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Index Wrap

Fsssss... BOOM!

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Technology stocks lead today's bullish session after a report in The Financial Times that Microsoft (NASDAQ:MSFT) $27.42 +3.47% may be ready to distribute roughly $10 billion of its $46 billion stockpile of cash to shareholders in the form of a one-time dividend provided an early morning catalyst for gains.

Reports out of Asia that a lessoning of SARS cases has brought a resurgence in demand for PCs along with multiple positive comments from brokers in the semiconductor sector fueled gains into the close, with Goldman Sachs' Laura Conigliaro saying that the firm's latest information-technology survey showed a strong outlook for Intel-based servers.

The "weakest" performing technology sector was the GSTI Software Index (GSO.X) 131.82 +3.12%, with BMC Software (NYSE:BMC) $15.09 -8.37% weighing on the groups otherwise bullish session as the company said current quarterly results were being hurt by delayed corporate spending for its software products.

Technology sector strength and many four and five lettered stocks surged in the session, helping lift both the broader NASDAQ Composite (COMPX) 1,720 +3.44% and NASDAQ-100 Index (NDX.X) 1,281.89 +4.28% to new highs as bulls and bears flocked to their favorites by sending 390 stocks on the NASDAQ to 52-week highs compared to a meager 8 stocks hitting new lows. Today's 390 new 52-week highs on the NASDAQ was the second highest total this year when compared to 439 new highs found on June 6th.

NASDAQ Composite Chart - Weekly Intervals

52-week high/low breadth had been falling off in recent weeks and it was looking like the NASDAQ Composite may have "topped out" with resistance at 1,685. A resurgence in bullishness today has the NASDAQ Composite breaking above 5-week resistance and new highs of 390 gives some confirmation to the move higher. While our DAILY ratio of new highs versus new lows reads 98.0%, it has the 10-day average of new high/new lows turning up to 93.3% for the first time since "peaking out" on June 17th at 97.8% and gives the impression that bullish leadership may take hold over the next couple of weeks.

NASDAQ-100 Tracking Stock (AMEX:QQQ) Chart - Daily Interval

The QQQ and NASDAQ-100 Index (NDX.X) 1,281.89 +4.10% exploded to the upside with the "5 horsemen" or largest weighted stocks gaining a minimum of 3.47%. While MSFT's 3.47% gain seems "minimal" its 10.2% weighting, which is nearly double that of Intel (INTC) was HUGE for the QQQ.

Today's move above $27.00 for MSFT breaks formidable resistance for that stock and should have support building at that $27.00 level. With MACD crossing above its Signal on the QQQ, I've got to be looking for support at $31.43 on any type of profit taking pullback and with such a fierce move higher from short-term downward trend in today's trade, the MONTHLY R2 of $32.40 is in play.

While BMC Software (NYSE:BMC) $15.09 -8.37% is not a component of the NASDAQ-100, it is "tech" and today's quarterly earnings warning continues to show that there are still some very soft spots in corporate IT spending, which right now, the MARKET seems willing to look past for broader technology, but I'd still use these types of warnings as a "reason" to NOT BE OVERLY LEVERAGED from the bullish side in the QQQ/NDX.

At the same time, I made note in today's Market Monitor that discount airliner Frontier Airlines (NASDAQ:FRNT) $11.48 +17% was moving above $10 resistance earlier in the morning, jumped to an 8% gain when the company guided higher on quarterly earnings and built further gains into the close. FRNT is not a NDQ/QQQ component either, but gives the impression that if there are some "upside surprises" to the bottom line on improving demand, there's one heck of a lot of bullishness that is unfolding, especially in stocks where short interest is building! FRNT doesn't trade near the volume the "Big 5" in the NASDAQ-100 does, but its short interest jumped to 3.4 million by June 13th, from a May 15th 2.7 million shares.

It's one thing for bears to be covering simply based on price action like I think we are seeing in the QQQ, and it would certainly appear that the slightest amount of "good news" in fueling gains.

Intel (INTC) $22.90 +5.47% and Amgen (NASDAQ:AMGN) $68.91 +3.81% both traded new 52-week highs today and there appears to be a significant lack of supply for these two stocks and short interest was building in both from May 15th to June 13th.

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the NASDAQ-100 Bullish % ($BPNDX). This has the bullish % still "bull correction" status, but moving up from last Wednesday's 74% reading to 77%.

I should also make note that after trading the $29.40 level last week and our "finite stopping" level for bullish on the unconventional $0.35 box scale for the QQQ, today's trade at $31.50 was a break to new highs which should have bears VERY defensive and further trade high at $31.85 gives me the impression that buyers (short-covering or new bulls) are very aggressive. This type of action should have bearish traders in the other indexes, which haven't broken above their June highs quickly assessing bearish risk in their accounts.

S&P 500 Index (SPX.X) Chart - Daily Interval

I saw nothing bearish in today's trade for the SPX and must say that I'm not a "full of conviction bear" even at partial bearish position. After the first hour of trading, the SPX traded between 1,002 and 1,005 the remainder of the session. The only "negative" I do see was at the end of today's trade when the S&P 500 Bullish % ($BPSPX) showed a net loss of 4 stocks to point and figure sell signals as the bullish % slipped 0.8% to 77.2%. This is considered "bearish divergence." I'm thinking these sell signals were likely to have come from the energy sector and perhaps Oil Service (OSX.X) 88.72 -2.84% which was today's weakest sector.

The narrower S&P 100 Bullish % ($BPOEX) saw a net gain of 1%, with the bullish % rising to a bullish cycle high reading of 82%, which on a comparison basis has me thinking it was some energy stocks giving reversing sell signals. I'll try and check what stocks may have shown weakness when Dorsey/Wright and Associates updates their charts. I can sort for stocks that gave sell signals in today's trade.

S&P 100 Index (OEX.X) Chart - Daily Interval

If not for the slippage in the S&P 500 Bullish % ($BPSPX) on a broader scale, I'd be much more bullish the narrower S&P 100 Index (OEX.X) by today's close as the narrower bullish % is once again matching its bullish cycle high reading of 82% and looks to have its WEEKLY S2 of 510.63 and June 17th closing high of 512.67 in reach. Other than potential resistance at WEEKLY R1, the main technical resistance I would be cognizant of is the mid-point of our regression channel, which when broken to the downside on June 23rd, saw a test/violation of lower regression, with now looks to have a bounce higher in full swing. My thinking that the OEX may have resistance near 514 is that the mid-point of this regression channel has at times served support, which after being broken to the downside might come back into play on a further spike higher at 513.

While brokers got an upside surge to their June highs on comments that "make sense" regarding stronger trade levels from retail investors and a pickup in merger/acquisition activity, the banks are lagging the brokers somewhat, and my best guess is that the higher YIELDS in Treasuries may indeed have some sector bulls being cautious on thoughts that the next move by the Fed is going to be raising rates, not cutting them further, which can be viewed as a negative for the sector.

Still, I'm keeping an eye on Bank of American (NYSE:BAC) $80.90 +1.11% as it trades a new 52-week high, which is a component of both the S&P Bank Index (BIX.X) 309.85 +1.43% and KBW Bank Index (BKX.X) 884.41 +1.92%. The trade action in BAC certainly has to hint that the BIX.X and BKX.X should follow this type of leadership.

Dow Industrials (INDU) Chart - Daily Interval

Alcoa (NYSE:AA) $25.71 +1.62% is first Dow component to report earnings and they are due to announce tomorrow morning. While AA has gained nearly 35% from its March lows of $19.00 and there's obviously been some type of "expectations" built into tomorrow's earnings report, earnings along with forward outlook and any "dividend policy changes" could be the needed catalyst for a Dow move higher. (Consensus is of AA to earn $0.25 per share)

I can't say for certain that "everyone" is going to be listening to what a Dow component has to say about how things are "shaping up" but with the indexes above or nearing their June highs, any type of bullish comments for a deep cyclical rooted in the economy should have some type of impact and could influence trade.

I'm also keeping an eye on General Motors (NYSE:GM) $35.90 +0.33%, which remains pegged near the $36 level, with its intermediate-term 50-day SMA ($35.91) still unable to get a "bullish crossover" above the longer-term 200-day SMA ($35.95) with today's trade.

The "fundamental" side of me continues to struggle with the gains found in many technology stocks, that are "dependent" on some of these bigger cyclical stocks to buy technology from, which so far, we haven't seen them spend with plenty of production capacity still unused.

While quarterly bottom line earnings will be closely listened to, I'd also be listening for forward guidance, but also dividend policy going forward. I don't think many Dow components will be cutting dividends, and if anything, would be raising dividends.

Microsoft (NASDAQ:MSFT) $27.42 +3.47% when questioned about their potentially raising their dividend did say late today that they would not comment at this time. Microsoft is scheduled to release quarterly earnings on July 17th.

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the very narrow Dow Industrials Bullish % ($BPINDU) and has this bullish % rising 3.33% to a bull cycle high reading of 86.67%!

International Business Machines (NYSE:IBM) $86.09 +2.54% was the stock to reverse a prior sell signal given at $84.00 on June 3rd, which came on news of an SEC investigation into its accounting. Today's trade at $86.00 was the reversing point and figure buy signal level.

Here's a quick look at the Pivot Analysis Matrix.

Pivot Analysis Matrix -

Stocks and Treasury YIELDS as depicted by the 10-year YIELD ($TNX.X) have started to show more correlation in the past week, with selling in Treasuries seemingly freeing up cash that may indeed be finding its way toward stocks. (see monthly and WEEKLY matrix today).

However, the U.S. Dollar Index (dx00y) 95.53 +0.31%, which measures the strength of the dollar against a basket of 7 foreign currencies has also been showing strength and matching stock price action in recent weeks, so I'm not entirely comfortable at this point in saying that higher YIELD results in higher equity price, or vise versa.

Combined, the Dollar strength depicts that of cash coming back to the U.S., while selling in Treasuries against the dollar has the look that the money is staying here in the U.S. From what I've read, foreign government bonds are seeing selling with their equity markets seeing gains.

I've "dashed green" some correlative near-term support levels for tomorrow, as these support levels were traded through to the upside today.

The QQQ ticked higher from its 04:00 PM EST mark, when the NASDAQ-100 Index (NDX.X) itself closed, but here, in the NDX we see correlative resistance first near 1,292 and then higher still at 1,302.

Jeff Bailey

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