The major market indexes were under selling pressure for the bulk of today's trade as an earning's warning from Motorola (NYSE:MOT) $8.68 -2.36% set technology sectors back early, while a shakeup among the nation's number 2 mortgage financier Freddie Mac (NYSE:FRE) $50.26 -16% renewed fears of corporate malfeasance and lack of regulatory oversight.
Today's "lack of bullish news" comes at a time with many of the bullish % indicators are at historical highs and "overbought" levels and gave many profitable bulls plenty of reason to lock in some gains.
Dow Industrials Chart - 50-point box
Today's trade at 9,050 was enough to see a 3-box reversal back lower in the Dow, and for now, the current pullback would be simply interpreted as profit taking. The "blue ?" is my envisioning of trade and how I might look for the Dow to trade under still bullish market conditions. I made note that both IBM and MSFT traded RELATIVELY strong compared to the Dow today, as both stocks had been trading AGAINST the Dow in recent sessions. When I see under-performers (especially sector bellwethers) DIVERGE from the markets, today's action certainly hints of short-covering on broader market weakness. If bears are going to cover weaker stocks, then they should be expected to cover some of the stronger components that traded lower again today on profit taking.
One "term" that traders and investors should probably be accustomed to in the coming weeks is "valuation" calls by institutions and their downgrades. It's a polite way of them telling investors that they have ALREADY told their institutional clients to take profits as bullish gains may have become a bit excessive.
S&P 500 Index Chart - 5 and 10-point box
Today's trade at 985 in the SPX was enough for a 3-box reversal and first sign of some softening. You will note that I've changed the "box size" to 10-point intervals above 1,000, this is because price above there becomes "less meaningful" at 5-point intervals (www.stockcharts.com has their box size at 50-point, but that's TOO MEANINGFUL a move in my opinion).
In today's 01:00 PM Update, I showed the bar chart of the SPX with MONTHLY and WEEKLY retracement overlaid, along with the December high of 954.28. With the BIG "blow off" type move we saw from the SPX after the trade at 915 and reversal back up, I'm looking for even the most BEARISH of BEARS to be looking for cover on a pullback at/near 959 and overlapping support levels from pivot analysis work. As such, I'm being rather conservative at this point with by bearish target of 965 after profiling a bearish trade in the SPX on today's break lower at 982.
Today's trade saw the S&P 500 Bullish % ($BPSPX) fall a WHOPPING 0.2%. In essence, the S&P 500 saw a net loss of just 1 stock to a point and figure sell signal.
Now... one thing I'm trying to do as it relates to the SPX chart as I did with the Dow Industrials Chart is try and "envision" how a trade might results, where the SPX gives a "sell signal" similar to more stocks in the SPX, that would eventually generate "sell signals" of their own to then have the very high levels of bullish % begin to deteriorate.
Right now, it might take an SPX trade at 910 for any marked deterioration in the SPX bullish %, but a more "feasible" type of trade would be an SPX pullback to 965, a rebound back to 990, and THEN a double-bottom sell signal at 960, or something like this.
S&P 500 Index (SPX.X) - Daily Interval
Here's the same bar chart of the SPX that I showed in today's 01:00 PM EST update. The SPX hovered around the 975.94 level for the bulk of the afternoon session, and break that level, which I thought would find a close at the low by session's end, but a little rebound came into the close.
I would NOT want to be OVER LEVERAGED from the short/put side here. I think there are probably TOO MANY traders OVER LEVERAGED already, and I would be concerned about and short-covering rally back above 987, or WEEKLY Pivot at this point.
S&P 100 Index Chart - Daily Interval
SPX traders will want to probably keep a close eye on the OEX in tomorrow's trade and it would be my thinking that a "zone of support" from 487.94-489.48 needs to be cleared for thought that a target of WEEKLY S1 can be achieved. It took 2-days for the OEX Stochastics to reach "oversold" on the DAILY chart in mid- May. From there, the OEX set up an "inside day" and a rebound to new highs took place. If short/put the OEX right now, would be looking to trade for any bearish gains on a trade near WEEKLY S1 of 484.20 should Stochastics reach oversold.
Today's trade saw not net change in the S&P 100 Bullish % ($BPOEX). On Friday, we saw a net gain of 2 stocks to new point and figure buy signals to 78%, which is where we stand at the end of today's trade. The 78% level was a relative high reading for this indicator in March of last year.
NASDAQ-100 Tracking Stock (QQQ) - Daily Interval
As it relates to the pivot analysis retracement, the QQQ and NDX are a little "weaker" in their pivots. On Friday, the QQQ/NDX were the two indexes that DID not trade their MONTHLY R2s, while the INDU/SPX/OEX did intra-day. Now we see the QQQ trading its MONTHLY 38.2% retracement.
Shorter-term traders may want to monitor this tomorrow and have an upside alert set on the QQQ at approximately $29.82 (just above our WEEKLY 61.8% retracement). A move above that level tomorrow may well signal a rebound in the QQQ, which could then build some near-term strength for the INDU/SPX/OEX.
Shorter-term traders may want to play the QQQ/NDX levels against the INDU/SPX/OEX levels, which are now staggered. Especially those traders that are trading larger positions over the short- term.
Here's a quick look at tomorrow Pivot Analysis Matrix. The "dashed red" levels of correlation are those levels that correlate within the matrix, but would be deemed "tentative resistance" as they were traded today. On a more gradual intra- day type of move higher, these "dashed red" levels may offer more formidable resistance for a move back lower.
Multiple "solid green" levels between DAILY S2 and WEEKLY S1 exist.
Pivot Analysis Matrix
I will admit to not being a Freddie Mac (NYSE:FRE) $50.26 -16% expert as it relates to any type of impact today's shakeup at the company might have on its current business practices of buying mortgages from many of the regional banks that will originate mortgages, then sell some of their portfolio in order to free up further capital for new mortgages, but once again, the S&P Banks Index (BIX.X) 303.48 -2.54% could be an important index for traders to be monitoring for strength and/or weakness.
I do know this! If I had traded bullish in the banks on the technicals of the reverse head and shoulder pattern, got my objective of 308 and now see BIX.X, I would PROTECT GAINS and not "wait for the highs to be revisited."
Tonight, Rueters reported that Freddie Mac's government regulator said it would dispatch a special team to investigate management practices. Freddie Mac is the number 2 mortgage financier. Lawmakers have also called for a probe of not only Freddie Mac, but also the regulators, which is the Office of Federal Housing Enterprise Oversight (OFHEO).