Option Investor
Index Wrap

March was a "lambion"

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Volatility was the keyword for March and it looks like the month of April may hold a similar trade as many of the major indexes finished the month with fractional gains after seeing declines early in the month surge higher as a bullish wind fueled a powerful 7-day rally gust, only to have a bull's kite string go limp as thoughts of a drawn out war with Iraq creates an eerie "calm before the storm," as coalition forces approach Badhdad.

With the last day of March under a trader's belt, institutions have done the bulk of their portfolio window dressing for the quarter and traders have new MONTHLY levels to assess. If you thought last month's S2-R2 ranges hinted of potential "volatility," then get a load of this month's ranges.

Pivot Analysis Matrix -

While the major indexes never traded in positive territory today, an afternoon rebound held promise for bulls that had been waiting patiently last week to look for bullish entry points at the WEEKLY S1 levels of support, but a gust of "bearish wind" into the close drove the major indexes back below their WEEKLY S1's as a dose of weakening economic data and concerns over a spreading SARS virus, which has claimed 49 lives in Asia, with 59 reported cases and 0 deaths here in the U.S. left the major indexes near their lows.

Today's action saw the S&P Banks Index (BIX.X) 264.02 -1.90% hold above its WEEKLY S1 of 264.20, until the final 10-minutes of trade when yet another "sell program" premium alert for the S&P 500 Index sent the BIX.X to a session and closing low.

Closes I really didn't like to see at today's end was the NASDAQ- 100 Index (NDX.X) 1,018.66 -2.68% below its WEEKLY S2, and MONTHLY pivot. While the NDX did trade below its conventional 38.2% retracement of 1,017.99 on an intra-day basis, it did manage to hold a close just above that level. However, further deterioration below this level would be viewed negative, and from a technical basis, this isn't something an equity bull wants to see from a major index that had been showing some leadership in recent weeks.

NASDAQ-100 Index Chart - Daily Interval

The NASDAQ-100 Index (NDX.X) is now at a rather critical support level of 1,018, which is best marked by CONVENTIONAL (pink) retracement. This was a level of past resistance, that when broken to the upside two weeks ago, saw a continuing surge higher. With the NDX closing below its WEEKLY S2 of 1,024.50, this is a bearish close, and index bulls need a rebound tomorrow and preferably above the WEEKLY S1 of 1,035. A break below today's lows would have me assessing downside to 975-985.

Today's action saw no net change in the NASDAQ-100 Bullish % ($BPNDX), which remains "bull alert" at 49%. While I haven't looked at all 100 stocks, those that gave reversing upward point and figure "buy signals" from the lows of 30% on March 12th, are undoubtedly getting close to reversing "sell signals" and bulls want to see selling in Treasuries tomorrow, and a rebound in technology.

One sector that technology bulls need to see a rebound from is the Semiconductor Index (SOX.X) 296.27 -4.4% as it fell back below its trending lower and longer-term 200-day SMA of 310 and shorter-term upward trending 21-day SMA of 305. The trying to round flat 50-day SMA of 291 is moving average support, but if that's broken, then upward trend of 278 becomes a last line of defense.

In today's 01:00 PM Intra-day update I showed a chart of the Dow Industrials (INDU) 7,992 -1.88% with CONVENTIONAL (pink) and WEEKLY pivot analysis retracement (blue) overlaid, with correlative support of 7,995-8,001. Let's take a look at the Dow's chart with just the WEEKLY and MONTHLY pivot levels.

Dow Industrials Chart - Daily Intervals

I was bullish the Dow Industrials (INDU) today after this index recovered from its morning lows and was able to break back above the 8,000 at 8,017. While a bullish trade in the DIA may not be for everyone, I'm currently holding somewhat of a "neutral" trade near-term. On Friday, I didn't like the bond market action and profiled in the Market Monitor a bearish trade in the DIA May $82 puts (DAVQD) from $3.40. In my mind, that gave me and perhaps other traders a "cushion" to trade bullish in the DIA at the pullback of Dow 8,000. I decided on the September $80 calls (DAVIB) and was filled on 1 contract at $5.20.

For me, this type of trade reflects my "opinion" on the markets being near-term "uncertain." While if fully believe the coalition will unseat Saddam Hussein, I'm also aware that a "lingering" war with Iraq will create market uncertainty, and probably stall an economic turnaround.

I really do wish I could say for certain which way the markets will trade so I could be ENTIRELY on one side of things (bullish or bearish). However, each day seems to bring some type of news that impacts trading. For now, I am looking to hold my DIA put below Dow Industrials (8,517) and my DIA call above 7,840.

Therefore, I'm forced to say at this point that I view the Dow somewhat range bound from 7,840-8,160. Yes, that seems like a "big range," but I think we're in for some VOLATILITY.

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

S&P 500 Index Chart - Daily Interval

Best levels of the afternoon came at SPX 858 and that will be a "first" test for any type of renewed bullishness in the SPX. I didn't get a single "buy program premium alert" today, but when reviewing the $PREM.X on 5-minute bars, count approximately 13 sell program alerts. The "final" sell program of the day came with about 15-minutes left to go in trading and must have been a "whopper" as that was the one that had the S&P Banks Index (BIX.X) trading a session low and its WEEKLY S1. Similar to Dow 8,000, I'm looking for support to hold at SPX 850. If the session lows of today are lost, then SPX becomes vulnerable to 840-835.

While the SPX continues last week's decline, the S&P 500 Bullish % ($BPSPX) stayed unchanged for a 4th consecutive session at 41.6%. Still "bull confirmed."

S&P 100 Index Chart - 2.5 point box

It has been awhile since we've looked at the "unconventional" 2.5-point box scale of the OEX p/f chart. The recent pullback to 430 is nearing the "apex" of a triangle similar to what we would see in the Dow Industrials p/f chart (50-point box). I'm looking for demand to kick back in on this pullback, but would view a break much below the 422.50 level as potentially negative as the move above.

Today's action saw no net change in the OEX Bullish % ($BPOEX). Status remains "bull alert" at 43% for the seventh straight session.

Key tomorrow I think will be Treasuries. Equity bulls need SELLING. The first level in the 10-year YIELD ($TNX.X) for selling that may trigger some asset shift back toward equities is most likely a move back above 10-year YIELD of 3.83%, which is above the DAILY pivot of 3.825% and MONTHLY pivot of 3.83%. We'll get a read on this before equities open for trading.

Jeff Bailey

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