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Index Wrap

Stirred, not shaken

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It was secret agent James Bond that preferred his beverage of choice "shaken, not stirred" and traders that saw what I did today, saw anything but a fast action thriller as the major indexes took a rest after yesterday's bullish gains.

There were moments earlier in the session when bulls looked to put together a more meaningful type of extension to yesterday's trade, but WEEKLY R2s appeared to provide just enough resistance to keep things in check and by session's end, the indexes managed fractional gains.

The Dow Industrials (INDU) 8,793.12 +0.13% managed to hold onto an 11-point gain, after trading a session high of 8,854.53 on an intra-day basis. While the highs of the session were enough for a move above WEEKLY R2 (8,824.70), as the session progressed it just seemed to me that there might not have been enough "upside target" or reward on a WEEKLY basis to really have traders pushing the indexes much higher.

The NASDAQ-100 Index (NDX.X) 1,173.31 +0.06% did finish in positive territory, after it too traded above its WEEKLY S2 of 1,178.0 with a session high of 1,181.94. The exposure to biotechnology stocks as depicted by the Biotechnology Index (BTK.X) 447.81 -1.86% weighed on the NASDAQ-100 today and had this 100-stock index dipping into fractionally red territory during portions of today's trade, but trade action in the biotechs looked more like profit taking. NASDAQ-100 biotech heavy-weight Amgen (NASDAQ:AMGN) $63.75 +0.15% holds near it monthly highs of $64.00. I'll tell you this... each time I've gotten an e-mail from a subscriber regarding this or that "biotech stock is just sitting here and doing nothing," recent daily news of some sort from the sector tends to have livened things up in more bullish fashion.

Today's biotech news came from two companies I'd never heard of with VaxGen (NASDAQ:VXGN) $5.62 +68.2% and Medarex (NASDAQ:MEDX) $6.27 +5.37% saying they found positive results for treatment of anthrax. VaxGen got FDA approval to study their drug on humans, while Medarex was finding positive results after infecting rabbits with anthrax, and treating the furry critters back to health!

Is it neglectful to discuss today's weaker than expected durable goods data? At times, it does doesn't it? Ugh! That -2.4% reading for April doesn't indicate an economy on fire. If anything, bulls will simply use it as a reason to at least be cautious.

Again, I'm not an economist, but day after day we seem to get conflicting signals or some type of surprise. Yesterday's April housing data was stronger than expected, then today's durable goods data for the comparable month comes in weaker than forecasted.

I did think a trader should have been looking long the S&P 100 Index (OEX.X) at the 481 level in today's trade. I'm probably not much different than a lot of traders that simply want to see a trade move directly to a target, or at least finish the initial day of trade with a positive gain. I'm not looking to give back the SPX gains from 922 and what turned out to be an "early exit" at 944 with this OEX trade, but tomorrow is a new day.

Here is a quick look at the pivot matrix.

Pivot Analysis Matrix

The OEX did trade its MONTHLY R1 of 480.6 today and that's a first for this index as it relates to the MONTHLY matrix. Sign of strength and ability to coax in buyers where sellers had been able to defend. Suffice it to say, bulls from 481 didn't get the "euphoric" type of short-covering that could have made it a banner day. Still.... in my book, the OEX said "buy me" as it relates to last night's Index Wrap, and this was the one index trade I liked.

I discussed the S&P Banks Index (BIX.X) 299.25 +0.28% in today's 11:00 AM EST Update and while I'm not a trader that necessarily believes in destiny, the BIX just has the look that its "destined" to trade that reverse head and shoulder price objective from the bar chart. As I reviewed the BIX.X in the pivot matrix, maybe "300" isn't purely psychological. There seems to be a lot going on in the matrix around this level in both the MONTHLY R1 and WEEKLY R1. These two levels of 299 and 298.15 are also very close to the 298.28 level represented by our 80.9% retracement from the reverse head/shoulder retracement shown in today's 11:00 Update.

I can't say that I find a lot of correlative resistance levels in tomorrow's DAILY matrix, but some overlapping level of support tie to the WEEKLY R1s, which broken to the upside may be deemed near-term support on pullbacks.

I don't often watch the buy/sell program premium alerts each trading day, but had alerts set today. In today's market monitor, I didn't note them all, but before I profiled the OEX bullish at 481, we saw multiple "sell program" alerts given. Those sell programs seemed to keep coming at/near OEX 480, when the OEX did trade the 481 level, I thought... "their done selling and off to WEEKLY R2." Not quite as it turned out by today's close.

For OEX bulls that did trade long on today's break above 481, I'm going to also recommend following with a tight stop just under the WEEKLY R1 of 477, say 475 for breathing room.

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

The OEX pierced the 480 level today and "proved" itself tom me that a higher price is possible. If your like me, you feel like you're "chasing" the breakout. I felt the same way, and why I feel at these higher levels of bullish %, its better to manage the risk of then seeing "selling into strength" with partial positions. Last week I profiled the SPX back near OEX 464, when the SPX was trading around 922. I was perhaps "more comfortable" with Stochastics near oversold than I am at a breakout with Stochs nearing "overbought." As such, the tighter stop under WEEKLY R1, which serves as the lower end of a "support zone."

The OEX bullish % ($BPOEX) from www.stockcharts.com saw no net change in its bullish % reading today and stands at 66% for a third consecutive session. This bullish % has been reading 66% and 67% for 8 consecutive sessions now. What this hints at is that those stocks "at the bottom" have yet to achieve some type of reversing upward "buy signal," so in a way, a bull is looking for "strength from the bottom." That's not the best type of internals to be RELYING on, so I'm more willing to still trade bullish at times, but protect capital with a tighter stop and/or smaller positions.

Darn it! Where was my mind at today. I'm just "realizing this now!" The S&P 500 Index (SPX.X) 953.22 +0.18% did break above its December highs, and not unlike the NASDAQ Composite and NASDAQ-100 of a couple week's ago, now sets a longer-term pattern of a higher low and higher relative high! That's a technical longer-term bull market! Congratulations to the S&P 500 Index!

Also... I would want SPX and OEX traders to read down through the coverage of the NASDAQ-100 Index. I wanted to look back at how the NASDAQ-100 Index traded after it traded above its December highs. I wish I had seen this last night, but didn't think to make the tie. I do want to do that tonight, so traders will be alert to what took place a couple of weeks ago, after a major market index traded a new relative high. This might be tied to market psychology and some bullish relief selling, but I want traders to be aware, then assess any type of risk in their accounts to bullish trades put on today. Again, I wish I had seen this yesterday evening instead of tonight, but you're "ring my neck" if we get a 2-day pullback and I point this out tomorrow evening.

S&P 500 Index Chart - Daily Interval

It didn't dawn on me until writing the wrap, that today's break of the December high now presents a new technical longer-term bull market as the SPX sees a higher high after a higher low. Thinking becomes... "there aren't a lot of bullish losers" holding positions right now, just a lot of bullish winners.

This is a troubling thought isn't it? If every bulls a winner and satisfied, then how is true satisfaction ever realized? That's what creates a more "overbought" market and no amount of shorting can cause a market to decline (up-tick rule). No sir/mam! The major reason for market declines is bullish selling, that is, a bull selling his/her stock and most likely at a bid.

Today's bullish % readings indicate there was more meaningful buying taking place that selling as the S&P 500 Bullish % ($BPSPX) rose 1.2% to 71%. That's "good news" near-term as it shows strong internals. However, it also has the S&P 500 Bullish % now above the more "overbought" 70% level for this broader market indicator.

And that's what we'll find from today's bullish %. The very narrow Dow Industrials Bullish % ($BPINDU) (just 30 stocks) remained unchanged at 70%, as did the narrow NASDAQ-100 Bullish % ($BPNDX). However, similar to the broader S&P 500 Bullish % ($BPSPX) the VERY broad NYSE Bullish % ($BPNYA) (roughly 3000 stocks) rose 0.64% to 62.04% while the NASDAQ Composite Bullish % ($BPCOMQ) continues to chug higher to multi-year high bullish % reading with a 0.94% gain to 62.37%. Strong broader market internals still intact, though at historically high levels of RISK for bulls.

Now.. with the SPX piercing above its December high, I wanted to go back and take a look at the NASDAQ-100 Index (NDX.X) 1,173.31 +0.06%, and observe what took place when it too pierced its December high for the first time on May 6th at 1,155.68. If anything, I might use this observation as a "preparation" for what we might look for or at least be prepared for.

NASDAQ-100 Index Chart - Daily Chart

I can't say that today's trade in the NDX was bearish. Hey, it hit a WEEKLY R2 and perhaps an upper weekly target. Heck, 4-days ago, I was pretty darned sure that 1,150 was going to be FIRM rally resistance.

Traders have been noting how the indexes "all seem to be trading in unison." I can't disagree with that at all and after watching the OEX and BIX.X trade like twins in today's session, trade action seems so systematic like a computer doing the trading it isn't even funny.

Sigh!..... I can only think that there will be support for the NDX near WEEKLY R1 of 1,154, which is right in between a "zone of support" that would be created from the December high of 1,155.88 and the MONTHLY 19.1% pivot analysis retracement. Stochs are nearing "overbought," while MACD threatens to cross back above its signal, which is bullish for the MACD oscillator.

What I wanted to show in the NDX as it relates to SPX and OEX traders is simply "how" the NDX traded AFTER it had managed to break above its December highs, but not close there. I would simply feel "sick" as an analyst if I now saw this, and didn't point it out to traders, then see a rather sharp 2-day decline. While history is no guarantee of the future, I did want to reflect on that trade action. I also made note as it related to the oscillators (Stochastics and MACD). I see great similarity in Stochastics between the SPX/OEX today and NDX back then. I'm a bit more cautious and now not ruling out a decline near-term as MACD on both SPX/OEX today is below its Signal. As such, I'm pretty firm with where stops should be set (just under WEEKLY R1) and bulls would certainly like to see some higher price action to help get MACD above Signal for a more bullish crossover.

Dow Industrials Chart - Daily Interval

In today's market monitor at 11:59:56, I suggested that those traders that had established the BEAR CREDIT SPREAD from Thursday near 8,600, look to close out the $86 call that was sold for the credit, when the Dow Industrials were trading at approximately 8,848. I can't tell you how much I struggled with this. However, with the Dow trading above its WEEKLY S2 of 8,824, I felt, and still feel the Dow has a shot at trading the MONTHLY R2 of 8,919. With that said. I think it worth a shot to have closed out the $86 call that was sold in the BEAR CREDIT SPREAD, follow the $87 call with a stop at $87.00 (I don't want to take a change that it expires worthless at this point for June expiration). My reasoning for this decision didn't come without struggle, but the Dow's breaking to new relative highs and extending gains this morning had me willing to take a chance on buying a loss (something I really try NOT to do) and will be "happy" at this point to sell the $87 call, which was bought as insurance, anywhere close to the $8,900 level, or when a trader finds selling the $87 call would generate a break-even trade for this BEAR CREDIT SPREAD.

For those that may have implemented a calendar spread and sold July $86 and bought June $87, then I would still do nothing, and wait until June expiration to make a decision on this trade. Same goes for July $86/$87 BEAR CREDIT SPREAD.

Today's trade did see MACD move back above its signal, and that would be a bullish cross-over. Offsetting that a bit is that Stochastics now reach "overbought" levels.

Here's kind of a quick follow up on how the breadth indicators of advance/decline and new highs/new lows are looking as it relates to this weekend's Ask the Analyst column.

Breadth indicators

Both the NYSE NH/NL Ratio and its 10-day average continue to hold near the 97% level (highest it can go is 100%) and shows little sign of any type of "leadership sift" to the bearish camp. Same is true for the NASDAQ NH/NL Ratio and its 10-day average, which holds at the 93% level.

Again.... the point and figure chart would be plotted on 2% scale boxes, and I like to plot the 10-day average, as it smoothes out the day to day fluctuations, and tends not to give as many "false signals" and you can get when charting the daily NH/NL ratio.

We would still utilize the "3-box reversal" technique for charting and as it relates to the two charts shown this weekend, we wouldn't have made a new chart entry for the NYSE since May 8th, when we would have charted an "X" at 98%. It would currently take a 3-box reversal to 92% to represent any type of MEANINGFUL chart entry. For the NASDAQ, I did mistakenly chart an X at 94% and it should only show an X to 92%. I think I may have been looking forward to the 3-day weekend or something as no matter how close 93.5% is to 94%, it isn't 94%!

Jeff Bailey

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