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Index Wrap

Lower lows, but a similar close

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Lower lows, but a similar close

The major indexes shrugged off some morning weakness to battle back into positive territory as President Bush and Prime Minister Blair met at Camp David with both leaders of coalition forces saying they would not be swayed from the campaigns goals and President Bush saying the war in Iraq will last "however long it takes to achieve our objective."

Traders appeared cautious for a fourth-straight session as volume levels at both the NYSE and NASDAQ remained rather moderate. NYSE volume was light at 1.20 billion shares, marking the third lightest trading volume this month. NASDAQ volume showed a little more interest as it reached 1.4 billion shares, which was the heaviest trade volume this week, but well off Friday's 1.78 billion mark.

As the major indexes finished fractionally lower, market internals finished flat. The NYSE finished with marginally positive breadth (advancer:decliners) at 17:14, while NASDAQ breadth was even at 15:15.

The number of new highs versus new lows at the NYSE showed little directional change with 37 stocks trading a new 52-week high compared to 36 stocks achieving new 52-week lows. However, NASDAQ recorded its second-best reading for this breadth indicator for March, with 79 stocks trading new 52-week highs compared to 35 stocks having traded a new 52-week low. On Friday, NASDAQ reported new highs versus new lows at 94:37.

Notable 52-week highs on both exchanges along with sector association had Hi-Tech Pharmacal (NASDAQ:HITK) $22.56 +5% (drug), Barr Labs (NYSE:BRL) $57.80 +0.66% (drugs), Brookfield Homes (NYSE:BHS) $13.21 +2.96% (building), Western Digital (NYSE:WDC) $9.24 +7.8% (computers), Gilead Sciences (NASDAQ:GILD) $43.00 +6.12% (biomed), Celgene (NASDAQ:CELG) $27.17 +4.25% (biomed), Acres Gaming (NASDAQ:AGAM) $7.16 +5.91% (gaming), Apollo Group (NASDAQ:APOL) 51.97 +1.94% (business products), Concord Career Colleges (NASDAQ:CCDC) $15.97 +3.9% (business products), University of Phoenix Online (NASDAQ:UOPX) $44.65 +2.5% (business products), Royal Bank of Canada (NYSE:RY) $39.82 +1.09% (banks), Equity One (real estate) and First America Corp. (NYSE:FAF) $23.65 +2.46% (insurance) perhaps seeing buying as mutual fund managers dress up their portfolios as the second- quarter comes to an end.

Notable 52-week lows with sector association had Argonaut (NASDAQ:AGII) $9.39 -7.2% (insurance), Allianz AG (NYSE:AZ) $5.54 -5.13% (insurance), Chateau Communities (NYSE:CPJ) $19.18 +0.15% (real estate), Robert Mondavi (NASDAQ:MOND) $21.63 -5.83% (food/beverage), State Street (NYSE:STT) $31.65 -2.79% (banks), AK Steel (NYSE:AKS) $3.37 -2.6% (steel), C&D Technologies (NYSE:CHP) $12.02 -0.98% (electronics) all seeing some last minute end of quarter window undressing by fund managers.

While the major indexes finished fractionally negative today, Treasuries also saw somewhat of a mixed session, with a late round of buying into their close keeping YIELDS in the red.

A level that traders might keep an eye on tomorrow in the 10-year YIELD ($TNX.X) 3.924% is a YIELD trade above 3.954%.

10-year YIELD Chart - Daily Interval

In today's market monitor, I tried to remain calm (as a bull) when the major indexes moved into positive territory. My only reason for doing so was that I just wasn't seeing the "confirming" selling and technical break of the 10-year YIELD ($TNX.X) above 3.954%. While a bull can remain calm in the major equity indexes, bears that have been holding short for a couple of weeks and held through Friday's surge may not be as calm and more eager to cover on the pullbacks. In a way, this is exactly what an index bull like myself will be trying to utilize when looking for pullback entry points. Right now, in the back of my mind, I'm "aware" of a head/shoulder top pattern in the 60-minute bar chart of the 10-year YIELD, with a downside YIELD objective of 3.7% and I want to remain somewhat cautious an only looking partial position bullish on the pullback entry, just in case YIELD does fall that far to the downside. In essence, a 3.7% 10- year YIELD is currently this bull's "worst-case scenario" type of buying in bonds that would threaten an index bull looking for pullback entry.

Tonight I want to show a 60-minute interval chart of the Dow Industrials (INDU) 8,201 -0.34%, with the WEEKLY (blue) and CONVENTIONAL (pink) retracement brackets overlaid. Hopefully we can see how some of these retracement levels are being traded.

Dow Industrials Chart - 60-minute intervals

The INDU found support this morning from 8,099-8,120 zone and I mentioned this as an area to look for "firming" in this morning's market monitor at 09:57 AM EST when my alert at 8,210 was triggered (you can set alerts at retracement levels with q- charts). That support makes some sense as it was the first real "zone of support" using the CONVENTIONAL (pink) and WEEKLY (blue) retracement levels. While YIELDS didn't peg their lows of the session into their close, I think we may still look for a somewhat "defensive" trade into the weekend as traders situate themselves to watch TV and war events in Iraq this weekend, gather some information for a fresh start next week.

Right now, I really don't have a "problem" with a bullish entry pullback point of 8,050 for those Dow traders that can't watch things closely on an intra-day basis, but I also think a "best" pullback entry point would be found between 7,816-7,902.

I may be "splitting hairs" with these two points, but are the levels from retracement that I'm looking at. Don't forget! The Dow Industrials (INDU) point and figure chart gave the double-top buy signal at 8,000, and that's where DEMAND really started outstripping supply. This 8,000 level or very close to it, should find buyers.

If that little "zone of support" was the pullback entry point, then so be it, but for technical strength, I'd want to see a trade above 8,338. When reviewing tomorrow pivot matrix at the bottom of tonight's Index Wrap, note that tomorrow's R1 is 8,267 and R2 is 8,333. Here I'm trying to make the correlation for resistance at 8,333.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull alert" at 40%.

S&P 500 Index (SPX) - Daily Interval

Using the same CONVENTIONAL and WEEKLY pivot retracement techniques as that above in the Dow Industrials, we see the SPX dipped back into a "zone of support" from 856-861 this morning and held that level. Remember here too, that the SPX point/figure chart generated a triple-top buy signal at 855 and that was a level that BEARS that were short prior to the rally did NOT want to see the SPX trade. While I would ideally look for a bullish entry near 850 pullback, I do think there's going to be buyers at/near current levels. Wednesday's high was 875.80 and if the SPX makes a move above that level, with Stochastics now approaching "oversold" levels, I'd look long/call the SPX on that break higher. First target would be the recent relative highs of 895.

Do you remember that "funky" conversation we had the other day regarding the relative strength chart of the Dow Industrials (INDU) versus the 10-year Treasury PRICE ($UST)? That conversation took place in the March 20 wrap at this http://members.OptionInvestor.com/Itrader/marketwrap/iw_032003_1.ASP . I'm still monitoring these relative strength comparison charts in an "experimental" basis and you might want to do the same. Right now, the relative strength chart of the $INDU vs. $UST would show a RS buy signal at the RS 8,150 level. Tonight I looked at a $SPX (S&P 500) vs. $UST relative strength chart, and it would have a RS "buy signal" at 860 (5-point box size). I'm taking note of this with the SPX having traded a low today of 858. Anyway... I'm still following this type of relative strength observation between equity index prices and the 10-year bond's price. The observation right now is that we was a major shift take place and selling in bond with cash flowing to equity, and so far this week, we've seen the RS charts reverse back into O, which indicates a slight shift back toward bonds from stocks. However, the pullback in stocks (aside from Monday) has been gradual, as if equity bulls and perhaps some "old bears" are accumulating stocks.

Since the bar chart of the SPX looks very similar to the S&P 100 Index (OEX.X) 441.01 -0.23%, lets look at the OEX's chart, but this time with the MONTHLY and WEEKLY levels of retracement.

S&P 100 Index Chart - Daily Interval

The OEX's WEEKLY pivot of 444.31 has been serving resistance for the most part the last three sessions and tomorrow's DAILY R1 of 444.8 adds another short-term correlative level of resistance. Therefore, for any type of bullish entry point on a rally, I'm using Wednesday's high of 445.43 as an upside action point, and I would think some bearish trader short/put below 435 where the OEX's p/f chart triggered the triple-top buy signal (5-point box scale) that have seen 455 might be doing the same. Still, I'd like to get a pullback bullish entry point closer to 431.

Some traders may wonder why I'm not thinking "short OEX here, and target 431" if I'm looking for a pullback. The reason, at least for me, is that the bullish % are in a more bullish phase and I prefer not to short/put a more bullish phase.

Today's action saw no net change in the S&P 100 Bullish % ($BPOEX). Status remains "bull alert" at 43% and this indicator has been reading 43% bullish for 5 consecutive sessions now.

NASDAQ-100 Index (NDX.X) - Daily Interval

I'm making a couple of notes tonight that give hint of strength for the indexes, if not the NASDAQ-100 (NDX). I'm "impressed" that the NDX hasn't given up Monday's lows and while I'm not a "huge" oscillator trader, I do note that the NDX's chart shows that Stochastics are trying to recover as they near "oversold" levels. Since it has been our observation that the NASDAQ-100 Index (NDX.X) has been a stronger sector, I'd use the slight recovery in the Stochastics, compared to the other indexes Stochastics which have yet to show sign of recovery as an alert to strength. I think we can really see how "formidable" support should be found at NDX 1,020, and this is a level we discussed as resistance, that if broken to the upside was a major bullish move for the NDX. As such, I view that has FORMIDABLE support. I like a pullback entry of 1,040, using 1,020 as a "safety net" of support.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) remain unchanged at 49%. Still "bull alert." After Monday's session, the NASDAQ-100 bullish % was 48%, but over the past three sessions has stayed at 49%. The internals seem to reflect the outward appearance don't they?

Here's a quick look at the pivot analysis matrix. Wow! look at the NDX correlations for tomorrow that shows up in the DAILY/WEEKLY/MONTHLY with support 1,040 and resistance 1,070. Remember though, I have to change the WEEKLY pivots after tomorrow's close and these levels of correlation may go away, but I'm taking notes. I will also change the MONTHLY levels after tomorrow's trade, even though it isn't the end of the month. However, I will also run another MONTHLY at the close of Monday's trade, just to see if we might not want to use those levels with any correlations being found in the WEEKLY.

Pivot Analysis Matrix -

The NDX levels are most correlative, and as an index trader, especially a bullish index trader, I would look for the NDX to be the "first" to hold a support level, or break a resistance level. It is a bit of a "tough trade" to put on a position ahead of the weekend when we can watch the news over the weekend and make a better decision on Monday, but we all should know the risks.

For a bull, about the only "risk" I see right now with not putting on a trade over the weekend is if the NDX were to trade 1,040 tomorrow, not buy a partial bullish position, then the coalition forces find some type of major success over the weekend and stocks gap higher and make their move. The best way to continue to trade in my opinion is to keep positions rather small and build on strength, and cut back on partial bullish positions when targets are achieved on the upside, or when account management on weakness dictates that some cash be raised.

Jeff Bailey

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