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Index Wrap

One down, two to go

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One down, two to go

One of the three levels in last night's wrap was met to the downside as the Dow Diamonds (AMEX:DIA) $75.75 +0.53% traded its bearish vertical count of $75, and by sessions end the S&P 100 Index (OEX.X) 408.92 +0.53% came just shy of trading correlative resistance of 409.

Today's trade left two of last night's levels of focus untested, but a surge of buying into the close still leaves the OEX 409 and SPX 809 levels in play as resistance tomorrow.

At the 03:00 AM EST hour, market volumes were relatively light as both the NYSE and NASDAQ had traded just about 1.1 billion shares each. By session's end total volumes were the heaviest found this month with NYSE volume pushing just over 1.5 billion share and NASDAQ volume at 1.48 billion shares. The additional 400 million traded in the final hour at each exchange was equivalent to the first 90-minute of trade.

Market breadth improved markedly from the 03:00 hour, but still finished negative with the NYSE tally showing decliners outnumber advancers by an 18 to 13 margin (03:00 was 20:11), while NASDAQ breadth finished negative at 16 to 14 (03:00 was 18:11).

Somewhat "surprising" in today's turnaround in the indexes from their session lows, was that the turn higher didn't appear to be news driven. The turn higher seemed to come after two intra-day tests of the S&P 500's WEEKLY S2 level, which in weeks prior, had seemed to be a level where a rebound has come, when bears couldn't seem to get a more aggressive push lower.

In yesterday's Index Trader Wrap, we discussed the 10-year YIELD, but today's action had the YIELD curve (spreads between shorter- dated and longer-dated treasuries) flattening with selling in the shorter-dated 5-year as its YIELD ($FVX.X) rose to 2.548%, while the 10-year YIELD ($TNX.X) inched marginally higher at 3.589%, yet the 30-year saw buying as its YIELD ($TYX.X) fell to a new multi-decade closing low of 4.617% after just barely undercutting its October intra-day low YIELD trade of 4.606%, with a YIELD trade today of 4.603%. This type of action from the bond market is that of MARKET participants willing to take on more "risk" and looking for some YIELD return at this point. This type of "flattening" of the YIELD curve is also associated with potential strengthening in equities.

Here's a quick look at tomorrow's pivot matrix. Key correlations still finds correlative resistance in the SPX at DAILY/WEEKLY/MONTHLY 809 level, and after some rather significant weakness earlier today, the S&P Banks Index (BIX.X) 257.57 -0.52% provide a close level of correlative resistance at 260 for S&P traders to monitor for resistance, that may correlate with OEX resistance of 409.

Pivot Analysis Matrix

Early levels of resistance that bears will look for to hold will be in the OEX at 409 and BIX.X at 259. If these levels are taken out by more than a couple of points in the OEX, then look for a rally in the indexes up to SPX 809.

If I'm looking for any type of a "longer-term" bottom, then it would most likely start with an SPX close ABOVE the 809 levels at this point.

Key support levels continue to be the WEEKLY S2s of the SPX at 789.70 and OEX 399.4.

The NASDAQ-100 and QQQ continue to trade somewhat sporadic with the pivot matrix, and their action seems to be dictated by what the SPX, OEX and Dow are doing at correlative levels of support/resistance.

I had mentioned earlier today in the market monitor that if a trader put the Dow, SPX, OEX, NDX and QQQ charts side by side on an intra-day chart and removed their chart labels and price scales, he/she wouldn't have known which chart was which as they all looked pretty much identical.

A subscriber sent me an e-mail, "reminding" me to discuss the NASDAQ-100 Volatility Index. In today's 01:00 Update, I talked about the Market Volatility Index (VIX.X) 38.99 +2.38% as it had broken above the 40.00 level. However, when I look at the NASDAQ-100 Market Volatility Index (VXN.X) 47.50 -0.06%, which has only been in existence since January 2001, this index looks NOTHING like the VIX.X or shows any type of "jitters" and trades at the lower end of its short lived two-year existence range of 37 to 80. I must say, after looking at the VXN.X chart, it sure as heck seems to be saying "all is well" in the NASDAQ-100, and when we've been comparing the NASDAQ-100 (NDX.X) 970.54 +1.22% and NASDAQ-100 Index Tracking Stock (QQQ) $24.23 +1.80%, they have both been trading strong as it relates to the October lows and December highs when compared to the Dow, SPX and OEX.

The reason I personally don't follow the VXN.X like I will the VIX.X, is that the VXN.X is just two years old, and I don't have the historical observations of more consistent highs and lows like I see in the VIX.X. If there's anything I would observe from the VXN.X, its that option premiums are at lower levels and may be beneficial for straddle/strangle option traders.

Since we've talked a little about the VXN.X, lets take a look at the QQQ.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

The QQQ and the NDX didn't stay below our upward trend for long, and this may have some shorter-term bearish traders a little edgy tomorrow morning. Today's rebound in the Q's and NDX seemed to come from the SPX holding its WEEKLY S2 levels of support. I forgot to "turn on" my Bollinger bands in the above chart, and while the QQQ did pierce the lower Bollinger band of $23.65 this may be a tool that has buyers near-by. The lower Bollinger band on the NASDAQ-100 (NDX.X) is at 948 and today's low trade in the NDX was 946.79.

The Semiconductor Index (SOX.X) 287.45 +3.01% showed a bid all day today, after programmable chip-maker Altera (NASDAQ:ALTR) $12.56 +7.7% guided quarterly revenues higher. I'm keeping a close eye on Dorsey/Wright and Associates "semiconductor bullish % (BPSEMI)" as this sector tends to be a "leading indicator" for QQQ/NDX strength. This sector is still "bear alert" at 22.16% and was unchanged today, after having reversed lower from 74% in late November. It would currently take a reading of 28% to get this indicator to "bull alert" status. In August and October of last year, this sector bullish % fell to lows of 8%.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) see a net loss of 1 stock to a reversing lower point and figure sell signal. This has the NASDAQ-100 Bullish % slipping to 30%, which is now deemed longer-term oversold.

S&P 500 Index Chart - Daily Interval

When the week began, I thought this week's "MAX decline" would only come to the 805 level, and today's trade at WEEKLY S2 may have been too much for bears to have passed up. After today's spike lower to WEEKLY S2, I'd be placing a stop just above the WEEKLY and MONTHLY and even tomorrow's DAILY R1 correlative resistance levels of 810 as any break above that level could easily have the SPX rebounding back to the 821-823 zone. In my mind, a trader that wasn't willing to lock in some gains at SPX 790 should not now be willing to risk a move back above the 810 level to 825. From last night's Index Trader Wrap, when we looked at the SPX p/f chart, we now "know" that the SPX pierced below our "bearish support trend" and has started a rebound. In the past, when the SPX pierced below that "bearish support trend", the SPX reversed up a minimum of 3-boxes, or 15-points. This would be to the 805 level at a MINIMUM, so again.... 810 or just above that level would be a bear's stop.

Do I want to go long here? I don't think it is out of the question, but ONLY on 1/4 positions at this point, and I'd buy MINIMUM 3-months time. The reason for this cautionary approach? For one, I'm still dealing with the possibility that the OEX could still achieve its bearish vertical count of 390. The other....

Today's action saw the S&P 500 Bullish % ($BPSPX) fall 1.4%, or lose 7 stocks to reversing lower point and figure sell signals. This has the bullish % falling to 27.4% and getting closer to October's relative low reading of 20%. No sign of any internal strengthening here.

Dow Industrials Chart - Daily Interval

I personally would not get "cute" as a bearish trader with the Dow Industrials (INDU) 7,552 and would tend to guard against a rally after today's trade. True, the DIA did undercut the bearish vertical count of $75 today, but I'd currently weigh potential further decline to 7,350 against a rally back to 7,761, should the Dow break much above the 7,577 level (adding 10-points wiggle room above 7,567). The February 13th reversal (similar to today's) saw an 2-day rally back to the 21-day SMA. However, the DIA didn't trade its bearish vertical count of $75 that day either.

As a bear, I ALWAYS error on the side of caution when a bearish vertical count has been achieved, ESPECIALLY when I've got profits at stake!

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Status remains "bear confirmed" at 9.99%.

I've had problems with my q-charts tonight, and have run out of time for a chart in the OEX. A quick update on its bullish % ($BPOEX) shows a net loss of 2 stocks to reversing lower sell signals today. This has the OEX bullish % falling to 21% and getting closer to October's relative low reading of 18%. I would have a stop set in a bearish trade at 411, 412 MAX if the Indexes above break much above their near-term resistance levels.

Jeff Bailey

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