Option Investor
Index Wrap

NASDAQ holds gains, but reversal of fortune for others

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For a second consecutive session, the major indexes broke to the upside and traded some upside levels of resistance in our pivot matrix, but were unable to hold early gains. While the indexes were able to finish in positive territory yesterday, a mixed close was found in today's session.

It's difficult to say that there was any type of "news driven" data as the bulk of today's news came in the early going and didn't appear to limit this morning's upside trade.

While an upwardly revised first quarter GDP reading helped offset a still lackluster weekly jobless claims report, outplacement firm Challenger, Gray and Christmas' report that planned job cuts jumped 71% in April as business announced plans to eliminate 146,399 positions, may have been the "capper" on today's early morning rally.

Today' trade saw the NASDAQ-100 Index (NDX.X) 1,181.82 +0.72% and Tracking Stock (AMEX:QQQ) $29.31 +0.41% trade their MONTHLY R2s in our pivot matrix, despite the more negative employments news. While the S&P 500 Index (SPX.X) 949.64 -0.37% came within decimals of its WEEKLY S2, the SPY $95.42 -0.26% was able to pierce its WEEKLY S2 just after the Challenger report hit the wires. The Dow Diamonds (AMEX:DIA) $87.40 -0.68% also traded above its WEEKLY R2 with a session high of $88.90.

Early in today's trade, I didn't think "too much" of the S&P Banks Index (BIX.X) 296.99 -0.75% fractional gains when compared to what we were seeing in the SPX and OEX, but when the sector turned red just after lunchtime, that seemed to be just enough lag to keep both the S&P 500 (SPX.X) 949.64 -0.37% and S&P 100 Index (OEX.X) 477.42 -0.46% from being able to achieve their weekly R2s by session's end.

Here's a quick look at tomorrow's pivot matrix. Again... WEEKLY and MONTHLY levels will be changed at the conclusion of tomorrow's trade.

Pivot Analysis Matrix

The "dashed red" boxes are those levels I would deem "tentative resistance" for tomorrow's session as these levels saw trade action today. Shorter-term traders may want to monitor these levels in the early part of tomorrows session as resistance, but if broken to the upside then upside resistance assessed at today's high or levels in the matrix.

An intra-day level I think traders may want to monitor for resistance tomorrow morning, and will discuss later is in the OEX at 480.6 (say 481 for round number). This would also be a tie (once again) with the S&P Bank Index (BIX.X) at 298-299. It's noteworthy the session high on the BIX was 300.89 and most likely a move above 302 will be needed if a "blow off" bullish move for the SPX/OEX is to be seen in the next couple of sessions.

Correlative support levels are highlighted in "solid green."

Dow Industrials Chart - 50-point box

The PnF chart of the Dow remains strong and the recent double-top buy signal at 8,750 was the 5th consecutive buy signal on the Dow's chart since its first buy signal at 8,000. Traders may note that I've "cheated" a bit with the WKLY R1 8,713 level and placed it below the 8,700 (same with WKLY Pivot and S1). The reason I did this was to get a "view" of these level, but in the context of past supply "O" and demand "X." Today's close in the Dow comes very close to WEEKLY R1 and would perhaps tie in with the 8,700 level represented, where a "normal" 3-box reversal comes 1-box below the recent double-top buy signal. The first sign of MEANINFUL weakness in the Dow would currently be a trade at 8,400, which would be a double-bottom sell signal. Longer- term bulls that have their bullish stops set there, might look to raise stops should the Dow once again see a 3-box reversal back high, then their stop could come back up once the reversal higher is seen.

Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still 70%.

S&P 500 (SPX) Chart - 5-point box

Major reversal in the SPX today? I'm not sure about that, but the SPX did look to be a little overextended as it relates to a "bullish resistance" channel we had been monitoring. Unlike what I did in the INDU PnF chart, I did line up the current WEEKLY pivot analysis levels on the SPX PnF chart. The 2 question marks would represent what took place after the SPX had traded the 960.00 level to chart another X in today's session.

One thing trader's might be on the lookout for tomorrow is a "blow off top" type of move. Last week when I profiled a bullish trade in the SPX from the 922 level, that came a day after the SPX had generated a double-bottom sell signal at 915. I had mentioned the old point and figure chartist saying that "sometimes the first sell signal in the upward trend is a buying opportunity." Sometimes a trader will wait a day or two after the sell signal occurs, and then look to play the reversal back higher with the thought that some overly aggressive bears may have shorted a "false signal" in an overly bullish market environment.

You can perhaps see the "catapult" type of action that has taken place since. What could lend itself to a "blow off move" to the upside is any type of "bullish" news that comes out once the move is underway, which brings bears to a level of "capitulation." While the SPX trade at 960 does have the chart printing X 3-boxes above our pink trend, where we've been use to seeing 2 X's, a "blow off" type of move would more likely be depicted by a more exaggerated type of column of X, say to 970 or so.

It's notable that only the SPX and OEX were the only two major indexes to not trade their WEEKLY R2s today and so far this week. This would tie in with the thinking of how important the BIX.X as a sector may be for traders, which also has come up just short of its WEEKLY R2. One day left and if the WEEKLY R2 are violated to the upside tomorrow, that might be the trigger needed for the aforementioned "blow off move."

Today's trade saw the S&P 500 Bullish % ($BPSPX) see a net gain of 0.6%, so a net gain of 3 stocks to new point and figure buy signals. Bullish cycle high of 71.6%.

S&P 100 Index (OEX) Chart - 60-minute intervals

But to get a "blow off move" going, my OEX bullish trade from 481 yesterday morning has some major work ahead of itself. I showed several intra-day charts on 5-minute bars today. The above chart is a 60-minute time interval chart, and this afternoon the OEX did look to find support at our "zone of support" and WEEKLY R1, but the little bounce found suspicious selling back at our MONTHLY 19.1% retracement of 480, which is coincidentally very close to MONTHLY R1 of 480.6. I profiled the OEX bullish trade with a stop just below at 475, which I've marked on the charts, but I think this trade is going to need some "good news early" tomorrow morning in the economic data. Friday's economic calendar is available at this link.

Today's trade saw the S&P 100 Bullish % ($BPOEX) see a net gain of 1 stock to a new point and figure buy signal. This has the bullish % for this index back at its high reading of 67% found last week.

NASDAQ-100 Tracking Stock (QQQ) - 10-minute intervals

The QQQ and NDX traded to the top of our "bullish wedge" and MONTHLY R2, which looked to be a target of bulls in Tuesday evening's index wrap. The QQQ closed right at its WEEKLY R2 and leaves an almost perfect "stagger" with the INDU, SPX and OEX finishing today's trade at their R1s.

I've place a couple of "dashed red" trends on the QQQ to try and reflect how I think short-term bears may be continuing to attempt and "pick a top," but when the trend is broken, run to cover and a break to a new high appears to create a squeeze.

It's probably not a far-fetched observation to "look for bullish leadership" from the NASDAQ and weakness from the INDU, SPX, OEX as it relates to the pivot levels.

Today's trade saw a net gain of 2 stocks to new point and figure buy signals in the NASDAQ-100 Bullish % ($BPNDX) and now grows to 80%!

Jeff Bailey

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