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Index Wrap

NASDAQ turns up the volume, but finishes red

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Volume levels at both the New York Stock Exchange (NYSE) and NASDAQ continue to show interest among traders, but today's 2.5 billion share volume and losses into the close may also give hint that some investors are actually losing interest at the higher levels of bullishness and more importantly RISK for bulls.

Today's give back of gains for the NASDAQ has the look of a "reversal top," but how many times have we read or heard that in the past couple of months? Plenty! And we can most likely believe that any bear looking to once again try and leverage a bearish trade will once again be well served to follow any overly bearish bets at this point with a tight stop above today's highs.

On Friday, I made note that the CBOE Internet Index (INX.X) 136.11 -0.58% was exhibiting intra-day weakness relative to the major market indexes, which might have been holding the NASDAQ- 100 Index (NDX.X) 1,185.13 -1.06% from surging above the 1,200 level. Today's trade saw the INX.X make yet another 2003 high above 140, but fade back to 136 by the close,

A brief glimpse of red from the Semiconductor Index (SOX.X) 372.06 -2.68% as it dipped below the unchanged level this afternoon was "the sector" that may have kept the NASDAQ-100 from closing above the 1,200 level after a session high of 1,213.76. Am I to think the SOX.X can't challenge today's highs of 387.80 tomorrow or its December high of 393.80 simply because it reversed earlier gains to finish lower at the close?

My point in all this is that these intra-day "reversals" have been seen time and time again the past couple of month. While I certainly feel we're closer to a near-term top and some substantial profit taking, which could see more the 1/2 of the March to current level gains erased quicker than even the most bearish of bear's might imagine, I've yet to see any signs of internal weakening that would have the bearish side of me thinking that BIG volume on the NASDAQ and a lower close was any type of major reversal.

If there was one sector/index that came very close to a "target" that we have noted here in the Index Trader Wraps, that might be correlative with some of the selling and partial giveback of gains in the major indexes today, it was the S&P Banks Index (BIX.X) 303.70 +0.31% trading a session high of 307.46 and getting very close to our reverse head/shoulder objective of 308.84. In a May 28th 11:00 Intra-day update Intra-day update http://members.OptionInvestor.com/intraday/inupd_5282003_1044.asp I showed a BIX.X chart with crisscrossing resistance from upper- regression at the 308.84 level and June 5 time forecast. Today's gains did find coincidental resistance at upper-regression. As we've see the BIX.X break above each level of that retracement bracket, we haven't seen the BIX.X trade near the upper-end of any of these ranges since it broke its neckline and first sign of technical weakness in the BIX.X that we might then expect to "bleed over" in the major indexes would be a move back below 298.

I think traders/investors should take note of this as the BIX.X has definitely been a decent "leadership" group. Especially for bulls that either "banked" on rally, or were looking for a sector to provide a catalyst to help propel the S&P 100 Index (OEX.X) 485.36 +0.4% and S&P 500 Index (SPX.X) 967.00 +0.35% to some of the levels seen today.

Here's a quick look at the Pivot Analysis Matrix. Remember, we have new MONTHLY and WEEKLY levels.

Pivot Analysis Matrix -

Only the NASDAQ-100 Index (NDX.X) 1,185.13 -1.06% and its Tracking Stock (AMEX:QQQ) $29.59 -0.67% didn't trade their WEEKLY R1s in today's session. While the Biotechnology Index (BTK.X) 455.20 +1.29% held its gains today, they closed well off their highs of 475.22.

While the BTK.X isn't a sector in our matrix, the biotech's do carry a meaningful weighting in the NASDAQ-100 Index. I'm setting a "downside alert" in the BTK.X at 435 near-term as a sector alert for weakness in the NASDAQ-100 Index. Here's why.

Biotechnology Index Chart - Daily Interval

Biotechnology stocks have been a major momentum group in recent weeks and that momentum has also been found in the NASDAQ-100 Index, with each break above a relative high driving price action higher still. One of the biggest enemies of a QQQ bear hasn't been the "overbought" nature of the NASDAQ-100 Bullish %, but the bullish momentum, which not unlike the biotechnology index, which trades LARGELY on investor psychology and the prospects of new drugs, has had shorts covering on each break to a new high. In the above chart, I'm simply looking for some type of break below a recent pullback, which might hint that the biotech's are losing some momentum (435) and a near-term target that might then find some short-covering (410) after the recently strong rebound to new 52-week highs.

Today's trade action in the BTK.X isn't that much different than the May 19th trade that I've marked "Reversal?," which evidently was NOT a reversal. I think a QQQ trader now looks for the BTK.X to either DUPLICATE past trade or DIVERGE from it. DIVERGENCE in my opinion would be a break below 435, which could then find a BTK.X decline of 5.7%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

Until I were to see some type of reversal in the NASDAQ-100 Bullish % ($BPNDX), I'm going to continue to assess upside to the $30.60 level right now, as limited overhead supply still seems to have the QQQ able to benefit from upside short-covering. Volume was heavy again today at over 103 million shares and I'm trying to compare that volume to the spike from 5-sessions ago when the QQQ "rocketed" back above the $28.31 level.

Today's trade saw no net change in the narrower NASDAQ-100 Bullish % ($BPNDX). On Friday, this bullish % jumped to 84%.

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

I've "hidden" all of the conventional retracement (pink) levels except for the December high of 954.28 and October lows of 768.65 (which I don't believe we will test for many years). I would be hesitant at this point with anything more than a partial put position on the SPX, and would currently have to assess risk to 983, which may well tie in with the S&P Banks Index (BIX.X) of 308 and its reverse head/shoulder objective. Bears shouldn't look to get too "cute" with a near-term decline much past the 943 level. The reason I think this, is that SPX 944 was a bullish objective of mine from a 922 bullish entry. The FACT that the SPX was able to "blow" back above that 944 level and make a new high has me looking for support right back at that level.

Was today's jump to 975 in the SPX the "blow off move" we looked for last week? The S&P 500 Bullish % ($BPSPX) jumped 3.2% today, so that's a net gain of 16 stocks to new point and figure buy signals. On Friday, the SPX bullish % saw a 2.4% gain and that's a 6.6% rise in just 2 sessions! This has this broader bullish % ($BPSPX) now at 77.2%. Internals still very bullish, but now this broader bullish % getting more "overbought" at 77.2%. Again... I don't think a "swing-trade" type of bearish trader will find current levels the best bearish entry, but a short-term bears that can keep a close eye on things and able to react to the various levels in the matrix may look for a break below today's lows to see some profit taking back near the 943 level.

In today's market monitor and intra-day updates, I thought OEX bulls should snug up a stop under a bullish OEX trade at either 489 or just under the 488 level and December highs. The OEX did trade back below both of these levels to close at 485.36.

Today's action saw the S&P 100 Bullish % ($BPOEX) see a net gain of 4 stocks to new point and figure buy signals and has this narrower bullish % rising to 72%. One of the reasons I "liked" a bullish trade in the OEX from 481 is that the bullish % still had some room to the 70% level and might give bulls a good risk/reward bullish trade from 481. With this bullish % now above 70%, I'm not second guessing the raising of a tight stop at 488 or 489.

Dow Industrials (INDU) Chart - Daily Intervals

The Dow Industrials (INDU) saw its session high come at 9,003, which is right at a "psychologically" round number of 9,000. I still think that with the bullish % in the major indexes now well above the 70% level, bulls that try to play new longs are trying to squeeze "blood for the turnip," which has already produced a lot of juice. It may be "destiny" for the Dow to trade its December high as have the major indexes, but I don't see any new bullish destiny traded action points for bulls at current levels. The "best" bullish entries have come when Stochastics reach "oversold" levels and we can identify some good levels of support in the matrix. From here, I don't see a good bullish entry until INDU 8,675-8,700.

Jeff Bailey

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