Target of opportunity is there for the bulls
We've talked in rather great detail about looking for Dow Industrials (INDU) 8,069 +0.97% support near 8,000 and if bulls have a target of opportunity to stage a rebound that could build legs, then tomorrow's the day I'd look for the "first strike."
The major indexes shrugged off some early morning economic data that had the March ISM Index coming in below expectations with a reading of 46.2%. While economists had forecast a 49.0% reading, which would signal contraction in manufacturing activity, the markets seemed to treat the news as if it could be explained by corporations delaying any type of increased production as a buildup to war with Iraq was in the making.
The major indexes were showing marginal gains when later in the session, an expected "live" appearance by Saddam Hussein on Iraqi television had a government official, not Saddam, addressing the people of Iraq. The "lack of Saddam" fueled stocks gains with about 90-minutes left to go in trading to their best levels of the session.
Then, as if "war with Iraq" isn't enough to keep a number of trading scenarios in play, news that an American Airlines flight from Tokyo was being quarantined on the tarmac at San Jose's airport after five people on board complained of symptoms like those of the mysterious new illness spreading through Asia, sent bond bears running (YIELDS falling) and stocks falling into the 03:00 PM EST hour. With 10-minutes left to go in today's equity trade, news from the Santa Clara County Public Health Department that the plane, or passengers on board had been briefly quarantined, but new of the lifting of the quarantine gave stocks a lift back into their close.
Tomorrow's pivot matrix is "fascinating" and if I didn't think that Dow 8,000 was an important level, or level of focus, then tomorrow's pivot matrix and correlations found at/near this level is once again some type of reiteration of that fact.
While the decline in the 10-year Treasury YIELD ($TNX.X) from 3.80% to 3.827% in the last 40-minutes of its trade wasn't alarming, I will say that the bond market's reaction was most likely due to the news that the American Airlines flight and passengers aboard had been quarantined. It wasn't until approximately 03:40 PM EST (40-minutes after the bond market closed) that Santa Clara County health officials lifted the quarantine.
Pivot Analysis Matrix
The "bullish" side of me grew more bullish as the session progressed today, mostly due to the 10-year YIELD moving above the 3.83% level, after bond traders didn't appear that "defensive" after this morning's weaker-than-expected ISM Index data. When Saddam Hussein was a "no show" on Iraq TV, the 10- year YIELD saw further selling and rose to a session high of 3.883%, which is tomorrow's DAILY R1. With the 10-year YIELD ($TNX.X) closing just below correlative DAILY Pivot and MONTHLY pivot of 3.83%, look for a move above that YIELD level to signal strength for stocks, if not support at tomorrows DAILY S1 in the index. With stocks having a bit of a "head start" on Treasuries with no news of a quarantine in effect, the 10-year YIELD did trade tomorrows DAILY R1 of 3.880% today, and that have the indexes being able to trade similar levels at that point. (Note many of today's index highs with tomorrow's DAILY R1s).
I've placed a "dashed red box" around the 10-year YIELD of 38.30 or 3.83%. I view this as EARLY YIELD resistance. I've placed a "pink box" around the 10-year YIELD (DAILY R1) as this level was closely traded today when the 10-year YIELD traded a session high. I'm thinking of this as a level, if broken to the upside, say 38.85 then gives way to correlative YIELD resistance of 39.30 or 3.930% at WEEKLY pivot and DAILY R2.
It will be this YIELD correlation that I follow closely tomorrow, and would look for all of the correlative supports among the indexes in the DAILY and WEEKLY levels to be a level of support, that now becomes a bulls "target of opportunity" to make a statement that a rebound back to the recent highs is in play.
Dow Industrials Chart - 50-point box
I like a bullish trade for new entries in the Dow Industrials (INDU) at current levels, or a break above today's high at 8,101. I'd also look for selling in Treasuries and rise in 10-year YIELD ($TNX.X) for sign of cash freeing up from bonds to help drive index price action. When the Dow Industrials traded 8,500 the very narrow Dow Industrials Bullish % ($BPINDU) was at 40%. The Dow has pulled back to 7,950 and shows a 3-box reversal high and the Dow Bullish % is still 40%. The decline in price, but holding steady of bullish % is "bullish divergence."
Since the Dow Bullish % is very narrow, I'm also observing that when the Dow traded 8,500, the broader S&P 500 Bullish % ($BPSPX) was 41.2%. Today, the S&P 500 Bullish % saw a net gain of 2 stocks to reversing upward p/f buy signal and grows to 42%, which is the highest reading so far for this indicator. While the major indexes have been in decline the past week, the internals have still been slowly improving with some net gain of p/f chart "buy signals."
Do you see from the above chart, how some "uncertainty" may have been removed today as it relates where to place a stop? Bulls now have some type of supply/demand technical stop from which to measure risk too, which they may not have had unless using the pivot levels. Bears begin assessing risk to weekly pivot of 8,255, then WEEKLY R1 of 8,405 and finally the 8,550 level or higher.
S&P 500 Index (SPX) - 5-point box
Look for selling in Treasury with 10-year YIELD above 3.83% and go long the SPX. Stops just below 850.50 or 849 for very risk averse, or MONTHLY pivot of 844, which was recent decline low found on Monday, or point figure chart stop of 840.
Per our March 18th Index Trader Wrap http://members.OptionInvestor.com/Itrader/marketwrap/iw_031803_1.ASP and historical look at Operation Desert Storm. S&P 500 Index recent pullback from 895 to Monday's low of 843.68 is/was a 5.7% decline. Similar type of action as found back in 1991, with one major difference. Coalition forces have not yet liberated Iraq as they had liberated Kuwait when SPX shot higher in 1991.
S&P 100 Index (OEX) - Daily Interval
With our new WEEKLY (blue) and MONTHLY (red) pivot analysis retracement overlaid, it certainly appears that the OEX may have finished Monday's session right in a "zone of support," and despite some weak economic data found bidders in the 430-429 level. We can imagine that the OEX is like a "rocket" and for that "rocket" to gain altitude and push through last week's overhead supply its going to need some "fuel," which could only come from selling in Treasuries.
I didn't show the CONVENTIONAL retracement on the above chart as some feel "too many retracement levels" gets too confusing. However, 50% retracement from conventional retracement is at 437.87 and at current OEX levels of 435, would be a level of resistance that may make for a less "attractive" entry here. However, a pullback near 432.50 then adds a little more upside and reduces some risk in a bullish trade. Stochastics are "oversold" and MACD is just about to cross below the signal line. While the MACD action says "caution" look for the OEX to firm at 430, rebound and MACD to "kick higher" above the zero level. MACD crosses below signal that come BELOW the zero level are much more BEARISH than MACD crosses below signal that come from above the zero level.
Today's action saw no net change in the S&P 100 Bullish % ($BPOEX). Still "bull alert" status at 43% for the eighth consecutive session.
NASDAQ-100 Index (NDX) - Daily Chart
I'm not sure if the "high beta" trade that some fund managers had been playing before the onset of war with Iraq has been abandoned, or if some of the weaker economic data that I've thought had technology stocks being some of the last to benefit in the early stages of economic recovery is once again come to the market. I really like a risk/reward bullish trade in the NDX, but would follow with a tight stop just under Monday's lows of NDX 1,104 or QQQ $25.21 (give a little fudge factor room). Dow, SPX and OEX bulls wouldn't mind at all if the NDX catches some fire, while a break below Monday's lows without some selling in Treasuries would certainly damped thoughts of a rebound.
For me... in a still "uncertain" market environment, I'm in NO WAY betting the house on the NASDAQ-100. Traders do not need to either with the higher beta and volatility. Look for strength above 1,025 and that strength to build above WEEKLY S1s of NDX 1,036 and QQQ $25.76.
Today's action saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Still "bull alert" status at 49% for the sixth straight session.