If history repeats, is Saddam or Bears in bigger trouble?
Stocks finished today's session marginally higher after trading in a rather tight range for the bulk of the session. The Federal Open Market Committee left rates unchanged, while a weaker than expected new housing starts number did little to shake the recent bullish rebound that started late last week.
I tried to go back and look for a chart that a friend sent me of the S&P 500 Index (SPX.X) dating back to late 1990, that had a nice timeline as to how the SPX traded as events unfolded. I couldn't find that article, but found the chart.
S&P 500 Index (SPX) - July 1990-February 1991
The above bar chart gives some historical data as to how the SPX traded as it relates to the liberation of Kuwait. There are some interesting ties that can be made today. Not only as it relates to history with war, but some market history with supply and demand that gives bulls some reason to be bullish.
Here's a supply/demand, or point and figure chart of the S&P 500 (SPX.X) dating back to 1990. Again.... this is the S&P 500, not the S&P-100, so no need to adjust your screen at this point.
S&P 500 Index (SPX) p/f chart - 1990-1993
The above chart of the SPX sure looks familiar doesn't it? In November (after red B) the SPX generated a triple-top buy signal at 320, rallied to bearish resistance trend (+3.12%), pulled back 20-points (-6.06%) to 310, then shot higher when it became apparent that coalition forces had liberated Kuwait.
Now... I don't know what the next several days, weeks or months hold as it relates to "war" or "no war." I still wish that Saddam Hussein would take his millions, if not billions of dollars and take it easy somewhere other than Iraq. However, it doesn't seem as if he's going to take that route right now.
I'd say that index traders (bullish or bearish) would probably much prefer to be in their own shoes than Saddam Hussein's at this point. It would be my guess, that at some point, we're going to get a clearer picture of how the indexes are going to unfold, but as each day passes, I'm getting more bullish. Especially with some of the reversals we're seeing in the bullish % charts.
I the above point and figure chart, I say... "the SPX chart sure looks familiar...." Let's take another look at the OEX point and figure chart, which I think is better for making some historical comparisons. I chose the S&P-100 chart as its current value of trade is very similar to the SPX back in 1990, as is the recent triple-top buy signal and the OEX is getting closer to testing its bearish resistance trend.
S&P 100 Index Chart - 5-point box
While there are some historical similarities in play as it appears the U.S. is close to "war with Iraq," there are some very similar technical presenting themselves in the OEX that were found in the SPX back in 1990 just before the a coalition of forces liberated Kuwait from an Iraq invasion.
While I wouldn't be "surprised" and would trade a bullish position that a pullback to 413-423 wouldn't have me panicking, I'm wanting at least some bullish exposure to the S&P 100 Index (OEX.X) at this point, and would prefer a MINIMUM 3-month expiration.
The trade that we are all perhaps having some difficulty with right now, from both the bullish and bearish side, is how a potential military campaign will play out. In 1990, it was fairly evident in a couple of days that coalition forces easily turned back Iraq forces from Kuwait. At that time, it was "easy" for Iraq to retreat, as the only purpose of that war was to rid Kuwait of Iraqi troops. This time, Iraq won't have a place to retreat to once a war breaks out.
While there have already been reports of Iraqi soldiers trying to surrender to British media and at the sound of distant gun fire, as traders and investors, I think it always best to try and plan for difficulty at this point. Keep bullish and bearish positions small at this point, and look to build positions as clarity builds.
Today's action saw the S&P 100 Bullish % ($BPOEX) seeing a net gain of 1 stock to a point and figure buy signal, and the bullish % edges higher at 27%. A reading of 28% is needed to achieve "bull alert" status and I'm looking for that to take place near- term.
Why? Today's action saw the broader S&P 500 Bullish % ($BPSPX) reverse back up to "bull confirmed" status as the S&P 500 saw a net gain of 9 stocks to reversing upward point and figure buy signals. This has the bullish % rising 1.8% to 34.2% and should have the offensive team now looking to take the field.
S&P 500 Index (SPX.X) - Daily Interval
Look for some bears to swallow a pill tomorrow should the SPX break today's high after it looks like the 50-day SMA, which was broken to the upside yesterday, served up support. With the S&P 500 Bullish % ($BPSPX) reversing back up to "bull confirmed" status, the primary emphasis for bears is to either protect gains, or show some capitulation above today's high as 873 becomes another level of upside risk. With the S&P bullish % just reversing up, there should be plenty of bears looking to cover on pullbacks. I've marked the 820 level on the above chart to reflect a 6% pullback in the SPX from the 873 level, which would be a scenario for selling at this WEEK's R2 level of resistance back to the WEEKLY pivot. However, at this point, I think bears will be more than happy if the SPX pulls back to the MONTHLY pivot of 837, which was a level that "shouldn't have" been broken to the upside to begin with.
SPX and OEX traders will note that the S&P Banks Index (BIX.X) 270.94 -0.3% was one of only 4 sector indexes that I follow that showed a loss today. We'll note correlative resistance for the BIX.X tomorrow at the MONTHLY pivot of 273.2 and DAILY R1 of 273, but if the banks get hot, then SPX 873 isn't likely to hold resistance.
Dow DIAMONDS (DIA) - $1 box
While the Dow Industrials (INDU) 8,194 +0.64% gave a double-top buy signal yesterday at 8,000, today's trade at $82 has the Dow DIAMONDS (AMEX:DIA) $82.14 +0.83% triggering a double-top buy signal and now has a bullish vertical count of $97 associated with the chart. While the DIA hasn't achieved a bullish vertical count in years, traders will take on a more bullish view of the DIA, but understand there's a lot of work to be done. I've now added a "bullish resistance" trend to the p/f chart that would be similar to that found and perhaps traded from October-December before an eventual "sell signal" at $83 was given. The Dow traded "tough" today and starting to show a little bit of leadership and was the first index to trade "green" when the major indexes had dripped red in a rather sideways session.
Trader's that may have 2 call options in the previously profiled DIA Sep. $80 calls may look to trade out of one of their positions on a rally to near $84, pay themselves a little for the risk they took during a decline, just prior to the low trade of $75, which was the bearish vertical count we thought might provide a turning point. With the bullish % still very low, there's quite a bit of longer-term bullishness that could build and I'd want at least 1/4 bullish in my account as long as the bullish % remains in a bullish phase. Even during the cyclical bear market, this has been approximately 2-3 months.
Today's actions saw a net gain of 1 stock to a reversing point and figure buy signal in the very narrow Dow Industrials Bullish % ($BPINDU). This has the bullish % gaining 3.33% to 20% bullish. Still "bull alert" and would currently take a reading of 62% to achieve "bull confirmed" status. Bulls are still very early here, but looking well positioned.
NASDAQ-100 Index (NDX.X) - Daily Interval
Today's announcement by Applied Materials (NASDAQ:AMAT) $13.54 +3.13% that it was cutting more employees from its payrolls didn't appear to trouble that stock or the Semiconductor Index (SOX.X) 328 +1.78% that much. Nor the NASDAQ-100 (NDX) or QQQ $26.93 +1.24%, which both made strong moves into their close.
In this weekend's "Ask the Analyst" column, we discussed "sector" bullish %, and I've made note of the Semiconductor Bullish % (BPSEMI) from Dorsey/Wright and Associates. Over time, it has been my observation that both the Semi Bullish % and NASDAQ-100 Bullish % move very much in unison. With both in "bull alert" status, NDX and QQQ should be very good pullback on weakness trades. Partial bullish positions can be taken here, but don't go full position all at once. Keep some powder dry for pullback entries, and I'd be cautious of FULL positions in ANY index trade until we get some information on how things look with Iraq.
Today's action saw a net gain of 4 stock to reversing higher point and figure buy signals. This has the NASDAQ-100 Bullish % rising to 44% and still in "bull alert" status. It would currently take a reading of 68% to achieve "bull confirmed" status, while a reversal lower to 38% would be needed to reverse back into "bear confirmed" status.
Pivot Analysis Matrix
The "lagging" of the S&P Banks (BIX.X) still has me a bit cautious for the SPX and OEX, and tomorrow morning, early resistance is found at 273 from the MONTHLY Pivot, WEEKLY R1 and DAILY R1. Lots of staggered support levels for both shorter-term traders and swing-traders. For example, early support for Dow/DIA trader might be to have alerts set at DIA $81.83, then assess weakness if violated to Dow Industrials 8,055. NASDAQ-100 looks to have support building in the matrix at 1,070 and would be used as support by those bulls that are perhaps overly aggressive right now, to then look to lighten up should that level be broken to downside.