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Index Wrap

The "Sleeper"!

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No, I'm not talking about the movie that starred Woody Allen, I'm talking about Verne Gagne's wrestling hold he labeled "the sleeper," which when properly applied with both arms round his opponents head and neck would render the opposition defenseless and vulnerable as he was put to sleep.

While my mind will sometimes wander during the day, especially during a rather steady or sideways type of session, as an SPX put holder that sees it slowly creeping back to the recent highs, I feel like Verne Gagne himself has whipped me against the ropes, and I've bounce right back into "the sleeper" hold as by bearish energy is slooooowly be drained from my starting to weaken knees and arms.

What was the savior for one of Verne's opponents that had the physically debilitating hold slapped around his neck? German wrestler "Baron Von Raschke," a rather large man and evil counterpart to Verne Gagne could sometimes reach the ropes, where Verne's sleeper hold would have to be broken. One match I attended, Von Raschke had hidden is doubles partner "Mad Dog Vachon" under the ring apron, and during a critical juncture of the match, with Verne's sleeper hold firmly around the neck of the Baron, Vachon came into the ring with referee not looking and clawed the back of Verne Gagne with his razor sharp fingernails, allowing Von Raschke time to catch his wits and apply his equally debilitating "Claw" hold to Verne's forehead and temples to win the match.

As a kid, I would leave the pro wrestling matches physically and emotionally drained. For the most part, the "good guys" won, but there was always a match or two where the "bad guy" would pull off the upset with some hidden surprise that would change the course of the match to allow for an upset.

After watching today's trade, it would appear to me that bulls have slapped "the sleeper" around a bear's neck, and there just wasn't much fight to be found. And right now, it would appear, to keep the SPX, OEX or INDU from reaching their recent highs as the NDX/QQQ moves further above its June's highs for a second straight session, it would have to be some surprise of "bad news" to change the course of a bullish outcome.

There were some "surprises" today, which did have impact on the markets. A bid by Yellow Corp. (NYSE:YELL) $23.35 -5.06% to buy competitor Roadway (NASDAQ:ROAD) $46.10 +53.56% for $48 per share in a stock/cash deal (a 59% premium to yesterday's close) sent trucking stocks into high gear.

While it would be a stretch to say that every trucking stock is a takeover candidate at such a handsome premium to current levels of trade, only a bear holding shares of ROAD short could give proper color for caution. My younger sister might also be able to give some insight as to the effect "the sleeper" or the "claw" could have on a 10-year old, when applied with youthful enthusiasm from her 14-year old brother. I'll attest to the pain from my mother's hairbrush striking my backside after such wrestling holds were placed on "mom's little girl."

Aside from ROAD, three other 4-lettered trucking stocks in the truckers held top spots for session gains as ABFS +17%, USFC +12.18% and ODFL +10.57% helped keep the NASDAQ Composite (COMPX) 1,746 +1.49% in positive territory for the better part of the session. While a NASDAQ-100 Index (NDX.X) 1,298 +1.28% or Tracking Stock (AMEX:QQQ) $32.28 +1.22% bull is pleased by today's gains, I don't see any trucking stocks helping comprise the NASDAQ-100.

Bears that may have been looking for their own "Mad Dog Vachon" under the ring mat with an earnings report from aluminum producer Alcoa (NYSE:AA) $25.81 +0.38% didn't find a bearish surprise as the Dow component reported Q2 (June) earnings of $0.27 per share, which was 2 cents better than consensus. The company said revenues rose 5.9% year-over-year to $5.46 billion, which was also above consensus estimates of $5.34 billion. In after-hours trade, AA jumped 3.1% to $26.62 and sets off the earnings season with a bullish tone. Still, despite the upside earnings and slight growth in revenue, the company said it doesn't see anything at this point in its markets to signal an upturn in the economy. AA is component of INDU, SPX and OEX.

Market Internals

While today's major index action looked somewhat anemic if not uneventful, some of the shift back toward bullish leadership continued to build to the upside today. So bullish in fact, that the NASDAQ set a bull cycle high reading of 445 stocks trading new 52-week highs and surpassed the 439 new highs from June 6th. This has the 10-day ratio for NASDAQ NH/NL trending positive for a second straight session.

For as "little" move as there seemed to be today, volume levels were higher at both the NYSE and NASDAQ and continues to show a high level of interest among market participants. Eye-catching to me is the 1.96 billion found at NASDAQ.

On Wednesday of last week (July 2) I profiled the bearish trade in the SPX for partial positions from 980 and it is my current observation that the NH/NL for the NYSE was tabulated at the completion of that days trade, there's been a shift back toward bullish leadership in the 10-day average and in part is what I think has INDU, SPX and OEX bulls eyeballing the June highs, if not higher by today's close.

And while the NH/NL categories are beginning to trend back higher and indicate bullish leadership, today's action in the bullish % charts shows more stocks beginning to once again generate new buy signals where demand is outstripping previous supply resistance.

The NASDAQ-100 Bullish % ($BPNDX) saw a net gain of 2 stocks to point and figure buy signals and now reads "bull correction" at 79%, but just one buy signal short of "bull confirmed" and 80%.

The also rather narrow S&P 100 Bullish % ($BPOEX) saw a net gain of 1 stock to a point and figure buy signal and now moves to a bull session high reading of 83%.

The broader S&P 500 Bullish % ($BPSPX) saw a net gain of 8 stocks to PnF buy signal, which is double that of yesterdays net loss of 4 stocks to sell signals. This has the bullish % back up to 78.8% like that found from June 25-27.

The very narrow Dow Industrials Bullish % ($BPINDU) was unchanged at 86.67%.

Both of the very broad NYSE Bullish % ($BPNYA) and NASDAQ Composite Bullish % ($BPCOMPQ) reached new bullish cycle high readings with more stocks giving new point and figure buy signals. While a rough estimate based on 3,000 stocks, the NYSE would have added 18 new buy signals with bullish % rising to 72.62%, and the NASDAQ adding roughly 24 new PnF chart buy signals with its bullish % growing to 71.78%.

One stock listed on the NYSE that I profiled as bullish today was Autozone (NYSE:AZO) $79.26 +3.18%, but wanted to see the stock trade $79 and generate a new PnF buy signal. AZO is a component of the S&P 500 (SPX.X)

S&P Depository Receipts (SPY) - $1 and $2 box

I'm still working off the SPX's bullish vertical count of $108 as a potentially longer-term type of bullish objective for the S&P 500 Index (SPX.X) 1,007.84 +0.34% to 1,080. My (Jeff Bailey) biggest struggle with a bullish trade is the risk/reward, using a bullish target of $108/1,080, with risk to a stop of $96/9,060 at this point. However, I'm also showing this chart to solidify my belief at this point that a trader may want to honor a stop in a bearish trade at $104 or SPX 1,020 as previously profiled in the bearish trade.

While I don't like the risk/reward in a bullish trade, the internals have me leaning in that direction.

In my own account, I'm adding bullish trades like AZO in attempt to hedge, if not add a stock that I feel would outperform the SPX to the upside, and "underperform" some type of unraveling in the SPX at this point. Still, I'm looking under he ring mat, and see no sign of a "Mad Dog" Vachon.

S&P 100 Index (OEX.X) Chart - 3-point box

It's been awhile since we looked at the unconventional 3-point box scale of the OEX. After trading a bulls "finite stop" of 489 and falling to 486 intra-day on July 1st, it has been a move higher since. If bears are going to defend the high, and any bulls that didn't like what they saw at 489 and 486 sell into the rally, then I'd look for that to take place below 513, or 515 on the conventional 5-point box, which would have the PnF chart showing demand back in control.

Bears are going to be hesitant to short with little reason other than a higher risk (bullish %) and good risk/reward trade with a tight stop just above the highs. Internals are strong and bears aren't going to be overly aggressive. Bulls might look to press the OEX to new highs with leadership being found in the NDX/QQQ and broader NASDAQ Composite making new highs. There leverage point may well be the psychological 500 level with the OEX having shown support today at WEEKLY R1 of 503.36.

I've made note on the OEX chart that a bear looking for a entry point on weakness may well be served to wait for a 3-box reversal back lower on the above chart, which at this point would be 498.

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

The Q's moved right into a "zone of resistance from $32.14 to $32.40. In after-hours trade right here (as I type) the Q's tick by at $32.14 after heavyweight Microsoft (NASDAQ:MSFT) $27.70 +1.02% (slipping back at $27.51 in after-hours trade) said it was doing away with employee options and will expense stock to its employees from here on out. This will have MSFT writing down some past earnings and did see some selling into the stock.

The only trade I feel "comfortable" with here is from a bulls perspective that is holding long, to snug a stop at $32.10 (give some room under $32.14) and see if the Nikkei-225 can't surge another 300-point before tomorrow's open. Then get ready to reload for a potential bullish entry back near $30.30 and see if DAILY Stochastics won't move back to "oversold" levels there.

I monitored several 4-lettered stock, especially a bullish trade I was holding in non-NASDAQ-100 component Frontier Airlines (FRNT) $13.02 +13.41%. Not unlike the QQQ, FRNT opened lower, and once that bugger ticked green, you could really see the shorts come in and cover and this is on top of yesterday's 18.2% rise in the stock. It's this kind of action which has me very hesitant to profile a bearish trade in the NDX/QQQ as a bear really has little resistance to leverage off of, other than the MONTHLY pivot. I'd rather take my bearish chances where at least a recent high might keep some other bears interested and cast some resemblance of doubt to bulls.

A stock on my list for some potential "squeeze" action to the upside tomorrow is Micron Technology (NYSE:MU) $14.00 +1.74%. Right at the close, the stock traded $14.00 and that was enough to generate a triple top buy signal and break the longer-term bearish resistance trend on the PnF chart. I looked at the NASDAQ site for short interest and find May 15 short interest was 45.98 million shares, and by June 13 that had built to 63.07 million. It's my best guess that bears may have been, or trying to leverage off the $14.00 level. I'm also thinking there might be some "techy-bears" that have seen the QQQ do a little dance higher the past couple of sessions that may look for the door tomorrow morning. I'd be looking to help them to the door with a trade at $14.07 and stop just under yesterday's gap higher open of $13.50. In tomorrow morning's 09:00 Update, I'd also keep an eye on Taiwan's Taiwan Weighted to see how it traded. Many chip foundries are in that part of the world and may give hint to tomorrow trade in MU.

Dow Industrials (INDU) Chart - Daily Interval

Please note! In last night's wrap, I had marked the WEEKLY R1 of 8,189.5 correctly, but I hadn't moved my horizontal red line up to this level. I couldn't figure out why this morning I was getting a downside alert in the INDU at WEEKLY R1 when it wasn't at my support level yet. I figure it out eventually.

Sometimes I do believe I think too much, and when I do, things don't make a whole lot of sense on a near-term basis. After I wrote last night's wrap, I cut out to grab a late dinner. Wouldn't you know that I drive by a mall parking lot and what grabs my attention? One end of the mall's parking lot (corner of University Blvd. and C-470) here in Denver is full of brand new GMC pickups and sport utility vehicles. Is a car dealer repaving there parking lot, or is inventory overflowing? Now wonder GM couldn't get above it 200-day and 50-day SMA I begin thinking.

Then, wouldn't you know it, GM trades higher today after it announces it updated July incentive policy (discounts, 0% financing, etc.) and then the Dow trades with even breadth for the bulk of the session, with GM +1.9% and HD +2.3% doing the bulk of any bullish gains, while KO -1.62% slices below its 50- day SMA to sit right on its 200-day SMA at the close.

As I look at the Dow's bar chart, Stochastics have me thinking pullback to 9,030-9,063 with MACD not showing much sign by the close of crossing above Signal. While I personally "weight" MACD 20% and Stochastics 10% for any type of trade determination, I'd need to see a move above today's high in the Dow to then think MACD has a shot at crossing above signal.

While AA has moved off its March lows like most technology stocks, they're making money in what still sounds like a difficult cyclical environment, one that is deeply rooted to the economy.

Using AA earnings as a potential catalyst for an upside move (hey, maybe other stocks with earnings will have a few cents per share upside) you could push me toward the bullish side, but I'd also like to see SELLING in Treasuries on such a move above today's highs in the Dow.

While the major indexes (excluding Russell-2000, NDX/QQQ) struggled to show gains today, it wasn't until the bond market's close (after seeing selling today) that the major indexes did move higher to the close to finish positive.

When the Oscillator have me somewhat "neutral" going into a session, I tend to look for other types of signs to push me one way or the other.

Pivot Analysis Matrix

There are quite a few "early levels of support" correlation that were traded through today, with most finding the associated index closing above by today's close.

The $100 level in the SPY shows up across the DAILY/WEEKLY/MONTHLY tomorrow and this isn't a stretch as today's trade in the SPY was rather narrow, and most likely ties to SPX 1,000.

Jeff Bailey

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