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Index Wrap

Almost like the Three Stooges

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It's not the least bit funny to a Dow bull, but while most comic film aficionados know that there were actually four "stooges" that comprised the wild and crazy "Three Stooges," it was MOe's turn (Altria (NYSE:MO) $44.00 -5.92%)) to trip in what seems to be a continued bungling among certain Dow components that has some hecklers beginning to think there might be 30 stooges that just can't seem to get their act together for a push higher.

One trader quipped in an e-mail that tobacco giant Altria (MO) should be given the name "Mad Dog von Altria" as it relates to last night's wrap and impact on today's Dow trade.

Renewed concerns were raised by several brokers that an Illinois lower court judge may not have had the authority to change terms of a $12 billion bond (reduced to $6 billion), which the company had been required to secure after Circuit Court Judge Nicholas Byron ruled in March that the company has mislead Illinois smokers into thinking that its "light" cigarettes were somehow safer than its regular smokes.

In recent weeks, several brokers issued favorable upgrades on MO and the markets listened on thought that the $6 billion bond ruling lifted some legal concerns, but today's revelation had those same brokers back on the defensive as MO had stated in the past that a $12 billion bond requirement could drive the company into bankruptcy.

For me (Jeff Bailey) this now becomes one of those situations where the eventual outcome becomes very unpredictable, and while I've been bullish the stock based on technicals in recent weeks, this now becomes a situation where I rely on the "when in doubt get out" rule of trade and would look elsewhere on an individual stock basis.

The major indexes looked to finish today's session stronger than at the mid-point of today's trade, but a late round of selling, which some floor traders said was created by some sell on close trade imbalances, left all but the NASDAQ Composite (COMPX) 1,747.46 +0.05% and the smaller-cap Russell-2000 Index (RUT.X) 476.99 +0.63% finishing in the red.

Treasuries found modest buying for the bulk of today's trade and finished with fractional gains, and my only thoughts toward the sell on close trade imbalance might have been due to some fine tuning toward asset allocation. After a YIELD gap lower at the open in the benchmark 10-year YIELD ($TNX.X) to 3.695%, it traded between 3.673% and 3.72% to finish down 3 basis points at 3.703% and right in the middle of its daily range of trade.

I looked at 10-minute interval bar chart that shows a potential head/shoulder top formation forming this week, where a break much below the 3.670% YIELD level may have some near-term negative implications for equities, as this YIELD objective on break of neckline at 3.670% would give a lower YIELD objective of 3.58%. This would be a suspicious YIELD target as this 3.58% YIELD level is right where the 10-year YIELD was trading just minutes before it gapped higher on some strong selling on July 3rd, which was Thursday of last week, at the 10:00 AM EST mark. This is right when the June ISM Services Index was released and showed a bullish surge to 60.6, which was well above economist's forecast of 55.0, and showed building optimism from May's 54.5 reading.

The S&P Retail Index (RLX.X) 338.85 -1.47% ended the session as today's sector loser after setting a 52-week high yesterday. I do think that today's economic data and May wholesale sales data influenced some profit taking among retailers as May sales fell 0.5% to $233.43 billion, extending a 2.5% decline from April. Still, I tend to think of the May data as now being "older news," and I don't think I'm going out on a limb saying this. I'm not discounting the May sales data, which shows things were still slow at the wholesale level, but the June ISM Services Index, a little more recent, did show more optimism that may be reflected in the June wholesale data. We shall see.

Dow Industrials ($INDU) Chart - Daily Interval

Dow breadth was negative at 19 to 11 by sessions-end. Take MO's -5.9% decline away and the Dow probably finished with a 20-point loss. Still, that's not the way the game is played is it? We can't just "exclude" one stock's performance or potential bullish/bearish implications one or two of its components can have on things.

Does Altria (NYSE:MO) $44.00 -4.92% face potential bankruptcy if it has to post a $12 billion bond? While I'm smart enough to know that a "light cigarette" is no-less harmful than a regular "cancer stick," regardless of what a print ad might suggest, I'm not smart enough to know if company officials are telling the truth about a $12 billion bond having bankruptcy potential for its Philip Morris unit.

One thing I did make note of in today's Market Monitor is how close, "but no cigar" the Dow came to trading 9,100. While the 9,100 level isn't really a "key level" that shows up, it would be a 3-box reversal lower in the Dow's point and figure chart, and could see some downside momentum build if traded. The reason I made the note, is that we did set a "finite stopping point" for bulls in the Dow's PnF chart at 8,900, which was traded on July 1st (first lower low we've seen in the Dow since March's reversal higher), and the recent rally back to 9,250, while strong, would be a lower high on a 3-box reversal back lower at 9,100.

Per last night's Index Wrap, if there is a "Mad Dog Vachon" in the Dow right now, it may well be Altria (MO) that jumps from under the ring mat and releases the sleeper hold that bulls have had on bears.

Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU) and status remains "bull confirmed" at 86.67%.

S&P 500 Index (SPX) Chart - Daily Intervals

I'm looking for signs of weakness to present themselves tomorrow in the following fashion.

10-year YIELD ($TNX.X) below 3.670% (buying in Treasuries) and a break of SPX at 996 to get some short-term bearish momentum for a drive back into 981-984.49.

However, to get that type of technical scenario together, it is probably going to "depend" on the WEEKLY Initial jobless claims data due out at 08:30 AM EST, with consensus at 420,000 for the week, which would be better than the prior week's 430,000. As such, it may take a 440,000 type of number to get a move lower.

Now, I'm not counting on this type of trade at this point, but I think this "bearish" technical setup is in play.

Despite some selling in Yahoo! (NASDAQ:YHOO) in after-hours, which "amazingly" even has some semiconductor and other technology stocks lower in after-hours, S&P futures are holding above today's lows and steady at 998. Futures traders don't seem to care that much about YHOO action and they seem to be waiting for tomorrow's employment data before futures bulls throw in the towel on inline numbers from YHOO.

The catalyst for an upside move for the indexes is also present in the employment data, which to this point of the impressive rise for equities hasn't shown much improvement at all. A surprise type of reading of 410,000 is going to give the near- term look that the employment picture is improving, and a move above today's highs in the SPX may have the MACD crossing above Signal, creating the "bullish crossover" on this indicator.

I've marked on the above chart a very SIMILAR oscillator setup as to that found at the close of May 29th, where on May 30th, the move came to the upside. As it stands tonight, bulls want to see SIMILARITY to the past, while bears look for DIVERGENCE!

Internals remain strong, and I will have to think that BEARS are keeping their fingers crossed for a bad employment number to surprise the markets as the S&P 500 Bullish % ($BPSPX) saw a net gain of 2 stocks to new point and figure buy signals and has the bullish % inching up to 79.2%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

While Yahoo! Inc. (NASDAQ:YHOO) $35.29 +0.54% gained 19 cents during today's regular session, and would not be among any bullish trader's list of "stooges" this year, its inline quarterly earnings report found the stock falling to $33.25 (- 5.7% from close) in after-hours trade, and gives a somewhat sour look to the NASDAQ-100 Tracking Stock (AMEX:QQQ) $32.20 -0.24% which slipped 8 cent lower in today's session, as the Q's now tick by at $32.00 in the after-hours session, but still holding above today's intra-day low of $31.93 as if there's some bears still looking to get things squared up after another 52-week high today at $32.49.

I'm still seeing some individual stocks that look to be finding some eager buyers (shorts covering or momentum bulls) and after a test of upper regression, YHOO's inline earnings and solid guidance finds this stock's after-hours action having negative psychological impact on just about every other type of technology stock. Evidently, after-hours traders (usually retail traders like you and I) just weren't satisfied.

One trade I like is a QQQ pullback on weakness near WEEKLY R1, especially if weekly jobless claims aren't more than 10,000 off of economist's forecast. I'm still seeing enough action to the upside in many stocks to have me thinking that there's going to be support on a pullback to $31.44-$31.37 area from sideways bears for a decent trade back to a $32.15 target.

Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net gain of 2 stocks to new point and figure buy signals, and this now has the bullish % reversing back up to "bull confirmed" from "bull correction" status at 81% bullish.

I still think it VERY important for new bullish entries to be done with partial positions, ESPECIALLY IN THE NASDAQ-100, as the bullish % chart is now set up to read "bear confirmed" should this bullish % fall back to a reading of 72%.

Now... here comes the BIGGER test for some of the above and I'm going to start with my bond YIELD comments. I'm just testing this in the matrix, to see if anything makes sense.

Pivot Analysis Matrix

I started out with an observation of a potential intra-day head/shoulder top formation in the TNX.X with neckline at 3.670% and I do find DAILY S1 of 3.675 as a level tomorrow that might serve YIELD support just above the 3.670% neckline.

Thinking is, if jobless data are positive, the shouldn't see bonds trade strong, so YIELD shouldn't go below 3.670%, or 3.675%.

Now, if YIELD does break lower, and head/shoulder top and its bearish shorter-term type of objective of 3.58% YIELD does come to fruition, then this may "make sense" as to the WEEKLY Pivot of 3.589%.

OK.... if the indexes were to trade in unison with TNX.X WEEKLY Pivot, that has the SPX right back at 980.93, which is where some may still hold previously bearish profiled partial positions in SPX puts, where stop was profiled at SPX new highs, which haven't quite been traded yet.

But, this may also have the QQQ/NDX back at their WEEKLY pivots, but as we see in the WEEKLY and MONTHLY trade, its the NDX/QQQ which has been about "1 level" in the pivot stronger on the upside move. This perhaps gives some credence to the thought that WEEKLY R1 in the NDX/QQQ may be a near-term support level, where the other indexes, which have been "weaker in the pivots" find near-term support at their WEEKLY pivots with a 10-year YIELD lower trade.

Anyway.... this is something I'll be monitoring against early tomorrow, but we will have the weekly jobless data before the bell!

Jeff Bailey

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