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Index Wrap

Has the war trade run its course\?

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Twice this week, starting on Monday, we've seen selling into "good news" on the war front, which has many traders now thinking that the good news and a coalition victory in Iraq has run its course.

This may be true to a point, but "reports" that Saddam Hussein had sought refuge at the Russian embassy in Iraq is what sent the major indexes to their highs of today's session, and while the toppling of a statue lifted market psychology just prior to this morning's open, it was the thought of a Hussein surrender that had stocks looking to rebound later in the morning. When Pentagon officials denied the rumor, which was reported as "fact" by Al-Jazeera (quickly becoming a tabloid-like news service in the Middle East), the Pentagon denial marked the top of today's bullishness for equities and losses for Treasuries.

While the Al-Jazeera false reports seem "silly" now, it was notable that several buy program alerts were received just prior and during these reports as the SPX jumped from 878-886 over the course of 30 minutes.

Still, there were willing sellers into the strength and support levels in the pivot matrix traded to the downside. Treasuries found buyers and gives the major indexes a "defensive" look as economic data released later this week and corporate earnings season just beginning now looks to capture a traders attention.

With that said, technology stocks took some downside heat today with Biotechnology (BTK.X) 331 -2.56%, Computer Technology (XCI.X) 504 -2.6%, Software (GSO.X) 101 -2.01%, Semiconductor (SOX.X) 298 -1.64%, Internet (INX.X) 100 -2.5%, Disk Drive (DDX.X) 74.33 -1.32% and Networking (NWX.X) 144 -1.87% helping the NASDAQ-100 Index (NDX.X) 1,023 -2.17% and NASDAQ-100 Tracking Stock (AMEX:QQQ) $25.46 -2.3% to close well below their weekly pivots. If anything, today's trade in technology hints that equity bulls have "lost" their aggressive edge and perhaps focusing on forward guidance and some type sign that capex spending will increase in the quarters ahead with some visibility from Iraq now being present.

While weakness in technology sectors weighed on the NASDAQ-100, early gains in financial and steadiness in retailing sectors faded as the session progressed with both the banking indexes (BIX.X) 269.70 -1.7% and (BKX.X) 269.70 -1.62% along with Brokers (XBD.X) 398.8 -1.7% and Insurance (IUX.X) 242.4 -1.09% giving a clean sweep lower for the financials.

Retailers as depicted by the S&P Retailing Index (RLX.X) 282.3 -1.8% were pushed lower from a morning high of 289.50. If any of tonight's after-hours reports from Hot Topic (NASDAQ:HOTT) $21.71 -2.3% that same store sales fell 3.1 in March, or Nordstrom's (NYSE:JWN) $16.10 -1.7% same store sales for March falling 1.7% can be offset by Christopher & Banks (NYSE:CBK) $21.17 -2.35% beating estimates by a penny on revenues that rose 15.2% year- over-year, then perhaps there Friday's March retail sales report and preliminary Michigan Sentiment for April will give traders further look as to what the consumer has been doing the past several weeks.

While I'm not an economist, it would be my thinking that retailers will complain that "war on TV" garnered much of the consumer's attention the past couple of weeks. What will be more important is any late-month trends that developed, or didn't develop in what many expect to be a rather lackluster economic environment.

Friday's economic data will give traders a view of the consumer's spending habits and mindset for March, but lets not forget tomorrow morning's release of weekly jobless claims for the week ending April 5th (consensus 425,000) along with some "global" data from March Export/Import prices and February Trade Balance.

Here's a look at the pivot matrix. Per last night's Index Wrap, the NASDAQ-100 Index did indeed fill its gap to the 1,033 level and then some, and becomes the first equity index to once again look to retest its MONTHLY pivot of 1,021.7, which is just 2- points away.

Pivot Analysis Matrix

Today's trade now builds multiple correlative levels of resistance between the DAILY and WEEKLY levels. One of the few trades I saw to the downside today was late in the session at approximately 3:31 PM EST when the Dow had caught a slight bid back to the 8,270 level (8,276 was 38.2% retracement from WEEKLY) which had been a late-morning level that was broken to the downside then served resistance. The observation that the 10- year YIELD ($TNX.X) 3.901% had closed near its weekly pivot would have given about 100-point of downside action and traders did their best to try and close that difference into the close.

I've highlighted in "pink" the Dow Industrials (INDU) WEEKLY S1 level of 8,025. This goes back to an observation made in Friday evening's market monitor when we compare the prior two-weeks pivot matrix's and this WEEK's matrix. This is a level that showed up in this type of matrix comparison and offered good bullish entry on the 03/28 pullback to 7,929, or move back higher and through the 8,025 level on Monday, 04/01/03.

With the NASDAQ-100 Index (NDX.X) looking like a bit anemic, bulls looking for pullback bullish entries in the major indexes might feel more "comfortable" with the Dow, that the more heavily tech-weighted NASDAQ-100.

Let's take a quick look at the Dow Industrials p/f chart. This is the only index that I have personally traded from the bullish side in swing-trade fashion, and I am more "comfortable" with buying it on the pullbacks or strength than the other indexes. Yes, when I hold a bullish trade in it, I'm going to be stuck with a stock like AT&T (NYSE:T) $14.67 -2.91% that traded a new 52-week low and multi-year low today (my history isn't that good and this may be an all-time low).

Dow Industrials Chart - 50-point box

Yesterday we noted the "double-top" in the Dow's bar chart and it certainly shows up in the point and figure chart. I've placed the WEEKLY S2-R2 levels on the point and figure chart, which gives a look similar to retracement. In last night's Index Wrap, we discussed a "zone of support" from 8,085 to 8,120 as a "safety net" of support if the Dow broke below its WEEKLY pivot of 8,180.74. For best risk/reward in a Dow bullish trade, and with the NASDAQ-100 threatening its MONTHLY pivot again, I just don't see a good bullish entry at current levels and would prefer to "take my chances" as close to 8,025 as possible, which would have the Dow's p/f chart filling O's down to 8,050 and a stop at 7,900, which would be a double-bottom sell signal. I know for a fact that the Dow has traded its WEEKLY R1 of 8,432 and higher at 8,500 twice before.

Now... I received an e-mail from a trader that may have also bought and still holds September $80 calls in the DIA or DJX and wants an update as to my September DIA price objective from prior bullish profiled of $77.50 (before DIA fell to $75) and then again on the upward move through $80. My longer-term price objective would be the bullish vertical count of $106 for the DIA, which would only be negated should the DIA trade $79.00, which is nearly identical to the Dow Industrials chart above, would be a double-bottom sell signal at 7,900.

Today's action saw no net change in the Dow Industrials bullish % ($BPINDU). Status remains "bull alert" at 43.33% bullish.

S&P 500 Index Chart - Daily Interval

The SPX broke our aggressive upward trend and this most likely has short-term bulls expressing caution. I'm leaving this short- term trend in place, as it may come in handy on a rally back higher should the market respond positively to any of this week's economic data. While this sounds "crazy" traders that can look at an intra-day chart of the SPX will see how this aggressive upward trend served as resistance today when broken and the SPX tried to edge up from its WEEKLY pivot of 869.50.

It not "funny," but it is interesting how the SPX sold off from the 895 level a couple of weeks ago, just after the coalition moved into Iraq as they met Iraqi resistance on their way into Baghdad. At that time, the thought became.... "prolonged war" that would further harm the economy and they hadn't even come up against Iraq's more formidable troops near Baghdad. Today, we watch U.S. troops along with Iraqi citizens in Baghdad's town square tearing down a statue of Saddam Hussein.

I'm still bullish the SPX, but only above the 853 level, and I think that should hold support into Friday's retail data. If the market was concerned a couple of weeks ago that a prolonged war would be further drag on the economy, then lets try and put that behind us. Today's trade in Treasuries is near-term defensive as is the break of aggressive upward trend.

Bulls need to see some selling in Treasuries, and with the "war trade" looking to be a thing of the past, then the catalyst for selling in Treasuries would have to come from a positive market response to upcoming economic data. The first place to start is tomorrow morning's weekly jobless claims data.

Today's trade saw the S&P 500 Bullish % ($BPSPX) see a net loss of 2 stocks to reversing lower point and figure sell signals. This has the bullish % slipping back from it highest reading of 48% to 47.6%. Still "bull confirmed" and would need a reading of 42% to reverse back lower into "bull correction" status.

S&P 100 Index chart - 2.5 point box

The OEX did close below its WEEKLY pivot of 441.50. I've marked the correlative DAILY S2 and WEEKLY S1 of 432.50 on the chart, and this would make for a good risk/return type of entry point for bulls, with a stop just below at 425. This is the "unconventional" 2.5-point box where we introduce a little more noise into the chart. The pattern of higher highs and higher lows should keep bulls interested, but its the institutional bulls that need to do some selling in Treasuries pretty darned soon to raise some cash to do the buying if they're looking for an economic rebound with a little better visibility coming out of Iraq.

Today's action saw a net loss of 2 stocks to reversing lower point and figure sell signals in the S&P 100 Bullish % ($BPOEX), so this tells us the two stocks in the S&P 500 that gave sell signals were larger caps of the OEX. This has the OEX Bullish % slipping to 45% from Tuesday's high reading of 47%. Still "bull alert" status and would take a reading of 40% to reverse back into "bear confirmed" status. Risk averse bulls could place a stop just under the rising 21-day SMA (Avg on the above chart) at 437.50 to take out any downside test of WEEKLY S1, or keep a conventional stop on the p/f chart of 425.00, which if traded, I would think the bullish % would be reversing lower.

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

I've got more bad ticks in my QQQ chart that have the bars looking funky, than I can count. The DAILY/WEEKLY matrix has correlative resistance showing up in tomorrow at the 1,045-1,048 area. I'm wondering how that could possibly come into play. All I can think of is something from tomorrow's economic data.

Tomorrow's time frame has all economic data being reported before the market opens at 08:30 AM EST. Index traders would be WELL SERVED to monitor the NDX as it looks to be the index that is more "oversold" or lower in the matrix that the other indexes. The NDX has found support at/around the 1,018 level in mind- March, then again in late March and looks to be in play yet again. If the MARKET truly believes in some type of recovery in capex spending on "clarity" from Iraq, then it looks to be tested again tomorrow.

The most BULLISH scenario for bullish buying would come from a WEAKER THAN EXPECTED economic reports, the NDX to hold firm at/near 1,018, and then see SELLING in TREASURIES and a rebound to form in the NDX and other indexes.

Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) remain unchanged at 57%. Still "bull alert."

Jeff Bailey

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