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Index Wrap

Bar-B-QQQ bear ribs

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While I certainly don't think traders should be looking to gorge themselves on bullish trade, today's ability for the major indexes to battle back from their early morning lows and finish positive sets the table for yet another place of Bar-B-Q "bear ribs" as yet another high is within reach of being violated as the major indexes all finished in positive territory.

Today's trade was rather quiet for the major indexes. While news that the SEC was investigation some potential accounting irregularities with Intl. Business Machines (NYSE:IBM) $83.82 -4.01%, the declines there were not enough to have this Dow component and tech-bellwether keeping the Dow Industrials (INDU) 8,922.95 +0.28% from posting a 25-point gain and finishing above the 8,900 level.

In what may have portended to be a volatile trading session after yesterday afternoon's giveback of gains with the Dow Industrials finally chiming in with a new 2003 yearly high and joining recent 2003 index highs from the NASDAQ-100 Index (NDX.X) 1,198.57 +1.13%, S&P 100 Index (OEX.X) 488.11 +0.56% and S&P 500 Index (SPX.X) 971.56 +0.47%, bulls seemed to be willing to hold their longs on thought that higher prices along with jittery bears that may now be more eager to cover and run then short and hold, kept the indexes right at their DAILY pivots, without an intra-day trade at a DAILY S1 or R1 level. Only the S&P Banks Index (BIX.X) 306.58% +0.94% was able to trade its DAILY R1 and barely so with a session high of 306.61. Still... destiny may be calling the BIX to our 308 reverse head/shoulder objective and only the great bear in the sky knows for certain what sector bears might do here on a move above 310.

Suffice it to say.... there was little change in today's market.

In fact... it took me until 04:03:17 EST to develop a taste for "Bar-B-QQQ bear ribs," with thoughts that a trade at $29.85, which would be a session high, into the Q's 04:15:00 PM EST close might allow a bull the opportunity for a little further "short- covering" rally into tomorrow's trade.

I made a screen capture of my QQQ profile and while I too saw a "bunch" of intra-day "head/shoulder tops" I see that Jonathan Levinson and Linda Piazza also made some reference late in the day regarding these technicals that looked to pressed back to the upside into the close.

Market Monitor Postings

I didn't see Jonathan and Linda's posts until I went to "screen capture" the market monitor, but their observations of intra-day head and shoulder top patterns may play into a bull's thinking that the possibility of some short-covering in tomorrow's trade has Monday's highs once again in play.

Here's a quick look at tomorrow's Pivot Analysis Matrix. When I profiled a bullish QQQ stop at $29.50, I wasn't yet aware that $29.50 would be tomorrow's DAILY S1, but at these higher risk levels of bullish %, that's just about what I think a shorter- term bull in the Q's would be looking to risk.

Pivot Analysis Matrix

Intra-day observation I made today were that of shorts still being jittery. These observations came mostly from the QQQ trade and I'll discuss the in a moment.

Make note of Linda's 15:39:10 market monitor post, as we'll look at the OEX chart intra-day, but make the "tie" with correlative resistance in the DAILY R1 and WEEKLY R1 matrix tomorrow. This is juuuuuust above today's intra-day head/shoulder top pattern and "head." A break much above OEX 490 could then be construed as computers lacking much of a "sell bias" and if that's the case, then Monday's highs (close to DAILY R2) and WEEKLY R2 of 496 then in play.

There was a good comment by a floor trader today on CNBC regarding technical analysis and how it was purely "psychological." I can't disagree with that, as the market prices and trade action are a reflection of the market's psychology. Right now, its my opinion that bulls are simply trying to inflict as much damage to bears as they can, especially during a period where a bear's psyche is severely vulnerable.

Still... I think you can see just how bears were "giving it their all" in today's trade, especially in the Q's, but also see how fragile their psyche is, which I think a QQQ bull now looks to expose.

NASDAQ-100 Tracking Stock (QQQ) - 5-minute bars

At this point of a bull run, bears are looking for "anything" to signal a top. I'm not talking about Jonathan and Linda being "bears," but you can well bet that EVERY trader with a BEARISH bias is grasping to find some sign of a top.

I think BEARS were really trying to short that $29.69 level late today at what looked to be a "right shoulder" of an intra-day head/shoulder top formation, but see that "spike" in volume and the move higher once the pattern was negated? Earlier in the day, I actually profiled a bullish trade in the QQQ when the Q's had just traded their high of the session at $29.84, but wanted to see a move above the $29.85 level and our old upward trend from our bullish wedge. I made note of the "volume break" above $29.65, which is 38.2% retracement from our WEEKLY pivot analysis.

As I type, the QQQ is trading $29.90, so it looks for now that the QQQ might open above this bullish wedge resistance and a bulls "first hurdle" on an intra-day basis is going to be $30.02- $30.05. This will be a "key level" tomorrow and most likely the first place the MARKET would look to sell as this is right where Mondays "reversal" took place. Still.... a bear's psyche is fragile and what I think bullish traders will be trying to take advantage of at the higher levels of bullish %. I don't think bulls are in here gobbling up the QQQ because of some great value or lower risk market environment.

Today's trade saw a net loss of 1 stock to a new point and figure sell signal. This has the NASDAQ-100 Bullish % ($BPNDX) slipping from its bull cycle high of 84% to 83%.

S&P 100 Index Chart - Daily Interval

Perhaps the most "excitement" for an OEX trader today was to see if the OEX would close at its December high of 487.94. Pretty close at 488.11 and the highest close for 2003. The OEX does see and "inside day" on today's trade, which gives the look of "neutrality." I "like" a bearish trade in the OEX on a break below today's low of 484.27, stop above yesterday's high at 492. Still, I'd only be looking partial positions at this point as market internals are still strong.

Shorter-term traders that are monitoring ALL of the major indexes during the day, might have noted the QQQ breaking above its intra-day head/shoulder top "right shoulder." Here's the OEX intra-day chart, which I've simply placed a retracement bracket on to reflect the "head" at 488.93 and "neckline" at 484.25, which then gives a downside objective of 479.56, say... 480.

S&P 100 Index (OEX) - 5-minute intervals

I've seen more "head and shoulder tops" on the intra-day charts than I can count. There was one pointed out on Friday and when it "blew up" Monday morning, bulls were eating some Bear-B-Q sandwiches. It is somewhat notable that today's lows and current neckline of a head/shoulder top comes right where Monday morning's rally too place.

Yes, there's an intra-day h/s top on the Dow Industrials too, but it looks just like the OEX intra-day chart shown above.

Dow Industrials Chart - 50-point box

It was on March 17th that the Dow Industrials Bullish % ($BPINDU) reversed up to "bull alert" and IBM was one of the 2 stocks to generate a new "buy signal" that day and get this very narrow bullish % indicator to reverse up from 9.99% to 16.67%. On March 17, the Dow closed at 8,141.

IBM may well be a good short candidate as at $83.82, or even $90 and May highs, the stock had been under performing the Dow Industrials and broader S&P 500 Index. It may well be there had been an SEC cloud hanging over the stock. If you're a Dow trader, keep an eye on IBM from here as the "early" buy signal in March that helped alert to a new bull shaping up has now seen an "early" sell signal develop in the very same stock.

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

A trader asked me if I would hold a bearish trade overnight in the SPX. My answer would be yes, and all a bear is doing that tries to pick a top, is what every bear should have been doing the past 3-months. Follow with a stop just above the highs. Eventually a bear will get it right. Some bears however, have been trying for 3-months and missed one heck of a bullish move higher.

This "hold over night" question is that of a short-term oriented bearish trader. At least I'm guessing this.

One thing to think about right now if "wondering" if a SPX put or SPY short should be held overnight, is to think about using either the SPY as an overnight hedge if you don't like a more bullish move into a session's close, which may carry momentum into the next session. Now... this might not be "feasible" in the SPY at $97.75 per share.

Can you think of another security, which is "cheaper" with a higher beta than the SPX, which might offset some option price deterioration NEAR-TERM in a SPX put? I'm thinking the QQQ $28.96. Maybe some other traders were thinking the same thing into today's close as it just didn't seem like bears were getting the "big reversal" day they may have been hoping for.

Jeff Bailey

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