Banks crack wall of support and leave indexes vulnerable
In Friday evening's market monitor, we noted a "wall of support" in our pivot analysis matrix between the WEEKLY and MONTHLY S1 levels of support. Today, one of our key sector indexes that we've been monitoring in the S&P Bank Index (BIX.X) 262.30 -3.25% cracked its correlative support level at WEEKLY/MONTHLY S1 correlations, and now has me thinking that the major indexes become vulnerable to cracking their correlative support levels too.
In essence, if the "wall of support" were a dam, then the cracking of the BIX's correlative support level hints that selling pressure from bulls has a relatively strong sector showing weakness, which may have bulls opening the flood gates as St. Louis Fed Presiden't Poole's comments regarding Freddie Mac (NYSE:FRE) $50.80 -5.9% and Fannie Mae (NYSE:FNM) $58.93 -6.87% sent a tidal wave of concern through the financial sectors and major market indexes.
Later in the afternoon, Fannie Mae's Senior Vice President Chuck Greener said that there was "nothing new" in Poole's personal opinions expressed today regarding Government Sponsored Enterprises (GSEs) like Fannie Mae. Mr. Greener said that Mr. Poole made almost identical comments last August. "Unfortunately, his comments ignore key characteristics of Fannie Mae's regulatory structure, capital requirements, and business approach that respond directly to the concerns he raises," said Greener.
Here's a look at the updated Pivot Matrix were we have new levels for the WEEKLY pivot and levels of support and resistance.
Pivot Analysis Matrix -
Today's break below the 265 level of correlative support in the BIX.X (highlighted in pink at WEEKLY and MONTHLY S1s) and close below that level show a recently strong sector in our pivot matrix beginning to crack. The BIX.X was a sector that index BEARS wanted to see weakness in to provide a catalyst for further downside in the major index.
With the S&P 500 Index (SPX.X) 807.48 -2.58% closing below its WEEKLY/MONTHLY S1 levels of correlative support from the pivot analysis matrix and the S&P 100 Index (OEX.X) 409.64 -2.49% closing right at its correlative support levels, it would be my analysis that the major indexes are now vulnerable to their WEEKLY S2 levels of support should today's LOWS be violated early tomorrow morning.
S&P Bank Index (BIX.X) - Daily Interval
The BIX.X had been holding tough and above its 50% conventional retracement of 266.78 on a closing basis, and even our WEEKLY S1 of 265.23 appeared to have some technical significance on a historical basis. However, today's break below the 265.23 level is renewed sign of weakness. According to Dorsey/Wright and Associates, their Banking Bullish % (BPBANK) is currently "bear confirmed" at 56% after having been "bear correction" to 62% in January. There's still some risk that can be reduced in the group to October's low reading of 42%.
In today's 01:00 PM EST Update http://members.OptionInvestor.com/intraday/inupd_3102003_761.asp I showed a chart of the S&P 500 Index (SPX.X) 807.48 -2.58% with WEEKLY and MONTHLY retracement overlays. A quick look at the SPX with CONVENTIONAL retracement also shows a current "zone of support" in play at current levels, and it would be my thinking here that BEARS want to see a continuation move lower in the BIX.X to get the SPX breaking these zones of support. BEARISH SPX traders holding FULL positions will once again be willing (in my opinion) to lock in gains on any sign of strength from current levels and look for rallies to continue to work a bearish trade.
S&P 500 Index (SPX.X) - Daily Interval
There are quite a few "levels" of support from tomorrow's DAILY S1 of 799.7 to the WEEKLY S1 of 809.30, which makes it difficult for an existing bear to press the issue right now. Last week, we did NOT see the SPX test its WEEKLY S2 level, while prior weeks, a test of the WEEKLY S2 was a good level for bears to lock in some gains. For bearish traders holding FULL positions, I'd continue to always be assessing risk reward on a WEEKLY basis to the main Pivot and WEEKLY S1 and S2 levels. As such, risk/reward in the SPX is deemed 50/50 from a swing-trader's perspective.
Today's action saw the S&P 500 Bullish % ($BPSPX) slip lower by 0.8% (net loss of 4 stocks to reversing point and figure sell signals) to 30.0%, which is now considered "oversold" on a longer-term basis (levels at or below 30% are deemed oversold on bullish %). Still no sign of internal strengthening here and nearing October's low readings of 20% on the bullish % chart.
S&P 100 Index (OEX.X) - Daily Interval
Similar to the SPX, the OEX has multiple levels of support in play near-term from its pivot matrix. How fitting was today's close so near the OEX's WEEKLY and MONTHLY S1s of 409.8 and 409.5. A "zone of support" from 407.5-409.8 appears again this week, and this "zone" has some historical correlation to the spike lower on February 13th. We made special notes of this zone in our February 12th Index Trader Wrap http://members.OptionInvestor.com/itrader/marketwrap/iw_021203_1.asp and FULL position bears back then would have been well served to lock in some gains near these levels. Tomorrow, I'd watch the BIX.X and the OEX like a hawk and if FULL position short, would NOT want to give back more than 5-points from today's close. On weakness in the banks tomorrow, I'd lower a STOP profit in an OEX trade on a break below 407 to just above the WKLY S1 of 409.8, say 412 or so.
Today's action saw the S&P 100 Bullish % ($BPOEX) fall 2%, or see a net loss of 2 stocks to reversing point and figure sell signals to 24%. If benchmarked to the February 13th OEX relative low, the OEX bullish % reading tonight continues to show BEARISH divergence as the 02/13/03 bullish % reading was 29%. This type of BEARISH divergence tells us that the "strength" in the OEX at this point is coming from a very few select stocks and at this point is not indicative of a broader index rally, which a bull would want to see in order to be getting aggressive from the buy side.
Dow Industrials Chart - Daily Interval
If I'm looking for a bottom to develop in the major indexes, the there's no better place in my opinion (from a technical perspective) that the Dow Industrials (INDU). Last week I profiled a 1/4 BULLISH position in the September $80 calls and I wanted to review a couple of things tonight, with both the WEEKLY and MONTHLY retracement levels overlaid.
The "reason" I think the Dow might be the first to show any sign of bottoming at this point is from past comments regarding a POTENTIAL reverse head and shoulder pattern that we've discussed in the past. I've also mentioned that in October, the Dow DIAMONDs (AMEX:DIA) $75.78 -2.28% undercuts its then bearish vertical count of $74, by $1.00 when it traded $73.00. The current bearish vertical count on the DIA is $75.00, which may give some near-term "credence" to a potential trade at 7,500 in the Dow Industrials, which would still have a reverse head/shoulder pattern in play.
While I'm still "bearish" the major indexes on a near-tem basis, its the technicals in the Dow, which can warrant monitoring from the bullish side. I'm a bit surprised that the Dow wasn't the "first" to trade its WEEKLY S1 today.
Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still bear confirmed at 13.3%.
NASDAQ-100 Index Tracking Stock (QQQ) - Daily Interval
The QQQ/NDX continue to trade "strong" relative to their pivot analysis matrix, but based on Bollinger band and conventional retracement, continue to be the "risk/reward" trade for bearish index option traders in my mind.
Again, I would not OVER LEVERAGE in any trades at this time, but with partial positions, I do feel that the QQQ offers the "best" percentage downside of the indexes. The market has been selling the Dow, SPX and OEX and these three indexes are getting closer and closer to their lows. If I'm going to risk $500.00 in a bearish Index trade at this point, it might as well be in an index that can offer some percentage move to the downside. Look for a near-term cover point in a bearish trade to the conventional retracement's 61.8% level of $23.20 and WEEKLY S2 of $23.14.
Today's action saw a net loss of 1 stock to a reversing point and figure sell signal in the NASDAQ-100 bullish % ($BPNDX). Still "bear confirmed" at 32%, which is a matching low for this bullish % during the decline, with that found on February 12th and 13th, when the intra-day lows for the QQQ/NDX were $23.22/938.52 respectively.