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Index Wrap

Warnings gave little reason for gains

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Less than positive quarter earnings warnings from Biogen (NASDAQ:BGEN) $41.55 -5.13%, Rohm and Haas (NYSE:ROH) $31.97 -2.53% and Tenet Healthcare (NYSE:THC) $12.01 -26% set the tone for declines early this morning, but a slight bounce near the close found the major indexes and bulk of sectors finishing just off their lows.

While Rohm and Haas (ROH) may not be a "top of mind" stock, today's warning from the specialty materials company that manufactures products sold for use in the personal care, grocer, home, construction and electronics market, left few sector bulls much of a reason to step in and buy stocks on weakness until the close of today's session neared.

A slight lift from the session lows for the major indexes in the last 30-minutes of trade didn't help bulls much, but gives some thought that the bullish run for stocks since the March lows may still have some fight left in the bull, which by all accounts deserves a rest.

With Triple Witch expiration having come to an end Friday, volumes at both the NYSE and NASDAQ were brisk, but below levels that tended to build higher into Friday's trade.

For a fourth consecutive session, breadth at the NYSE was negative with decliners outnumbering advancers by a 3 to 1 margin, while NASDAQ breadth was negative at 3 to 1 for a third- straight trading session. I'm make not of the consecutive session negative breadth, as this is something we haven't seen for months. While I tend to "discount" Friday's Triple Witch as institutions tend to be taking off some prior hedge strategies at quarterly expirations, this broader indicator of negative breadth is sign that market participants are stepping up some profit taking as the quarter nears and end and Wednesday's FOMC decisions on interest rates nears.

Here's a quick look at the daily breadth indicators since May 27th, where we're also monitoring the number of new 52-week highs and 52-week lows for both the NYSE and NASDAQ.

Market Breadth - May 27 - June 23, 2003

For the first time in months, Advance/Decline breadth for the NYSE and NASDAQ reached a 1:3 ratio. Prior negative breadth sessions (06/13 and 06/19) were 1:2, and today's trade would give indications that bulls are stepping up their profit taking activity.

With the NYSE Composite (NYA.X) 5,549.09 -1.46% falling 82 points and declining for 3 out of its last 4 sessions from a high of 5,739.03 set on Tuesday of last week, it is not surprising to see a lessor number of new 52-week highs, but the daily NYSE NH/NL Ratio of 87.8% today does have this narrower breadth indicator's 10-day NH/NL avg. falling to 97.0%. It would still take a reading of 92% to have its 2% box scale chart reversing back lower, but a slight lack of leadership from new 52-week highs and steady number of new lows shows that bullish leadership is waning a bit, and advises caution to bulls.

The NASDAQ Composite (COMPX) 1,610.75 -2.06% fell 33.97 points in today's trade, and after closing at a 52-week high on Wednesday of last week at 1,677 has declined for three consecutive sessions, but managed to hold above its June 9th relative low of 1,597.32. We can perhaps benchmark today's breadth data with some focus on the NH/NL breadth to see a lesser number of new 52- week highs and still rather steady new 52-week lows.

It would be my analysis from the breadth data that rally attempts are not going to be as "ferocious" as they have in recent weeks, with the tapering off of NH/NL 10-day ratios.

While I'm looking for some slight bullishness into the FOMC meeting, the market internals are beginning to show a bullish run beginning to look tired.

The NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $29.91 almost tempted me into a bullish profile at the $29.82 when the QQQ were able to get back above our WEEKLY S1 level of support (viewed as intra-day resistance when broken to the downside earlier today). Current levels of trade seen today were identical to that found on June 9th. However, the bid back above the WEEKLY S1 of $29.79 came after the 04:00 PM EST closing of the NASDAQ-100 Index (NDX.X) 1,200.17 -1.87% and I thought it best to wait until tomorrow morning's open to see if there is a trade with our daily interval bar chart Stochastics now approaching the "oversold" level after cycling back lower from "overbought" on Friday of last week.

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

The QQQ traded back into a very similar "zone of support" found back on June 9th, and from the 03:30 PM EST mark, did find buyers into its close of 04:15 PM EST. I've noted the June 9th low, but also the June 6th high. Should the QQQ get a bounce going back above the 21-day SMA, I think it has "rebound" potential back into the $30.51-$30.60 level.

One trade I'm looking at for a bearish entry is for Thursday when the FOMC is expected to make its decision on interest rates. I'd like to see the QQQ rally back near the $30.60 level tomorrow, then build some type of anticipatory gains ahead of the FOMC meeting toward WEEKLY R1 of $31.02. I would then look for some type of "sell the news" type of trade with the QQQ falling back below the WEEKLY Pivot of $30.51 to then eventually bring weakness back toward $29.58.

Per our Thursday June 12th Index Trader Wrap, today's low in the QQQ was $29.56 and that wasn't low enough at this point to have our "finite stop level" for bulls of $29.40 to give a "sell signal" on the unconventional $0.35 box size.

Friday's trade saw the NASDAQ-100 Bullish % ($BPNDX) hold at 81%, but today's trade saw the NASDAQ-100 Bullish % see a net loss of 5 stocks to sell signals. This has the bullish % falling from a bull cycle high of 91% to current reading of "bull correction" and 77%. To reverse back up to "bull confirmed" status we would need to see a reading of 84%, while further decline to 68% would be "bear alert" status. It is my feeling, based on observation and past experience, that the NASDAQ1-100 Bullish % ($BPNDX) will be hard pressed to reach 92% this bull cycle and even if reached, will most likely be short-lived.

Note: When you look at the NASDAQ-100 Bullish % ($BPNDX), remember that we could see it reverse back up into "bull confirmed" reading at 84%, but if it then reversed back lower to 76%, this would be "bear confirmed" status at an extremely high level of bullish %. As noted last week, bulls should be no more than 75% bullish weighting in the QQQ/NDX or technology stocks in their portfolios. If 75% or higher, we might then look for selling into rallies as other market participants look to lighten up on tech exposure.

A final note made on the QQQ is that per NASDAQ, the QQQ short interest as of June 13th (most recent data published) has grown to a 7-month high of 223.4 million shares. With average daily volume of 84.3 million share, this has the days to cover (dtc) at 2.65, which is actually less than the 2.91 dtc for May 15.

As I flipped my Stock Trader's Almanac calendar forward a couple of weeks, I find a note in it that June ends NASDAQ's "Best Eight Month." With the bullish % starting to show internal weakening, the NASDAQ-100 may well be the first major index to take a more meaningful rest, with a summer siesta starting to take hold!

S&P 100 Index Chart - Daily Interval

The S&P 100 Index (SPX.X) 495.77 -1.31% wasn't "as bad" as I would have thought it would be considering the financial sectors were down approximately 1.6% on average (BIX.X -1.4%, BKX.X - 1.66%, XBD.X -3.12% and IUX.X -0.93%). While the OEX does look near-term vulnerable to the December highs of 487.94 and WEEKLY S2 of 489.44, I would think the pullback from the recent highs is going to press some mutual fund managers that have been sitting on cash with the second-quarter drawing near. With the QQQ finding some late session buying into today's close, I'd monitor the QQQ/NDX for strength early tomorrow, and like the OEX.X for a rebound back near the WEEKLY pivot of 504.29. If long on a break above OEX 497, I would then raise stop to break-even on OEX trade at round-number 500.00 or "zone of resistance" 500-502.

Today's trade saw no net change in the S&P 100 Bullish % ($BPOEX). Still "bull confirmed" at a bull cycle high of 82%, but with the also narrow NASDAQ-100 Bullish % starting to show internal damage, will to only trade the OEX long for some near- term scalping.

Per our June 12th Index Wrap, the OEX's "finite" bullish stopping point of 489.00 on untraditional 3-point box scale was not traded today. A 3-box reversal back higher to 504 would make for a lower high at this point, but also allow a bull to raise his/her bullish stop to 492, IF 504 were traded.

I was looking at the Stock Trader's Almanac this week and next. This week shows little historical significance, but next Monday, which is the last day of second quarter, the Dow Industrials has shown historical tendency to trade down 8 of it last 11 "last day of second quarter."

S&P 500 Index Chart - Daily Interval

Broad sector weakness looks to have had a greater impact on the SPX and the OEX as it relates to the WEEKLY pivot levels. As such, to try and trade the SPX bullish over the OEX, I would really have to give more focus to the QQQ/NDX in an SPX trade.

The reason I say this is that what we're seeing from the bullish % is a starting to soften up NASDAQ-100 Bullish % (more tech stocks giving sell signals) and today's action also saw the S&P 500 Bullish % ($BPSPX) see a net loss of 1.4% or net loss of 7 stocks to new point and figure sell signals. Compare this to the narrower S&P 100 Bullish % ($BPOEX).

If looking to trade a "bounce" higher in an S&P index, I'd have to defer to the OEX, which still seems to at least be holding some support levels in the components point and figure charts.

While program trading curbs were in place when the SPX violated the overlapping 983 level in the WEEKLY/MONTHLY retracement, I do view the breaking of that support, and on a closing basis rather negative. I've tried to tie in the "finite" bullish stopping level discussed in our June 12th Index Wrap for the SPX at 972 with this WEEK's WEEKLY S2 of 973.16.

One thing I also see in the SPX bar chart is a POTENTIAL head/shoulder top pattern forming, where we could be seeing the "neckline" forming right here. "Left shoulder" would be at 1,006, "head" just above WEEKLY R1 of 1,012.

As it relates to a "rally into the FOMC and then sell the news" type of trade, I would watch for the "sell the news" part back near 1,006.

Dow Industrials ($INDU) Chart - 50-point box

The current 300-point pullback from the recent high of 9,350 is considered "normal" at this point, but a trade at 8,900 in the Dow would be a signal to longer-term technical weakness. The 50% retracement of the last column of X (9,000-9,350) is now considered a "high pole" warning and does hint that bulls aren't quite as aggressive to buy "smaller pullbacks."

I've placed 3 "red dots" in downward trend fashion to signify the potential makings of a downward trend. We've done this before at lower levels of bullish %, and the Dow has managed to break above these little trends. Still, at these levels of bullish % (NDX, OEX, SPX and INDU) any bull holding 75% or 100% bullish positions is "too bullish" in my opinion and I would think be lightening up on any type of rally back near 9,200 and correlative resistance found in the WEEKLY Pivot and MONTHLY R2 of 9,214-9,223.7.

Today's action saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still bull confirmed at a bullish cycle higher reading of 83.33%.

Here's a quick look at tomorrow's Pivot Analysis Matrix. Note we have new levels for the WEEKLY levels after the conclusion of Friday's trade.

Pivot Analysis Matrix

The S&P Banks Index (BIX.X) 302.23 -1.4% looks short-term oversold, but SPX/OEX bulls will monitor the 300 level early tomorrow for support. OEX bulls will tie in the 492 level from MONTHLY R1 and DAILY S1 correlative levels.

NASDAQ-100 Index (NDX.X) gets thrown off a little in the matrix with the QQQ, as the QQQ showed some recovery in its final 15- minutes of trade. Here though, traders will most likely rely on the OEX/BIX support levels outlined at 492/300 to be the NDX correlative type support, with NDX resistance overlap showing at DAILY R2 and MONTHLY R1 of 1,235.

The "shorter-term" upside trigger for the indexes aside from the NDX/QQQ bidding early, is found in the SPX at DAILY pivot of 984.91, WEEKLY S1 984.42 and MONTHLYR R1 985. In tonight's wrap, I placed the upside move at 987.

Jeff Bailey

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