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Index Wrap

Indexes rally on light volume

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The major indexes recouped Friday's gap higher reversal on light volume as earnings from various banking stocks gave a lift to financials and helped boost the Dow Industrials (INDU) 8,351 +1.8%, S&P 500 Index (SPX.X) 885.23 +1.94% and S&P 100 Index (OEX.X) 449.61 +1.95% back above their 200-day simple moving averages by the close, while the tech-laden NASDAQ-100 Index (NDX.X) 1,048 +2.15% showed some bullish interest from investors after another test of critical support late last week.

Today's rebound came on light volume with the NYSE Composite (NYA.X) 4,956 +1.65% trading just over 1.09 billion shares (lightest volume since February 19) and the NASDAQ Composite (COMPX) 1,384 +1.92% managing just 1.14 billion shares (lightest volume since March 10).

Earnings from banking bellwether Citigroup (NYSE:C) $37.50 +2.89% and Bank of America (NYSE:BAC) $72.00 +0.92% helped give a lift to the KBW Banking Index (BKX.X) 760.19 +2.08% and S&P Banking Index (BIX.X) 278 +1.68% (BAC is a component of both the BKX and BIX), inline earnings from FleetBoston (NYSE:FBF) $25.61 +2.07% and intra-day reversal from a morning low of $24.10 gives hint that some market participants are still looking for pullbacks for "bargains."

I wouldn't say that this morning's upside earnings from StorageNetworks (NASDAQ:STOR) $1.19 +36.78% were "key" to today's rebound for the NASDAQ-100, but a $0.02 EPS (excluding non- recurring items) compared to a consensus estimate for a loss of $0.06, but it may have had some technology-sellers waiting to see what "Big Blue" had to say after the close.

As I write, shares of IBM (NYSE:IBM) $80.07 +1.67% which gained $1.32 during today's regular session, trades $80.45 after reporting earnings of $1.38 billion, or 79 cents a share, which was a penny shy of estimates. John Joyce, the company's chief financial officer, said it had met analyst's earnings estimates in dollar terms, but missed the "per share" number due to an increase in the number of shares outstanding as the company cut back on stock buybacks during the quarter because of the Rational Software acquisition, which closed in February.

"Big Blue" said revenues rose to $20.1 billion from $18 billion a year ago, which was slightly above analysts estimate for $19.85 billion. During tonight's conference call, John Joyce said IBM was on track to meet analyst's expectations for full-year earnings of $4.32.

While IBM's earnings report had the NASDAQ-100 Tracking stock (AMEX:QQQ) $26.03 +2.03% rising to an after-hours high of $26.18, cautious comments from semiconductor equipment maker Novellus (NASDAQ:NVLS) $27.35 that they were "seeing tentative behavior on the part of customers" due to the war and SARS (virus), had the NASDAQ-100 Tracking Stock (QQQ) reversing further gains and settling out near $25.98 in after-hours.

While Novellus reported Q1 earnings per share of $0.08, which beat analysts estimates by a penny, the company said it expects to earn $0.05 per share in its second quarter, which was well below analyst's estimates of $0.09 per share.

In Friday evening's market monitor, I posted this week's pivot matrix, and there were few correlations found between the WEEKLY and MONTHLY levels, but multiple correlations of resistance were found in the DAILY/WEEKLY analysis. Today's action seemed to have the indexes "lifting" toward these levels of resistance and tommorrow's correlations are largely found at what would be deemed intra-day support levels.

Pivot Analysis Matrix

The S&P Banks Index (BIX.X) may be the sector that the major index trader watches closely tomorrow and coming sessions. There are a couple of reasons I think this.

One reason is that today's action saw Dorsey/Wright and Associates "Banking Sector Bullish %" (BPBANK) reverse back up into "bear correction" status from "bear confirmed" at 62.32% and a reading of 64% from here would have the sector achieving "bull confirmed" status. For "bull market theorists" that like to see the financials lead an advance, then a break above the WEEKLY R1 of 279.70 could then lend to further bullishness to 281.40 and with a reverse head and shoulders pattern currently in play on this index, a test of BIX 285.70 might be achievable and help drive the major indexes to the upside.

Can the BIX.X trade its WEEKLY R2 this week? I doubt it, but market volumes are light and the major bullish % charts still show that demand remains in control.

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

In Thursday evening's Index Wrap, we thought the BIX.X might be a good sector to keep an eye on as March retail sales numbers were released. I'm not trading the BIX.X or the BKX.X, but will want to continue monitoring the group. It would be my thinking that for the BIX.X to trade anywhere close to the 285 level and its WEEKLY R2 of 285.70, we'd have to see one heck of a round of short-covering. But it could well be "short covering" in the banks that fuels a rally in the indexes above their WEEKLY R1's, which are levels I think will be difficult to break (above) this week.

Dow Industrials Chart - 50-point box

I showed a bar chart of the Dow Industrials (INDU) 8,351 +1.8% in today's 11:00 Update and I must say I'm a bit surprised that bears weren't able to keep the Dow below its 38.2% conventional retracement of 8338. Friday's trade at 8,300 had the Dow's p/f chart reversing back up 3-boxes and today's trade at 8,350 shows further demand. However, I think its going to be tough for the Dow Industrials to press much above the WEEKLY R1 of 8,433 with upper Bollinger. Make no mistake, I'd rather be long than short with the series of higher lows. A "good tie" with the BIX.X for further bullishness would be Dow 8,550 and BIX.X 281.50 for upside action. First sign of weakness on the p/f chart is a trade at 8,100 and should keep bulls out of danger. Risk averse bulls that don't like giving room to 8,100 could snug a real tight stop up under tomorrows DAILY Pivot, using the SPX and OEX correlative DAILY/WEEKLY support levels as a level in the DAILY analysis to find any institutional buy programs.

I don't think there was any "super bullish" comments in IBM's earnings to really drive the markets tomorrow. However, March Industrial Production is due out at 09:15 PM EST (consensus is for a -0.2% decline) and could set tomorrow's tone.

Today's action saw no net change in the Dow Industrials Bullish % ($BPINDU). Status remains "bull alert" at 43.33% for a 6th consecutive session.

S&P 500 Index (SPX) - 60-minute Intervals

In this morning's 09:00 Update I showed a daily interval chart of the SPX. One reason I think the SPX will be "hard pressed" to get above its WEEKLY R1 this week is that an extension of our aggressive bullish trend, which did serve resistance Friday morning, looks to be in play at correlative WEEKLY R1. I was impressed but not surprised that the SPX was able to get back above its conventional (pink) 38.2% retracement, and I could see a break above 889 having some "head shoulder top" bears looking to cover, but bulls need to get a move going above that 888 level for bears to lose their conviction on the pattern. Once the SPX got above its WEEKLY pivot of 878, buyers developed, and hints that some of the selling seen in bonds today was put to work in the SPX.

Today's action saw a net gain of 1 stock to a reversing upward point and figure buy signal. This recoups Friday's loss of 1 stock to a sell signal. Still "bull confirmed" at 47.2%.

NASDAQ-100 Tracking Stock (QQQ) - 60-minute Intervals

I was looking for more "bullish" news when I decided to hold a QQQ trade overnight, but I thought that the selling in Treasuries and ability of the QQQ to recapture its WEEKLY pivot would give bulls a bit of a cushion into tonight's earnings from IBM and Novellus. I'm going to suggest playing this bullish trade from Friday's market monitor entry rather close to the vest, and use the DAILY pivot analysis retracement (light brown) as my guide for a stop. I really liked the way the QQQ traded its combination DAILY and WEEKLY retracement levels today and first sign of weakness would be a 5-minute close below the $25.89 level. Each level of trade today was violated by 2 cents, so I think a 3 cent cushion for a stop should be sufficient. 5-cents wouldn't hurt either, I'm just not overly enthused with Novellus' comments and lowering of next quarter's guidance and looking to protect a gain. On bullishness from tomorrow morning's economic data, I'd watch that $26.29 level as resistance. See how that level was intra-day resistance on April 8th? Note tomorrow's DAILY R1 of $26.28. That's a good target for swing trade bulls to say "goodbye" on strength.

Today's action saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Status remains "bull alert" at 56%.

Jeff Bailey

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