Option Investor
Index Wrap

A little bit higher now....shout!

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The major indexes traded multi-month highs in today's session as a much stronger than forecasted April consumer sentiment reading brought in an early wave of bullish enthusiasm to this morning's trade.

While the bulk of today's gains were found in the first 50- minutes when a round of "selling of good news" was found, a late push higher in the final hour of trade had the indexes posting gains by session's end.

With no trading curbs put in place on today's trading session, volumes surpasses yesterday's trade rates as the NYSE turned just over 1.48 billion shares, while the NASDAQ ticketed just over 1.64 billion.

An hour after the release of today's consumer confidence report, the NYSE showed advancers outnumbering decliner by a 15 to 14 margin, and internals improved modestly into the close with advancers outnumbering decliners by an 18 to 13 margin by session's end. The NYSE had 155 stocks trading new 52-week highs (close to yesterday's 156) and 15 stocks trading new 52-week lows (slightly more bullish than yesterday's 21).

NASDAQ breadth, which had been even at the 11:00 AM EST mark, also showed improvement into the mid-point of the session and tapered off into the close with advancers still getting the upper-hand on decliners by an 8 to 7 margin. The advance/decline line was strongest at 12:00 (8:6) and tapered off from there. While broader internals were slightly bullish, but fading a bit toward the close, those stocks with limited overhead supply built to the close with the NASDAQ showing 149 stocks having traded a new 52-week high (147 yesterday) versus just 22 stocks trading new 52-week lows (29 yesterday). Today's 149 new highs among 4 and 5-lettered stocks gives bullish confirmation to a NASDAQ Composite (COMPX) 1,471.30 +0.61% and NASDAQ-100 Index (NDX.X) 1,116.79 +0.87% that have now traded new Year 2003 highs and closes.

As a benchmark, during a bullish % bull cycle run, the NASDAQ Composite traded its December 2nd high of 1,521.44, but closed at 1,484.74 with advancers outnumbering decliners by a 17 to 16 margin. New highs versus new lows that day stood at 114 to 26. While daily total breadth indicators look almost identical, the number of greater new 52-week highs today shows some bullish divergence compared to early December.

Also bullish from NASDAQ internals is today's NASDAQ Composite Bullish % ($BPCOMPQ) net gain of 0.83%, which has the bullish % rising to 50.73% which exceeded the late November 48% bullish level. This VERY broad bullish % reached relative highs of 54% and 56% in peak bullish cycles of 2001 and 2002. I'd consider current levels as being historically higher risk for bulls. It is encouraging on a longer-term basis (perhaps years) that this VERY broad indicator of bullish % now shows a higher low and higher high. Still, for a true longer-term bull market to be called in the NASDAQ, bulls want to see the December highs taken out. They don't have to hold there for weeks, but just need a higher relative high after a higher low from March.

Bull Confirmed! But now longer-term "overbought" is the way point and figure chartist's would describe the NASDAQ-100 Index (NDX.X) 1,116.79 +0.87% and NASDAQ-100 Tracking Stock (AMEX:QQQ) $27.73 +0.90% as today's action saw the narrower NASDAQ-100 Bullish % ($BPNDX) see a net gain of 2 stocks to new point and figure buy signals, which has the bullish % growing to 70%, which is not a level of internal bullishness that reaches a higher risk level for new bullish entries. Current levels should have bullish traders that are using MARGIN to begin getting OFF margin in their accounts, especially if heavily weighted on the technology side of things. This also goes for NASDAQ-100 Traders. While internals are VERY strong, the paradigm of risk has now shifted from the 30% level found in February and March, to current 70% level.

NASDAQ-100 Index Chart - Daily Interval

Today's high saw the QQQ come within 2-cents of our WEEKLY R2 of $28.08. I wouldn't call today's close back below our "sliver of resistance" from $27.74-$27.76 "bearish," but bulls would have perhaps preferred a close just above that level. Note some of the price action in the QQQ to the far left of the chart and how the QQQ tended to "waiver" around this MONTH's $27.76 level for approximately 7 sessions, see a nice "blow off" type of "top" before a decline back to $25.39. During that time (December) the NASDAQ-100 Bullish % had grown to 82% after having recovered from a more deeply oversold 14% in October.

I "like" this WEEK's pivot tie in at $27.19 as a protective stop for bulls still holding long. Not only as it relates to recent trading, but the way this level, and a stop placed just underneath would have protected a QQQ bull back in December. Then note the "rally" back in January? The rally came right back into this $27.19 level, and that's where bears that saw the breakdown and weaker stage of bullish % got more serious.

If you're a "young bear" (have been waiting to trade bearish), DON'T even think of a full position at this point. There are most likely PLENTY of full positions bears below $26.00 that wish they weren't at this point. If looking short/put, play 3-month expiration, preferably IN-THE-MONEY with volatility and premiums so low. Start with 1/4 (if you just have to) and PLAN for heat to $29.23. Remember, the bullish % are still moving higher and while the NASDAQ-100 Bullish % is at 70%, it can always go to 100% and market internals are quite strong at this point.

S&P 100 Index - Daily Chart

Last night we looked at the OEX chart with WEEKLY (blue) and conventional retracement (not shown above) which had three levels of near-term resistance at the 469 level. That's about where the OEX found resistance despite today's "good news" from the consumer confidence data. You will see later on in the pivot matrix, that 469 shows up again in tomorrow's DAILY R1. The reason I'm showing the OEX with MONTHLY (red) and WEEKLY (blue) is this shows how a near-term "zone of support" may have come into play today as the relative high has institutional computers still accumulating stock. On a break higher, I'd be more willing to trade the OEX bullish than the NDX. Why? Internals continue to improve for the OEX, but the bullish % here is "only" 57%, so a lower "market risk" level. I've continued to keep the OEX's MONTHLY R1 level (thick pink) on the OEX chart as it tends to "mimic" what we saw the BIX.X "launch" higher from after making a relative high above that level.

Today's trade saw a net gain of 2 stocks to new point and figure buy signals in the OEX Bullish % ($BPOEX). This has the bullish % growing to 57%. Just as the NASDAQ-100 bullish % achieved "bull confirmed" status yesterday, the OEX bullish % would do the same with a reading of 62%.

S&P 500 Index (SPX.X) - 5-point box

The S&P 500 triggered its 4th consecutive buy signal today with a trade at 920. I wanted to show the SPX chart with our "bullish resistance trend" again just to show that the SPX is perhaps "tiring" a bit at upper trend as the bull cycles lengthens further. Don't tell a bear that as most have seen enough at this point that further "good news" could see a sharp round of buying that extends the SPX another 4-boxes above trend to our WEEKLY R2. I've also tried to tie in the correlative MONTHLY R1 of 899.8 (Remember, tomorrow is the last day of the month, and I will be updating new MONTHLY levels) and our WEEKLY Pivot of 901.8. Both of these levels are very near the 900 level where the recent bullish triangle pattern was triggered.

As noted in the above chart, the S&P 500 Bullish % ($BPSPX) rose 1.2% today, so a net gain of 6 stocks to new point and figure buy signals were found. This has the broader S&P 500 Bullish % growing to a bull cycle high of 56.4% as internals continue to improve.

Dow Jones Index ($DJX.X) - 0.50 box size

The above chart is that of the $DJX.X, and the reason I show it tonight is to simply show traders that in order to get it and the DIA so they look like the conventional 50-point box of the Dow Industrials ($INDU) that we normally look at on the point and figure chart, all you have to do is change the "box size" to $0.50, from the conventional $1 box size, which is used to measure price action from $20-$100 priced securities. Now you see the recent bullish triangle and today's spread-triple-top buy signal at $DJX.X $85.50, which is very much the same as today's $INDU trade at 8,550.

I understand how "uncomfortable" the trader was as the $DJX.X didn't "make sense" with what he was seeing in the $INDU and prior wraps. I've use the DIA pivot and WEEKLY R2 and S2 levels as they'll be pretty close to the $DJX.X levels. The Dow Industrials (INDU) closed at 8,502.00, the DIA closed at $85.11 and the $DJX.X closed at $85.03.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull alert" status at 50%.

Here's a quick look and some comments regarding the pivot analysis matrix for tomorrow.

Pivot Analysis Matrix

Correlations in the matrix are a little harder to come by in tomorrow's trade, but today's high in the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $27.73 +0.9% came just 2-cents shy of its WEEKLY R2 and was the only security in our matrix to come close to testing its WEEKLY R2 in yesterday's trade. Correlative resistance shows up at the DAILY R1 of $28.06 (today's high) and WEEKLY R2.

Tentative support shows up early in the S&P 500 Index (SPX.X) near the 917 level as marked by the DAILY pivot of 917.70 and WEEKLY R1 of 916.80. The SPX traded either side of this level in today's session, serving as resistance for the bulk of the afternoon session until a late push higher in the final hour of trade. As such, the 909.5-910.5 area along with DAILY R1 looks to be a more formidable level of near-term support, with more important support found at the MONTHLY R1 of 899.9 and WEEKLY Pivot of 901.8.

Since Wednesday, the BIX.X has been range-bound from 284-290 and this range shows up in the WEEKLY pivot to WEEKLY R1 as well as DAILY R2 and DAILY R1. Friday's BIX.X low was 284 and was matched closely with SPX 900 and OEX 456 lows that day. The "difference" I see at SPX/OEX Daily R2's most likely comes from broader-tech bullishness as depicted by a QQQ having come close to trading its WEEKLY R2 in today's session.

Jeff Bailey

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