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No sense of smell

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Sniff! Do you smell something? By session's end it becomes apparent that the equity markets have no sense of smell, but eyes that continue to be looking forward and past any "old" economic data as today's economic reports would have smelled more like a stockyard than a rose garden as weaker-than-expected, change that to weaker-than-forecasted (I'm not sure what the markets expect at this point) showed a U.S. economy that continues to struggle and slowed in their recent periods as April auto sales fell to 5.4 million (consensus 6.0 million), initial weekly jobless claims rose to 448,000 (consensus 432,000), Q1 productivity slipped, but still showed a gain of 1.6% (consensus 2% gain), ISM Index showed manufacturing in the U.S. contracting with a 45.4 reading (consensus was for slight improvement, but still contraction 47.0) and March construction spending falling -1% (consensus 0.2% gain).

Bright spots? April truck sales rebound to 7.7 million, which was above consensus of 7.4 million. While total vehicle sales came in below economist's forecast, a moderate 5% rise in April followed a 4% gain in March to build some slight momentum and strongest pace since December.

Despite attractive incentives among the Big 3 outmakers General Motors (NYSE:GM) $35.51 -1.52%, Ford (NYSE:F) $9.98 -3.1% and Daimler/Chrysler (NYSE:DCX) $32.12 -0.86%, imports continued to make progress in market share gains. According to Briefing.com, imports now capture 20.6% on a year-to-date basis, compared to last year's (2002) 19.3% market share.

With the U.S. Dollar Index (dx00y) 96.65 -0.55% falling to multi- year lows, one would have thought the weaker dollar would make U.S. autos more attractive relative to their foreign counterparts, but the build in market share among importers doesn't seem to support that logic. True! Many "foreign" automakers have production facilities here in the U.S., but the conversion rate of capital (cash) goes back into the foreign currency with a "sell dollar" and "buy foreign" currency swap. So what sparked today's turnaround that saw the S&P 500 Index (SPX.X) 916.30 -0.06 finish fractionally lower (-0.62 points) turn the corner higher after a session low of 913.20? Some traders attribute the turn higher due to the Globex systems at the Chicago Mercantile Exchange shutting down at 11:40 AM EST, which stopped trading in the popular E-mini contracts for the S&P 500 (es03m), NASDAQ-100 (nq03m) and Dow Industrials (ym03m). The shutdown may have had traders "short" those contracts deciding to turn the "normal" futures markets to hedge (traders don't like to be short and not be able to trade their underlying security). As "hedgers" built on the buy side, a "rumor" surfaced later in the day, which I reported as I was completing the 03:15 PM EST intra- day wrap, that had the WorldTribune.com reporting that Osama Bin Laden MIGHT have been captured.

I wonder what Jim Brown was doing reading the WorlTribune.com today? If I look at the intra-day chart of the S&P 500 Index (SPX.X), it would appear to me that the RUMOR hit the trading desks at about 01:30 PM EST. Not sure, but the SPX jumped from 909.58 to 912.28 during that time.

As it relates to the Globex system shutting down, I'm also reviewing today's buy/sell program premium alerts ($PREM.X) using my q-charts symbol, and I do see where a buy program premium level was triggered at the 11:40 AM EST.

Observation? Shorts are not "overly confident" in their positions and jittery as bejeezers!

Traders may want to be sharp in the morning, especially those carrying any type of LARGE bearish position. The CME announced later today that it would not open for trading until tomorrow, so that could be anytime after midnight EST tonight. This may seem like "no big deal" to traders in the SPY, DIA, or QQQ, but the e- minis come with much greater leverage attached. Alan Hewko wrote a good article on these E-mini futures contracts in his April 27, 2003 Futures Corner article "Choosing which Futures Contract to Trade"

Today I profiled and bought a partial bearish position in the QQQ September $27 puts (QAVUA) $1.75 -5.4%, and continue to hold that position. A subscriber did send me an e-mail asking if I still held the position?

Don't read anything into this as if I'm "talking down" to anyone, but evidently I've got some explaining to do for ANY BEAR that is looking to leg into puts for the first time this bullish cycle.

I profiled a partial position (lessens my initial capital exposure, RISK) and with the NASDAQ-100 Bullish % ($BPNDX) still in a column of X, I'm NOT thinking for a second that bullishness is suddenly going to turn to bearishness overnight, and may not for at least a week or two! Bullish % charts don't reach 70% levels without some pretty extreme bullishness behind them and they can stay at current levels (or move higher) still.

September expiration in my mind is more than 3-months away, and if a BEARISH trader is swayed by an intra-day move like we saw today (I didn't really understand any of it during the session and only after looking at some charts intra-day charts, begin to assimilate anything that resembles an explanation) then the position should be removed from the account immediately! I would be "swayed" by today's trade if OVERLEVERAGED this EARLY in a still bullish yet more "overbought" NASDAQ-100 bullish % condition.

So why would I trade bearish a PARTIAL bearish position in the QQQ today. Today of all days?

5-year YIELD Chart - 0.5 box scale

We discuss the benchmark 10-year YIELD ($TNX.X) quite a bit, but tonight I wanted to point out that the shorter-dated 5-year YIELD ($FVX.X) generated a YIELD "sell signal" today, which in actuality is a "buy signal" on the this bond as demand begins to outstrip supply on a more meaningful basis. Today's economic data seemed to be "negative enough" to have this shift in supply/demand taking place.

I've placed some dates on the above chart as it relates to some recent "sell signals" the 5-year YIELD has generated. While history is no guarantee of the future, it helps me begin to understand potential future trade action and gives me some time reference. We can see from the above chart that on December 27th, this bond's YIELD gave a "sell signal" at 2.75%, never gave a negating "buy signal" (where a column of X exceeded a prior column of X) and then gave another "sell signal" (at a higher level, but still a signal that demand for the bond was exceeding supply, and gave a more glaring sell signal on March 3rd, when it broke the December low YIELD.

Another time reference we might make is that this bond's YIELD is at a similar level found in late December and then some time between February and March. Index traders may make price comparisons for the indexes at these same times periods.

NASDAQ-100 Tracking Stock (QQQ)- Daily Intervals

I profiled the QQQ bearish at 12:05 PM EST. I didn't see Jonathan Levinson's post at 11:53:14 that the Globex was halted due to technical problems. Would it have kept me from buying a partial position in the QQQ Sept. $27 puts? Probably not, but evidently it should have. The only thing BEARISH I see in the QQQ at today's close is a 2-day old downward trend (2-days because I'm attaching the trend to Tuesday's high, and that RISK may be high for bulls with the bullish % at the 70% level. I'm not the biggest trader of oscillators, but the current MACD of 0.49 is below the 0.545 reading when the QQQ traded just above the $27.06 level on March 21st. An oscillator trader will define that as bearish divergence. Bearish divergence is when an indicator doesn't "confirm" the higher price action of the security traded.

Bulls that have a different opinion, here's what a bear has to prove to you. The BEAR has to prove he can break you at $26.92. Note today's low in the QQQ was $27.19. This is this week's WEEKLY Pivot.

Here's a chart I showed of the QQQ on an intra-day basis. My stop was profiled for underlying QQQ traders. They most likely got stopped out just above yesterday's highs.

NASDAQ-100 Tracking Stock QQQ - 5-minute interval

Obviously I thought the QQQ would break below the WEEKLY pivot of $27.19. It didn't. I'm left to think that the Globex closing may have had shorts in the NASDAQ-100 futures jittery, covering their positions. The "Osama" rumor send the QQQ up through the "zone of resistance" from $27.74-$27.76 for 20-minutes of today's trade, and the QQQ settled back at $27.69 at its close.

Not shows on the above chart would be more of a short-term bearish trader's trend from that little peak to the left and extended lower. The extension of that trend would have shown support late this afternoon at $27.60. Somebody was trading that trend as bearish, and when it was broken to the upside, used it as support and "reason" to cover a position is my thinking.

Today's action saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Status remains "bull confirmed" at 70%.

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

Here's where I might question some traders saying that today's rebound was triggered entirely by the shutdown at the Globex. Just as I noted above and intra-day that the QQQ found its session low at the WEEKLY pivot, the OEX did pretty much the same. This seems a little bit too "coincidental" at this point for bears to say.... "ah geeze, you bulls got lucky today as if not for the Globex shutdown, you would have gotten creamed."

I still don't see a "screaming bullish trade" in the OEX in here, but with each passing day, it gives some time for Stochastics to work lower and near the more "oversold" level. The past two dips into "oversold" have been good bullish entry levels and I still like a bullish trade entry in that area.

One thing I want to mention here. Suppose you hold a QQQ put at this point. While we do see "trade disparity" between the indexes, for the most part, they will trade somewhat in unison as it relates to "up and down." If you bought 1 QQQ September $27 put today, and say next week we see a lower trade. Using your QQQ put as some "insurance" there's nothing that says a trader couldn't offset the bearishness of their QQQ put, with a bullish naked put sell in the OEX at a level that currently looks to be a good level of support.

Again... selling naked puts is not for everyone and traders should ONLY trade within their own risk tolerance and comfort levels.

Today's action saw no net change in the S&P 100 Bullish % ($BPOEX). Status remains "bull alert" at 58% bullish.

Hmmmm.... Can I ask you to do me a favor? I've said before that when I get all my retracement lines on a chart, I've "learned" to try and filter out some of them. However, for YOU, I want to know if it bothers YOU. If it does, send me an e-mail at jeff@OptionInvestor.com. For those that DO NOT like the three different retracement's (WEEKLY, MONTHLY and CONVENTIONAL) then let me know which, if any, you would like to see on a chart. I will then try and accommodate.

OK... squint real hard, but here we go. The basics as I see it is round number Resistance = 920 , Support 895, with support more formidable than resistance. I will also note that I find correlative support in the DAILY S2 of 896.10 and MONTHLY pivot of 896.3.

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

Very similar to the OEX, I'm placing a "zone of resistance" from 918-922. I see that DAILY R1 tomorrow is at 923. I'm not sure if we could see any type of further "short covering" from Globex closure or not. Trading can be "cruel" and "unfair" sometimes and when it comes to RISK, and the attempt to rid one's account of risk, emotions can take control and I'd be alert to a powerful short-covering extension with upside to 934 and WEEKLY R2. I say this NOT to try and scare bears, but if you're account is short and short on MARGIN and you're close to a margin call, then have a plan in place on a break above 923. I've noted correlative support at the DAILY R1 and MONTHLY pivot, which I would expect to be some formidable support, especially in tomorrow's session.

Now... this week, we've got a pretty tight range of trade going and if we stay "tight" tomorrow, next WEEK's pivot range is going to be very tight. This is why I think it is important to try and incorporate the MONTHLY and Conventional retracement at times as they may define a range, that next week's range will be based on.

Today's action saw no net change in the S&P 500 Bullish % ($BPSPX). Still "bull confirmed" at 57.8%.

Dow Industrials (INDU) Chart - Daily Interval

Unlike the SPX and OEX, the Dow did pierce its WEEKLY pivot of 8,365, but the overlapping support from conventional (pink) 38.2% retracement and MONTHLY pivot near 8,339 held firm. The shorter- term 21-day SMA also came into play. In my mind, this was a good test of support today for bulls and any stop adjustments that would be made for protection of downside would be just under 8,300.

I will note that the point and figure chart of the Dow ($INDU) from www.stockcharts.com would generate a "sell signal" at 8,250. Perhaps with the 5-year YIELD ($FVX.X) chart showing a "sell signal" on its chart, stops on the Dow should be firm at 8,250.

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 at the pivot matrix.

Pivot analysis matrix

As I further peruse the pivot matrix, I've found some additional correlative levels of support (green) and resistance (red) in the matrix.

I discussed the 896 level in the SPX, but didn't see the Dow's 8,365 and NASDAQ-100 1,109 support and 1,134 resistance in time to incorporate into their charts.

Since we saw no net changes in the aforementioned bullish % chart, I wanted to quickly look at the very broad bullish %. Today's trade saw a 0.21% gain in the NYSE Bullish % ($BPNYA) and the very broad NASDAQ-Composite Bullish % ($BPCOMPQ) saw a net gain of 0.87%. Wow! Almost 1% gain from the NASDAQ Comp. Bullish %! I'm VERY early with a QQQ bearish profile. Internals on a broad basis remain strong.

Jeff Bailey

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