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Index Wrap

At this point, I don't see it, but...

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At this point, I don't see the S&P 100 Index (OEX.X) 496.49 +0.14% trading correlative resistance in our pivot analysis matrix at 501.20-502.10 ahead of tomorrow's FOMC announcement on interest rates, but if it does, then bulls that may have taken a bullish trade in the OEX from 497 would be well advised to raise bullish stops to minimum break even, and then look for a positive response from the financial to boost any type of gain from there.

From what I've been able to read and listed to regarding tomorrow's decision on interest rates, the views among economists and traders as to how market participants will respond to a no action, a 25 basis point cut, or 50 basis point cut from the Fed is highly uncertain.

Hugh Johnson of First Albany thinks a "no cut" will see a near- term negative reaction from the markets, while a 25 basis point cut would draw little reaction as most participants expect a 25 basis point cut, while a 50 basis point cut would bring more substantial selling from traders on worries that the Fed is VERY concerned about "deflation" and a more anemic if non-existent economic recovery at hand.

Compare Mr. Johnson's comments with those of former Federal Reserve Governor Susan Phillips that thinks the market will be somewhat disappointed with anything less than a 50 basis point cut as the media has already built up market expectations that further stimulus from the Fed is currently at hand.

CNBC showed one of its polls actually had 9% of respondents calling for a rate hike! This is an interesting thought and perhaps makes sense to some that believe the only way to get corporations to actually spend is to have the Fed send a signal that lower rates may not be around forever and the time to borrow and spend is now, not later.

There are also those that say/believe tomorrow's FOMC meeting is a nonevent altogether as the Fed has so many different tools still to access to stimulate the economy, that any rate cut reaction will bring more of a short-term knee-jerk reaction than anything.

For instance, there was multiple mention again today that the Fed can always come in and buy back longer-dated maturities in order to not only pump liquidity into the markets, but keep mortgage rates low and continue to stimulate the housing sector, which at this point has been one of the few bright spots and key drivers for economic stability here in the U.S.

With that said... what was a trader to do today? I was more than hesitant to profile a bullish trade in the OEX as it moved above the 497 potential action point in last night's Index Trader wrap to be certain. Especially without at least getting any type of read from the June consumer confidence board data. Even then I thought.... "if the number's good, and the OEX spikes to 500, what am I going to do then?" In a way, it was either "plan the trade and trade the plan," or simply watch and see what happens.

By session's end, it certainly doesn't appear that anything much happened if simply looking at the S&P 100 Index (OEX.X) 496.49 +0.14%, which finished fractionally positive.

Treasuries had a strong session and recouped some of their recent losses with the shorter-dated 5-year YIELD ($FVX.X) falling 5.1 basis points to close with a 2.158% YIELD. Both the 10-year YIELD ($TNX.X) 3.265% and longest dated 30-year YIELD ($TYX.X) 4.344% fell a similar 5 basis points by their close.

The "wildest" trade in today's market may well have been a 14- point intra-day range in the Dow Jones Home Construction Index (DJUSHB) 450.05 +1.11%, which started the morning trade out strong and moved quickly to the 454 level, but then fell rather quickly to the 440.50 level after traders made note that today's release of June consumer confidence data hinted that some consumers were perhaps putting off the purchase of a home until later this year as 3% of those polled said they were looking to purchase a home in the next 6 months, compared to May's 3.8% of those surveyed looking to buy a home.

If anything, today's trade in the DJUSHB gives some credence to Wednesday evening's Index Wrap and work we did with retracement. Today's trade at least raises some thought that there are buyers at the 440.59 level and to even begin thinking that some type of "trouble" or "housing bubble" is in play that could threaten an economic recovery, this is a level that must first be broken.

Dow Jones Home Construction Index (DJUSHB) - Daily Interval

In Wednesday evening's Index Wrap, we looked at a WEEKLY interval chart of the DJUSHB. Here's a daily chart where I think INDU/SPX/OEX traders will associate this sectors "significance" and technicals with the June 17th high and today's low. There may have been "reason" to sell some of the homebuilders today regarding the June to May consumer confidence survey, but either the 21-day SMA or 19.1% retracement of 440.59 garnished a buyer's attention.

S&P 100 Index Chart - Daily Interval

I thought the OEX 497 level would be a "prove it to me" level to initiate a bullish trade in the OEX, and when that level was traded just minutes before today's June consumer confidence data, a trader (bullish and bearish) was faced with a decision. "Do I risk a move back up to 500-502 on a bullish response?"

I've made some "notes" as it relates to the DJUSHB and potential correlations with the OEX, where I might look for a DJUSHB move back to 460 to coincide with the OEX at its WEEKLY pivot of 504.29. I made reference to the DJUSHB 460 level in its chart with a horizontal "pink" line at what could be a potential "left shoulder" of a head/shoulder top formation. Is it "foolish" to identify that type of potential pattern with the building sector bullish % just reversing to "bear alert?"

A trader that might be looking to tie in the DJUSHB with his/her bullish OEX trade may then lay out some trade management plans in an OEX bullish trade from 497 as I've tried to detail in the lower right hand corner of the chart. While I'm not COUNTING on a "euphoric" bullish response and OEX trade to 507-510, I want to have a target and exit strategy in play just in case.

Today's action saw the S&P 100 Bullish % ($BPOEX) see a net loss of 1 stock to a point and figure sell signal today, so this takes away from Friday's 1 stock gain and has this bullish % slipping back from its bull cycle high reading of 82% to 81%.

For those OEX traders that get the feeling bulls are attempting to pick up pennies in front of a bulldozer, you're not alone. I'm there with you, but I still thing the risk/reward is there to find a rare collectible penny that might get the OEX back near the WEEKLY pivot. If Mr. Greenspan gives the market some positive comments regarding the economy, then I'd have some stock for a jittery bear in the 507-510 area.

Lets take a quick look at the S&P 500 Index (SPX.X) 983.45 +0.18% bar chart on 60-minute interval. This chart along with the daily interval chart of the OEX allows for both a narrower and broader picture of things. Remember our "finite" stopping point from unconventional 6-point box of the SPX was identified at 972.00.

S&P 500 Index Chart - 60-minute intervals

I wanted to show a 60-minute chart of the SPX tonight as it also gives an early "test" for bulls based on past observations of how the SPX has traded relative to its 21-hour SMA. I've circled in pink two prior SPX breaks ABOVE the 21-day SMA on MACD crossing ABOVE its signal (12,26,9). Today's highs in the SPX found enough selling at this 21-hour SMA to keep things in check, and this becomes an early test of resistance tomorrow morning. We can also see how the mid-point of our regression channel may also have come into play.

In an evening conversation with a fellow trader, that focuses on the S&P futures, he made some good comments as to the e-mini contract (es03u) needing to hold above 974 near-term to continue to signal that aggressive bulls remain in control of this market. He is using a technique of retracement where he simply attached a retracement from the recent highs back to a relative low of May 20th, which has the 38.2% retracement holding support as if it were a level where aggressive bulls were buyers. We also discussed how similar technique from the March contract low of 839.25 to May 16th relative high at that time of 947.50 showed support at that retracement 38.2% level of 906.14 holding support on a pullback from the then relative high.

With his observations of trade and our "finite" stopping point from unconventional 6-point box point and figure (Pnf) chart and 972, this may well be the cash (SPX) ultimate level of important support.

Since we have a bullish trade at hand in the OEX, I don't want to enter tomorrow's trade without a bearish plan. Here I think a good bearish action point would be an SPX break below 972. Under a negative market response, the SPX could become vulnerable relatively quick to the December highs of 954.28.

Should the market respond negatively, and SPX break lower at 971, this would also create an observation of DIVERGENCE from the PAST as it relates to the SPX's 60-minute chart.

Today's trade saw a net loss of 3 stocks to point and figure sell signals as the broader S&P 500 Bullish % ($BPSPX) slipped an additional 0.6%. This has the bullish % at 79.2% and off its bullish cycle high reading of 82.2% set back on June 6th. It would currently take a reading of 76% to have this indicator of breadth reversing lower into "bull correction" status.

In today's 03:15 EST Update, I showed a daily interval bar chart of the NASDAQ-100 Tracking Stock (AMEX:QQQ) $29.63 -0.93%. Similar observations made in the SPX chart on 60-minute interval can be made with the QQQ. We can also get a good look at the Q's recent trade as it relates to the WEEKLY/MONTHLY pivot analysis retracement and upward trend from the March lows.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - 60-minute chart

The Q's were stuck in a rut after today's consumer confidence data was released. While the INDU/SPX/OEX tried to "lead" a recovery from recent selling, the QQQ/NDX did its best to make sure that didn't happen.

Observations made in the QQQ 60-minute chart is how the 200-hour SMA as well as upward trend have "always" tended to serve up support.

I would think an OEX trader currently holding a bullish trade from 497 is certainly looking for the QQQ to get a bounce from current levels and give the look that this index is "pulling free" from its recent pullback. But with some notes as to how the NASDAQ-100 Bullish % ($BPNDX) has really started to deteriorate from its bull cycle high reading of 91%, would then look to establish a short/put position on a recovery back near the $30.50 level near term.

It would be the QQQ as an index where I would first look for a "pump and dump" type of trade into or right after tomorrow's FOMC report.

Tonight's after-hours trade in the QQQ has last tick at $29.72.

Today's action saw the NASDAQ-100 Bullish % ($BPNDX) see a net loss of 1 stock to a new point and figure sell signal. This had the bullish % slipping further lower to 76%. Still "bull correction" after reversing lower at 85% on June 18th and would currently take a reading of 82% to reverse back up into "bull confirmed" status (perhaps QQQ $30.50?) or further deterioration to 68% to get the "bear alert" status.

Now, the reason I would prefer to get a short/put entry back near $30.50 is that I would then be comfortable with the bullish % reversing up to 82%. Why? Because that type of bullish % reading, would then allow for a "bear confirmed" reading to be had on a reversal back lower at 74%.

Dow Industrials Chart (INDU) - Daily Intervals

The Dow Industrials (INDU) were the stronger trading index today and gains were helped by Altria Group (NYSE:MO) $45.05 +2.73%, which "boasts" a current dividend YIELD of 5.68% moving above recent consolidation, and generating a spread-triple top buy signal in today's trade at $45. While there's no such thing as a "slam dunk" bullish trade in a stock, MO is one of those we've profiled as bullish in recent weeks where some positive rulings regarding tobacco litigation and MO's higher dividend may well be attracting fund managers money, where at least a dividend is found at higher levels of MARKET risk as depicted by the various index bullish %.

While there are obviously some HIGH dividend YIELDing stocks to avoid where technicals show distribution rather than buying, the "basket of stock" buyers and stronger trade in the Dow Industrials today still gives some credence to the thought that this is the index that would benefit from the "dividend buying" type of trade.

I made note that the OEX also closed above its shorter-term 21- day SMA and may also hint on a shorter-term basis that many of these larger caps, which might offer more stable/higher dividends are also attracting more capital than the slightly "watered down" or broader S&P 500 Index (SPX.X) and tech-heavy NASDAQ-100 Index, where many technology stocks offer higher betas, but little in the way of dividends.

Pivot Analysis Matrix

The S&P Banks Index (BIX.X) 302.51 +0.09% managed to hold the 300 level after an intra-day low of 300.50. SPX/OEX bulls certainly look for this sector to hold above the 300 level.

For the SPX, I've placed a "pink box" around tomorrow's DAILY R1 of 987.83. This might correlate as an important intra-day level tomorrow as it relates to observations from our 60-minute chart and the 21-hour SMA. Note today's high of 987.84 and DAILY R1 of 987.83 and 21-hour SMA of 987.46. Good level early to test resistance against.

QQQ after-hours trade was $29.72 and this is still below correlative WEEKLY S1 and tomorrow's DAILY Pivot of $29.76, so here too a good early test of resistance in to the FOMC.

Jeff Bailey

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