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Index Wrap

Bull's defended where they had to

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It wasn't "pretty," but bulls dug in and defended a key level of index support in the NASDAQ-100 Index (NDX.X) 1,033 +0.93 and managed fractional gains after a session that started out mixed and began to look lower found selling in Treasuries, which also came from some key near-term support levels.

The question still to be answered with the "war trade" looking to have run its course, is if the MARKET will hold a bullish tone on thoughts of a rebound from a depressed consumer after tomorrow's release of March retail sales and April's preliminary University of Michigan Sentiment.

If today's 5.5-point gain and 1.95% rise in the S&P Retailing Index (RLX.X) is the MARKET's ways of tipping its hand toward a bullish response for March retail sales, then today was a good test as a spattering of lackluster same store sales (stores that have been open at least one year) from various department stores found mixed results, but all total, had the retailing index recouping all of yesterday's losses to close fractions above Tuesday's close of 287.55 at 287.86. Many retailers that reported weak same store sales blamed spotty weather patterns and negative impact of the U.S.-led war on Iraq on "shopper's psychology," as reasons for lackluster results.

In my constant search for DIVERGENCE, May Department Stores (NYSE:MAY) $20.24 +2.37% said same store sales fell 11%, while total sales fell 9.9% to $1.06 billion. Shares of Target (NYSE:TGT) $31.85 +3.4% said same-store sales fell 2.3%, which was worse than analyst's forecast for a 1.9% decline.

In last night's Index Trader Wrap, we thought the most BULLISH scenario for bullish buying would come from WEAKER THAN EXPECTED economic data, and some of today's action in the retailers on less than spectacular same-store sales data may have BEARS keeping their fingers crossed for some "good news" to bring in some sellers.

There's going to be a lot of attention and comments from analyst's tomorrow morning regarding the March retails sales data and the 09:45 AM EST release of April sentiment. As a trader/investor, I like to "get away" from the sector that has all the news, and perhaps follow another sector that may share some "U.S. economic" ties. Perhaps this is where a trader can get away from some of the volatility or "noise" and get a better feel or witness a "sneak attack" from bulls and bears.

Can you think of a sector that we discuss each night other than bonds, which might give us a reading of the "U.S. economy" or at least the MARKET's perception? How about the S&P Banks Index (BIX.X) 273.95 +1.57%, which came close to recouping the bulk of yesterday's losses like the retailers? While the NASDAQ-100 traded and held an important level of technical support today, the BIX.X has rallied back to a level of technical resistance that looks formidable at 274. Before we look at its chart, lets quickly review the pivot matrix.

Pivot Analysis Matrix

The 10-year YIELD ($TNX.X) seesawed back and forth its WEEKLY pivot of 3.903% for the better part of today's session, but a clean move above yesterday's DAILY pivot of 3.917% was what it took to have stocks firming and building gains into their close. Equity bulls get some potential support from the DAILY S1, which correlates with the WEEKLY pivot as a near-term YIELD support level. My thinking here is that a bond BULL that has put some money into the perceived safety of this Treasury YIELD may pull the plug on his bonds on a stronger than expected retail sales number, considering today's trade in retailers on some awful looking same-store-sales numbers. Trader's should make note of the 10-year ($TNX.X) DAILY R1 of 3.954% as this is the 50% retracement from our conventional (pink) retracement on this bond. This 3.954% should be a significant level of resistance in tomorrow trade, and in my opinion, the MARKET would have to be VERY bullish for this bond to sell off above that YIELD level.

Here's a 60-minute interval chart of the 10-year YIELD ($TNX.X) 3.934% that I showed in today's market monitor. I'm showing it here because I won't meet my deadline if I try and mark up another chart, however, it does a pretty good job of showing the 3.954% level and "zone of resistance" that an index bull like myself would want to see broken to the upside.

10-year YIELD ($TNX.X) Chart - 60-minute Interval

One reason I think we should expect resistance at the 3.954- 3.951% level is this. See that little "b" pattern of consolidation on the decline from the recent highs? See how it broke down yesterday into our "crisscrossing support" then rebounded right back into that "b" pattern? This is a short-term observation of MAJOR disagreement on things, which was resolved to the downside. Now it looks like this bond is going to go back and check what type of conviction remains at that level. I'm guessing tomorrow's response to the economic data is going to be the information that has me wanting to monitor that YIELD level closely.

I want to remember my comments from Tuesday morning when this bond's YIELD jumped above the 3.954% YIELD level after rebounding from the crisscrossing support. I made comments in the market monitor yesterday morning at 09:56:34 AM and then again at 10:13:36 when I said "10-year YIELD ($TNX.X) 3.953% and strong selling coming in on Treasuries. This move looks BULLISH!

From there, Treasuries found selling and the equity indexes faded in step to session lows. I'm not embarrassed to admit yesterday's mistake, but upon review, I have a pretty good feel of what needs to happen from this bond's YIELD to have the major indexes making a move above yesterday's highs and building further gains.

The NASDAQ-100 Index (NDX.X) came within a frog's hair of trading its WEEKLY S1 of 1,017.50, and bears looked "skittish" into the close, perhaps having flashbacks to the April 2nd gap higher to 1,048 after weekend progress in Iraq had been made. Support builds for tomorrow's trade at MONTHLY pivot, WEEKLY S1 and DAILY S1 of 1,017.50 to 1,022 and provides greater significance to the 1,018 level. If this level were broken to the downside tomorrow, I would view it as a rather LARGE negative.

Let's look quickly at the S&P Banks Index (BIX.X) 273.95 +1.57%. One of the reasons we put this sector in our pivot matrix is that it would give us an observations of a financial group with greater exposure to the U.S. economy. The thinking was... if things are going to heck in a handbasket with lots of loan defaults, then many of these regional banks would be punished lower. Conversely, if the MARKET thought "loan quality" might improve or see a pickup, then the MARKET might buy some of these regional banks in advance of renewed economic growth.

S&P Banks Index (BIX.X) Chart - Daily Interval

The first things I saw this evening was how the BIX.X managed to close right at some overlapping levels from our WEEKLY pivot retracement (blue) and conventional (pink) 38.2% retracement. This is a "level" that doesn't necessarily show up in the matrix. However, a break above this level, say 274 or yesterday morning's high of 276 (tie that in with 10-year YIELD of 3.954%) then sets the stage for a rally to build to correlative matrix resistance of 278 (WEEKLY R1 and MONTHLY R1).

Again... I think the banks, much like the retailers give us a look at the U.S. economy, but there's going to be a lot of attention given to the retailing group and there will undoubtedly be a lot of bulls and bears with differing opinions on the sector tomorrow. The BIX.X is a "step away" from the retailers and may provide a "calmer" type of trade.

Now... for those of you that are either trying out a free trial at Dorsey/Wright and Associates and following their "banking sector bullish %" (BPBANK) you'll see that it is still "bear confirmed" and would need a reading of 62% to reverse back up into "bear correction" status. However... also note that a reading of 64% would build to "bull confirmed" status. Banks may be the SECTOR that give SPX/OEX traders a VERY good feel for things in the coming sessions.

I've made note how the rather "aggressive" upward trend on the BIX.X held support better than our aggressive trends in the Dow, SPX and OEX. Traders that are a believer in market theory that financials need to show strength for a market rise, should be keeping an eye on the BIX.X. They look bullish to me, but I'd like to see a beak above 274-275 tomorrow.

S&P 500 Index (SPX.X) Chart - Daily Interval

As I try to think of the SPX as a bunch of sectors made up of banks/financials, retail, healthcare, technology, cyclicals, etc.) I get the impression that the banks are trying to show a little leadership, and that the recent weakness in technology (say the NDX.X) has the SPX looking a little sloppy at its aggressive upward trend, where the BIX.X perhaps not as volatile and trying to flex a little muscle keeps the SPX back near trend and above its 21-day SMA.

For bullishness to build, I'd tie in a 10-year YIELD of 3.954% with an SPX back up into the 879-883 zone and for bullishness to build, have the BIX.X making an overly bullish move to the 278.50 level, which might just have the SPX looking to test its WEEKLY R1.

Again... I think tomorrow's first 90-minutes of trade will set the tone for what we look at next week. Don't forget that retail sales are due out BEFORE the equity markets open for trading (we'll get a read from the bond market as an initial response) and that consumer sentiment comes out DURING market hours at 09:45 PM EST. Retail sales is a backward looking number for March, while the preliminary sentiment is has both current and forward looking data.

Today's trade saw the S&P 500 Bullish % ($BPSPX) see a net loss of 2 stocks to reversing point and figure sell signals as the bullish % slipped to 47.20%. Still "bull confirmed" status and it would take a reading of 42% to reverse back lower into "bull correction" status.

S&P 100 Index (OEX.X) Chart - Daily Interval

We've looked at a weekly interval chart of the OEX before and the loooong-term downward regression channel. I'm showing it here tonight to see if their might be some representation of "old resistance broken" becoming support. It's a little sloppy too isn't it? Still... this might keep some longer-term bears on their toes. I'm going to use yesterday's 2-stock net loss in the bullish % and today's MACD edging just below its Signal to exercise some caution and use the 436-438 "zone of support" as a level from which bulls would look to leverage from as support. Any selling in Teasuries tomorrow after the release of economic data could have the OEX quickly moving to its 200-day SMA (a level that bears are watching for resistance) that might just correlate with tomorrow's DAILY R2 for the OEX. Bulls would be "happy" in my opinion with a close between the 447-449 area as this would have next week's WEEKLY pivot matrix moving higher as a pattern of higher highs and higher lows would be seen.

Today's trade saw no net change in the S&P 100 Bullish % ($BPOEX). Status remains "bull alert" at 45%.

Dow Industrials (INDU) Chart - Daily Interval

The Dow Industrials hovered either side of its WEEKLY pivot today, but I found it encouraging for bulls when the Dow broke the 8,200 level on the 5-minute bar charts and held that level on a closing basis, every decline into the 8,180 level served as support. Based on where the 10-year YIELD had finished at 03:00 PM I tried to forecast a close of Dow 8,200 when trying to compare how the 10-year YIELD had traded during the day and various Dow levels of intra-day trade. Bears may have been a little jittery into the close with a push higher to 8,220.

On Wednesday, the intra-day charts show the 8,276 level being a level that served support on Tuesday and early Wednesday, but when broken to the downside on yesterday afternoon at 12:00 PM EST, that level was "rock hard" resistance. As such, I'm going to make note of this now and tomorrow's DAILY R2keep a close eye on the Dow DAILY R2 of 8,276. This may be a "gravitational" type level for bullishness, but a level of near-term resistance. If the Dow can clear this level to the upside, then bears may rush to cover and help push the Dow back to its 200-day SMA.

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

I'll be watching bond YIELDs closely in the morning, because its going to take some cash to get stocks higher.

I'm late on my deadline. I'll show a chart of the NASDAQ-100 tomorrow morning in the 09:00 Update http://members.OptionInvestor.com/intraday/inupd_4102003_896.asp. I did show a chart of the NDX in today's 01:00 PM EST Update, and at today's close, it looks almost identical to that chart. In my mind, the NDX did what a bull wanted/needed it to do. Show support at a fairly critical level and close right at that 61.8% retracement. I'm still a little "jittery" toward technology and if things get "carried away" to the upside, I'd still look to trade for some profits at WEEKLY R1 if given a chance. Again... I don't have the nerve to buy the NDX and made some bets in individual stocks with a "tech" flavor.

Today's action saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Status remains "bull alert" at 57%.

One thing I also want to mention quickly is the slight increases in the bullish % for the VERY broad NYSE Composite Bullish % ($BPNYA) and NASDAQ Composite Bullish % ($BPCOMPQ). Both have been edging up since their reversals back up into "bull confirmed" status and still shows some broader market bullishness taking place.

Jeff Bailey

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