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Index Wrap

Blue light special flashes before the close

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After a one-day pullback from multi-month highs, investors appeared rather cautious yet willing to snatch up stocks in today's session, and a late rally into the close had some traders looking like a bunch of shoppers rushing the table at the base of a Kmart blue light special.

Shares of discount retailer Kmart (NASDAQ:KMRT) $19.60 jumped 12.8% in their debut on the NASDAQ after the company filed for bankruptcy and was delisted from the NYSE in December of last year. The new beginning for Kmart on the NASDAQ and today's rebound for the indexes, gives the look of the "good old days" when bulls welcomed pullbacks and viewed them as a bargain buying opportunity.

In what had been a rather lackluster and uneventful trade for the major indexes for the bulk of the day, things livened up a bit in the final 40-minutes of trade, on what I could only describe as short-covering ahead of the close, when Friday's "reversal" and Monday's declines failed to reward bearish traders into the close.

Even gold stocks, as depicted by the Gold/Silver Index (XAU.X) 75.64 -1.4% recouped the bulk of their session losses into the close after being hit lower to 74.15 in the early morning hour.

Despite great focus given to the higher trend in natural gas prices by Alan Greenspan, the Natural Gas Index (XNG.X) 201.38 +0.45% managed to gain fractions when compared to the Dow Jones Home Construction Index (DJUSHB) 444.55 +3.27% after broker Lehman Brothers raised its price targets for the group based on increased EPS outlook and higher multiples warranted by the rising equity indexes.

While an after-the-close earnings warning from Texas Instruments (NYSE:TXN) $20.39 +0.84%, which saw the stock drop to $19.35 in after-hours trade took some wind out of the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $30.18 +1.51% with an after-hours dip to $30.03, bearish traders once again look jittery and staring at Friday's highs as if "the top" is less certain.

And holding on I am to prior bearish profile in the S&P 500 Index (SPX.X) 984.84 +0.91%, which saw a tightly contested trade today see late upside action into the close. And I'd hang onto this trade until proven wrong with trade above the WEEKLY pivot of 986.30, which defines my near-term zone of resistance. To say I would be an OVERCONFIDENT bear at this time would be an over exaggeration, but I'm not going to hang on to see if Friday's highs are going to hold if the SPX makes its move above 986.30 tomorrow.

S&P 500 Index Chart - Daily Intervals

I was asked to update my bearish profile from yesterday at SPX 982 in this afternoon's market monitor. I couldn't find a lot to update at that time as today's "range" was inside of yesterdays and to me, was more of a neutral type of trading session or very short-term consolidation day.

The BEARISH side of me doesn't like the close at the session high and this morning's low of 975.93 sure seems to have found support at the 61.8% retracement from our WEEKLY pivot analysis retracement. At the same time, I "couldn't" close out both the MONTHLY R1 of 985.0 and WEEKLY Pivot of 986.35 still in play as resistance.

Since I was looking for a continuation move lower to the WEEKLY R1, I thought it best to hold the trade with a rather tight stop just above the WEEKLY Pivot.

June S&P futures (sp03m) settle at 986.70 and as I type (07:45 PM EST) trade 985.50, and not that negative after TXN's earning's warning.

Today's trade saw the S&P 500 Bullish % ($BPSPX) slip an additional 0.2%, so a net loss of 1 stock to a point and figure sell signal was seen. This is very fractional internal damage with the bullish % just off its bull cycle high reading of 82.2% at 81.8%.

S&P 100 Index Chart - 60-minute intervals

I a bear's "reversal" top about to be spoiled by yet another failed intra-day type of head and shoulder top pattern? In past weeks, these shorter-term head/shoulder top patterns, which have failed to the upside have seemed to provide good short-covering rallies for aggressive momentum bulls to trade. While the POTENTIAL head/shoulder top pattern is still in play, I think a combined break higher above 496, wit a similar upside break in the SPX of 987 is reason enough for BEARISH traders to close out my bearish trade in the SPX, but a lower open followed by selling below today's lows and neckline then gives the 60-minute chart of the OEX a downside objective of 477 near-term. Still.... we can see how the WEEKLY S1 of 484.20 serves the better downside target and does tie in with "resistance" in late May serving SUPPORT earlier this month.

If the OEX trades much above 496 tomorrow, I would not be opposed to trading bullish, with a stop just below today's lows.

There was no net change in the narrower S&P 100 Bullish % ($BPOEX). Still "bull confirmed" at 78%.

NASDAQ-100 Index Tracking Stock (QQQ) - Daily Intervals

The QQQ did find some "rally selling" into the close at our "bullish resistance" trend (thick red), but the late "buy program" pushed the QQQ above that trend to close at $30.18. While MOT, NOK and TXN are NOT components of the QQQ, many chip makers and related technology stocks can be impacted by the wireless handset market. I have to begin wondering if the SARS- related reasons for earnings warnings out of MOT, NOK and TXN haven't already been "factored in" as it appears tech-bulls are unshaken and perhaps looking FORWARD as if demand will surge once the Asian economies rebound form the SARS virus. If BEARS have miscalculated, then a break above the WEEKLY pivot of $30.30 could have bulls rumbling the Q's higher as Stochastics now approach the oversold level. While RISK remains high for new bullish entries, a bull can control that risk with a stop just below today's lows on a break above $30.30.

Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX) and status remains "bull confirmed" at 91%.

Dow Industrials Chart - Daily Interval

Boeing (NYSE:BA) $34.31 +3.4%, Microsoft (NASDAQ:MSFT) $24.68 +3.91% and McDonalds (NYSE:MCD) 21.67 +3.83% were Dow "drivers" today. I also kept an eye on International Business Machines (NYSE:IBM) $81.71 -0.35%, based on this weekend's "Ask the Analyst" column and it did find sellers at the $82.60 level with a session high of $82.92.

I don't think I've noticed before 4 separate "inside day" setups, that have all seen upside breaks lead to some impressive next-day moves.

One trader asked me if the "inside day" was a bullish trade setup. It is neither BULLISH nor BEARISH. It is simply a "consolidation day" where the trader is simply triggered with long/call or short/put by the market on the break higher or lower of the "inside day." It is purely a play on supply/demand, where the trader looks to play the short-term shift in supply/demand.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Status remains "bull confirmed" at 80% bullish.

Pivot Analysis Matrix

I've highlighted in "bold red" levels that I see correlative as resistance. I discussed the SPX MONTHLY R1 and WEEKLY Pivot levels. On a move much above today's highs, I would have to then assess upside risk to the NASDAQ-100 WEEKLY pivot of 1,219.6 and DAILY R1 of 1,219.3. Tentative support early tomorrow would be in the OEX at DAILY Pivot and WEEKLY pivot of 494.5, but I've marked the correlative DAILY S1 and MONTHLY R1 further below to signify what I would feel more "formidable" near-term support based on Monday and today's trade at those levels.

Jeff Bailey

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