Option Investor
Index Wrap

"Play it again Sam"

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The major indexes finished in positive territory, but off their highs as another sell induced keypunch error, this time in the S&P 500 e-minis (es03u), found the major indexes dropping rather sharply from their afternoon highs, but still holding gains into today's close.

It was on July 3rd that "fat finger Fred" entered a sell order in the mini-sized Dow futures (ym03u) for a much larger number of contracts than intended that created a sharp intra-day downside move. It was a keypunch error in the S&P e-minis futures (es03u) which had this futures contract falling to 990.50 from approximately 1,010 (a -1.93% decline 4 minutes) in the matter of minutes and bringing its induced sell programs in the cash markets that brought the major cash indices (covered in the Index Trader Wrap) well-off their highs to still finish in positive territory.

A host of mergers helped ignite bullish enthusiasm to start the week as thoughts that the recent resurgence in merger and acquisition activity is sign from companies doing the acquiring that better things are ahead for their business prospects, if not the economy itself. Upside earnings from bankers Citigroup (NYSE:C) $47.12 +2.10% and Bank of America (NYSE:BAC) $83.46 +0.69% also gave bulls reason for optimisms.

Market internals remain strong with bullish leadership coming in the form of New 52-week highs. While the number of new 52-week highs on the NYSE lags those found on the NASDAQ, both daily and 10-day average ratios remain quite bullish. Volume levels continue to show interest, despite the summer month's, when volume levels tend to taper off as traders often spend more time at their summer beach house rentals than the trading floor.

Market Internals

The NASDAQ reported 435 stocks trading new 52-week highs today, and that's very close to the 445 reported just last week. Today's 435 new highs may give bulls further thought of new high potential for the NASDAQ-100 (NDX.X) 1,295.74 +1.18% and NASDAQ Composite (COMPX) 1,754.82 +1.20%, which traded new 52-week highs today as the number of new highs challenges the 400+ level seen back in June. One of the things I thought NASDAQ bulls needed to see was a pickup in the number of new 52-week highs from prior weeks to show broader leadership than the 100-200 range we had been seeing as the NASDAQ indexes were trading new highs.

While the number of NYSE new highs are still well off the 500+ numbers seen in early June, it may be the weakness seen in various energy sectors since that time frame has the new high list not as robust as early June.

Still, the 10-day average ratios for both the NYSE and NASDAQ NH/NL continue to build positive and have been since July 2nd for the NYSE and July 7th for the NASDAQ.

Both the very broad NYSE Bullish % ($BPNYA) and NASDAQ Composite Bullish % ($BPCOMPQ) saw net gains in their bullish % today and are at their current bullish cycle highs. The NYSE Bullish % rose 0.4% (roughly a net gain 12 new PnF buy signals) to 73.05% bullish, while the NASDAQ Composite Bullish % ($BPCOMPQ) saw a net gain of 0.55% (roughly a net gain of 15 new PnF buy signals) to 73.19%.

I (Jeff Bailey) need to be careful and perhaps provide clarification to some comments regarding QQQ long and SPY short in today's market monitor. Today I profiled the raising of a bullish stopping point in the QQQ to $32.35, which was profiled before today's e-mini S&P futures trade error, which did have the QQQ falling quickly to $32.09. I had raised that stop in reference to a trader also holding a SPY/SPX bearish trade from July 1.

What can cause "confusion" among traders is when a trader only holds a QQQ long from a prior trade profile and NOT an offsetting bearish position in an index like the SPX/SPY also from bearish profile.

While I try and give intra-day guidance as it relates to what I've profiled and may be trading in my account, I do understand how a "synthetic hedge" (long QQQ, short SPY) between a QQQ long and SPY short becomes more complex, where I then begin trading these two positions as it relates to the account and I'm attempting to at least trade "break even" after seeing an SPY short become a loser. If time allows, at the end of tonight's wrap, I will try and show the account information from this weekend's Ask the Analyst column as it relates to my decision to profile a QQQ stop profit at $32.35, which was 5 cents below the MONTHLY R2 of $32.40, which has served support intra-day, prior to the e-mini S&P trade error.

I will try my best to only give observations from here on out as it relates to each index by itself, but much of today's commentary was based on this weekend's "Ask the Analyst" column, where I tried to answer a trader's question as it relates to how I will trade my account, and there were comments in this weekend's Ask the Analyst column specific to the QQQ and SPY.

Now, as I understand things, the only trades that are going to be "busted" today are those trades in the e-mini S&P futures below 996.00. I would urge cash market traders to check their accounts for any positions that may have been newly created this afternoon or closed out with regard to this afternoon's trade, but advise traders to direct any trade order clarification to their brokers (online of full service).

I have also taken some time to look at all of the indexes/sector that we cover in the Pivot Analysis Matrix on a 5-minute intra- day time intervals to try and accurately depict the session highs, lows and closes.

Here's a quick look at the Pivot Analysis Matrix for tomorrow, with new WEEKLY levels for this week.

Pivot Analysis Matrix

While past history is no guarantee of the future, the erroneous trade in the mini Dow futures on July 3rd, found a very bullish session on July 7th, the first trading day after that trade error. Traders may be on the looking for duplication of that tomorrow as I'm sure there may have been some errant bullish stops and bearish triggers initiated today from the errant e-mini S&P futures error. While I do see multiple correlations between the DAILY and WEEKLY levels tomorrow, I would think shorter-term traders that use the DAILY levels become a little hesitant of relying "too much" at some correlations to go "gung ho" with a trade at a DAILY correlation, simply due to some of today's trade, which I think becomes "artificial" after the futures trade triggered downside in all of the indexes.

However, I would look to "rely" more on the WEEKLY and MONTHLY correlations, where those levels were NOT derived from any of today's trade.

The ability of the NASDAQ-100 Index (NDX.X) 1,295.74 +1.18% and its Tracking Stock (QQQ) $32.22 +1.19% to trade MONTHLY R2 and exceed by roughly 1% gives the impression of NDX/QQQ still leading, which has had a tendency to pull the other major indexes higher in their pivot levels. As such, I see quite a bit of overlapping MONTHLY and WEEKLY support in the SPX/OEX at MONTHLY Pivot and WEEKLY S1, while the NDX is staggered higher at MONTHLY R1, but similar WEEKLY S1.

This observation in the NDX for support at WEEKLY R1 after seeing another new high today, should have bullish traders in the QQQ looking for another pullback bullish entry point as if to say, "play it again Sam" after a decent rebound on Friday and some bullish follow through today.

NASDAQ-100 Tracking Stock (QQQ) - Daily interval

The QQQ exceeded my bullish short-term target of $32.15, which was last week's WEEKLY R2, and early session bullishness carried through to the upper-end of regression. I am not "questioning" today's high, but would discount the reversal back lower due to the errant S&P futures trade this afternoon. Remember that the "big 5" weighted stocks in the QQQ/NDX are also components of the S&P 500 Index (SPX.X) and probably saw some program selling on that futures trade.

I like another pullback entry in the QQQ back into $31.40-$31.58 area, but hesitant to try buying "breakout" type of bullish move here after another test of upward regression.

Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX) and still remains "bull confirmed" at 80% for a third- straight session.

NASDAQ-100 gainers were GILD +13.44%, VRSN +6.4%, ADCT +6.12%, NVLS +5.87% and RFMD +5.61%, while losers were SPOT -2.17%, PTEN -2.79%, IDPH -2.93% and CPWR -16.43%.

S&P 500 Index Chart - Daily Intervals

Today's high of 1,015.41 was "pennies" above the June 17th high of 1,015.33, but the "sell program" triggered by the S&P futures trade didn't take place until approximately 03:04 PM EST. I will not that after this futures trade was well underway, the SPX cash (chart above) on intra-day basis came right back to downward trend at 1,009.43 and found selling their to make a new afternoon low back to 1,001.91, which I'm using in the Pivot Matrix for today's low. While the "equal highs" found in early June and today still give the look that bears have a shot, at a top here, I'm growing skeptical for my bearish trade from 980 profile on July 1st.

While I (Jeff Bailey) used a bullish trade in the QQQ on Thursday to create a "synthetic hedge" to create a bullish index position against the SPX/SPY when they neared original bearish entry, I would think that a "pure" bear in the SPX/SPY from 980/$98.10 would look to close out at break-even if given a chance near-term as I don't like the ability of the SPX/SPY to have broken above the short-term downward trend.

Today's trade saw the S&P 500 Bullish % ($BPSPX) see a net gain of 2 stocks to point and figure buy signals. This has the bullish % creeping up to 79.80%, but still off its bull cycle high of 82.83% from June 16th (the session before the past relative high in the SPX itself). This is slight "bearish divergence" considering today's matching high from the SPX itself.

I made note in today's market monitor that www.stockcharts.com did "fix" their scale for the $SPX.X point and figure chart to show scale above 1,000 in 10-point increments. This chart would generate a triple-top buy signal at 1,020 and I would URGE bears to honor that level with a stop if not the 1,018 levels I've profiled.

Here's "one thought" for an index bear that does have partial positions for expiration a couple of months out. One trade, which I will not follow as part of the "Index Trader Wrap" profile, is for a bear holding months out expiration, or even 100 shares short the SPY at $98 is to think about selling an out the money put for JULY expiration with expiration this Thursday/Friday and look to gather some premium or bring up your short/put basis in a position initiated below current levels. For instance, a bear like myself that may be looking to close out an SPX decline back to 985, should the SPX fall tomorrow to 992, think about selling an SPX July 985 put (SXBSQ), which I show currently bid/offer $2.00 x $2.80. This OBLIGATES you to buy SPX 985 at (985 - $2.00 = 983) as an example, but if deemed appropriate for your account may be an option strategy just ahead of expiration.

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

I'm not trying to give bears "artificial hope," but the larger caps of the OEX didn't come as close to testing their June highs as the broader SPX did. My thinking here is that the broader SPX benefits from more technology exposure? Still, OEX very similar in its pivot analysis matrix.

Today's action saw a net gain of 1 stock to a point and figure buy signal in the OEX Bullish % ($BPOEX) after losing 1 stock to a PnF sell signal on Friday. Back at the bull cycle high reading of 83%.

Dow Industrials (INDU) Chart - Daily Interval

I thought the Dow Industrials traded strong today, but there were three levels (MONTHLY R1 and WEEKLY R1 the main 2) in play as resistance today. The Dow had 7 stocks trading new 52-week highs today (DIS matched a 52-week high) when the errant S&P futures program was seen. As we look at the bar charts, we can perhaps see that the Dow is "lagging" as it would relate to the June highs, and if looking for any strength from the bottom, it would be the Dow making a move back above 9,289 confirming any further bullishness in the other indexes.

There was no change in the Dow Industrials Bullish % ($BPINDU) and still holding a bull cycle higher reading of 86.67%.

I've run short of time to show my "trading account," but point I was trying to make is that a trailing and more aggressive bullish stop in the QQQ at $32.25 with SPY now at $100.73 would have my bearish SPY trade with some gains taken in the QQQ from Thursday's bullish entry now at "break-even."

Still, I'd rather be "flat" the QQQ right now, be looking for another pullback, and simply let the SPY run its course at this point, looking to cover the SPY/SPX bearish trade back near original entry right now.

Jeff Bailey

Index Wrap Archives