predict a FRIDAY close, which might find some type of correlation in the OEX's MONTHLY pivot levels for MARCH.

In the past two weeks, I've noted the bearish vertical count in the OEX at 390. This level was also put in trader's minds by fellow analyst at OI Linda Piazza, in some market monitor commentary she made a couple of weeks ago on an intra-day reversal lower in the OEX, on what she called a "failed rally" attempt in the OEX.

Two "different" levels of correlation that I don't remember seeing is found in the OEX at MONTHLY S1 of 413 and tomorrow's DAILY S2 of 413.30. If I used this month's (February) high and low in the OEX of 437.92 to 407.79 and "plug in" a close of 413 for this month, the pivot formula would generate a MONTHLY S2 of 389.54. This is very close to the bearish vertical count of 390 from the OEX p/f chart. I also "plugged in" an OEX close of 416 (tomorrow's DAILY S1 and WEEKLY S2 correlations) and the MONTHLY pivot analysis generates a MONTHLY S2 of 390.64.

For pivot analysis traders, or those trading levels, one might begin to think of an OEX "bottom" starting to come together at the 390 level.

As we build some observations from the 10-year YIELD chart above and thinking of lower YIELD targets, this bond's YIELD becomes a security AWAY from equities that we can monitor in coming sessions. It's my thinking that if the OEX is to ever trade 390, then YIELDS should continue lower.

I would not disagree with a trader that says... "but your just plugging in numbers to make your case for an OEX at 390!" Well... I might disagree somewhat, as I'm using some correlative levels from the MATRIX, to derive at a Friday close, which may eventually have impact on a key level of OEX support, that does tie in with the OEX's point and figure chart's bearish vertical count of 390. I would call this "envisioning" a trade, or how things might unfold. This would be little different than what we did in last night's Index Trader Wrap and the S&P 500 Index point and figure chart.

As the bullish % continue to march low and enter "oversold" levels below 30%, I don't want trader's a week, or month from now looking for damage control in over leveraged put option positions if the OEX traded near the 390 level as war was breaking out in Iraq, only to have found the OEX eventually rebounding from that level (along with the major indexes) should the MARKETs then have fully discounted the war.

Again... I'm making some observations of POTENTIAL levels of support that may be found in the OEX at 390, which suspiciously correlate with the OEX's point and figure charts bearish vertical count of 390.

Today's news out of Turkey, certainly seems to have that country's government taking some type "preventive" or "defensive" action as if it looks for some type of military intervention with Iraq.

S&P 500 Index Chart - $5 box

Before the Turkey news hit, it was looking like the OEX might be set to add yet another "X" and perhaps challenge the recent highs near 850. Tonight I've placed 3 "red ?" to depict a 3-box reversal back lower, but the SPX needs a trade at 825 for this type of entry to take place. A trade at 815 is needed to have the SPX give a reversing point and figure sell signal and this may be a "tough task" into the weekend. It's not impossible that a trade at 815 might take place before Friday's close, but DAILY, WEEKLY and MONTHLY S2's are all above the 815 level right now.

The OEX had just inched into positive territory and looked ready to test conventional 61.8% retracement of 426.05 and our WEEKLY pivot of 427.70 when the "Turkey news" hit the wires. Selling into the close and a more negative move below the WEEKLY S1 (thick green line) looks bearish. I've placed a "thick" yellow line on the chart to depict my "zone" for Friday's OEX close. A trader that follows/uses MACD may envision one last roll lower in this oscillator should the OEX fall to 390 in coming weeks.

Dow Industrials Chart - Daily Intervals

The Dow has been struggling with its trending lower and shorter- term 21-day SMA and looks to have been "rejected" from conventional 61.8% retracement. A past break of upward trend was a negative sign, and a break of recently added upward trend near 7,680 might see somewhat an eventual decline back to the lows. With the Bullish % at 13.33%, I would not look to ADD to any bearish positions below 7,550. As a benchmark, in October, the bullish % for the Dow ($BPINDU) was at 3.33% and VERY, VERY, VERY oversold conditions. A break above a little downward trend near 8,000 is an alert to strength.

Jeff Bailey

Index Wrap Archives