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Indexes quiet after recent volatility

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The major indexes took on a mixed look by sessions end with blue chips finishing fractionally lower, and technology shares edging higher as traders wait on tomorrow's report for July consumer confidence data and Thursday's plethora of economic reports before sticking both oars back in the water.

After two prior sessions of volatility that has seen the broader S&P 500 Index (SPX.X) 996.52 -0.21% trade a 20-point range on an intra-day basis, today's 7-point range seemed like the indexes were stuck in glue.

In line earnings from healthcare providers and positive forward outlook had the Morgan Stanley Health Provider Index (RXH.X) 306.43 +3.54% and HMO Index (HMO.X) 784.09 +2.6% leading today's sector gains, while a streamlined review process unveiled by the Food and Drug Administration helped boost the Biotechnology Index (BTK.X) 467.05 +2.24% to the top of tech-sector gains.

Losses found in today's market were broad yet fractional as only the cap-weighted Gold/Silver Index (XAU.X) 83.06 -1.43% fell more than 1%, while the unweighed AMEX Gold Bugs Index ($HUI.X) 166.48 -0.32% fell just 0.55 points.

Sharper losses were found among the major Treasury bond maturities after Chicago Fed President Michael Moskow told the Credit Union National Association that, "At the Chicago Fed, our overall assessment of recent conditions is that growth has been improving, but there is still considerable slack in the economy." Mr. Moskow's reiteration of Fed Chairman Alan Greenspan's congressional testimony earlier this month, that the Fed expects 2.5% to 2.75% growth this year before topping 4% next year, with an inflation rate of 1.25% to 1.5% this year has the Fed unlikely to further ease on interest rates saw the benchmark 10-year YIELD ($TNX.X) rising 10.6 basis points to close with a 4.284% YIELD, .

While Mr. Moskow's comments were generally upbeat, traders will get a look at how the consumer is feeling in July with the Conference Board's preliminary July consumer confidence index, which is due out at 10:00 AM EST, with economists looking for a reading of 85.0, a modest rise from June's 83.5 reading.

With roughly two-thirds of the S&P 500 Index having reported quarterly earnings, before the bell earnings from Dow component and deep cyclical DuPont (NYSE:DD) $44.39 -0.67% (consensus $0.57 per share) will grab early headlines with energy producer BP Amoco (NYSE:BP) $42.02 +1.37% (consensus +$0.80 per share) and baby bells Qwest (NYSE:Q) $4.33 +1.88% (consensus -$0.08 per share) and Verizon (NYSE:VZ) $35.98 +2.68% (consensus +$0.68 per share) will be in the spotlight.

Here is this weeks new pivot analysis levels for the week, along with tomorrow's daily pivot levels.

Pivot Analysis Matrix

About the only action I would make note of in the pivot matrix today is that the S&P Banks Index (BIX.X) 310.01 -0.83% traded lower from the open, and never did show much of a gain early. This fractional weakness did see the BIX.X trade its WEEKLY Pivot of 310.87, while the 10-year YIELD ($TNX.X) rose on selling to trade a YIELD at its WEEKLY R1. While not overly alarming at this point, one thing I've wanted to keep an eye on between these two is what impact, if any, a higher YIELD might have on the banks.

Prior comments was that higher YIELD is a one-edged sword, where the sharp side of the blade would be found if YIELDS were to rise at such a rate, where loan generation subsided substantially, and would offset the more positive side of the equation where banks would benefit from higher spreads between a still low Fed Funds Rate of 1.0%, but a backup in lending rates created by higher Treasury YIELDS where a more favorable spread would be found.

Despite some strong new home sales reports late last week, the Dow Jones Home Construction Index (DJUSHB) 423.30 -0.86% has been trading sideways the past four sessions and has its bar chart showing a trending lower shorter-term 21-day SMA (437.39) threatening to cross below its still trending higher and intermediate-term 50-day SMA of 435.44, and starting to hint that market participants are somewhat cautious on the homebuilders after the recent backup in YIELDS, where home mortgage rates have also been trending higher. This action will probably put greater focus on this week's release of economic data.

Dow Industrials ($INDU) Chart - Daily Interval

While the Dow Industrials (INDU) 9,266.51 -0.19% traded fractionally lower, my check of the various 30 components PnF charts shows that Procter & Gamble (NYSE:PG) $88.31 -1.38% trade on Friday at $87 was a reversing point and figure sell signal, which would have had the Dow Industrials Bullish % ($BPINDU) falling 3.33% to 83.33% (not 80% as posted by stockcharts.com), while today's trade at $45.00 in Du Pont (NYSE:DD) $44.39 -0.67% ahead of tomorrow morning's earnings was enough to have DD generating a reversing upward "buy signal."

While the Dow Industrials (INDU) traded just a smidge above the 9,300 level, that generated a triple-top buy signal on the Dow and now makes for a higher relative high and pattern of higher lows. Current analysis is that the Dow looks to building a range of trade from 9,050 to 9,350, with bias building toward the bullish side.

I've moved downward trend on the above chart by still anchoring the downward trend from the June 17th high, but attaching to the July 14th relative high of 9,278. Here, bulls look to be getting the upper hand on bears and hold a close above the base of our upward regression channel and this downward trend.

Trader's will get a look at consumer confidence tomorrow morning, but recent resiliency from the Dow Industrials looks to have investor confidence holding strong, and it would only improve in my opinion should the Dow break above today's high and challenge the recent June highs of 9,352.77 where there should be some formidable resistance from WEEKLY/MONTHLY retracement levels, along with WEEKLY R1 of 9,367.

On a near-term basis, the Dow Industrials takes on the look of the stronger index and tomorrow morning's earnings and outlook from chemicals-maker Du Pont (DD) $44.39 -0.67% will set the tone early.

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

The opportunity was there for the SPX to breakdown on Thursday, but bulls defended where they had too. I must begin to discount some of Friday's thought that the rally back into Friday's close was purely short-covering ahead of the weekend with bears wanting to get flat ahead of the weekend should U.S. troops capture Saddam Hussein. There were reports over the weekend that U.S. troops missed capturing Saddam by a 2-hour window and reports still suggest that they are closing in on Saddam. Still, the SPX held all of Friday's reversal and didn't give back much, but did find some resistance at the 1,000 level. MACD/Signal oscillator still has me bearish below the 1,006 level, but SPX needs to see a break below 975. While financial sector were weak on the selling in Treasuries, there certainly appears to be a lot of cash that is obviously freeing up from that selling looking to buy stocks on pullbacks.

According to www.stockcharts.com, the S&P 500 Bullish % ($BPSPX) saw a net loss of 1.4% on Friday, but a net gain of 1.6% today. This has stockcharts.com's S&P 500 Bullish % ($BPSPX) still "bull correction status) at 77.4%. I will note that Dorseywright.com has their S&P 500 Bullish % (BPSPX) still reading "bull confirmed" status at 77.6%, as their bullish % did not reach the needed 76% level to reverse lower into "bull correction" status. I've noted before that I think www.stockcharts.com practice of adjusting stocks' PnF charts lower to reflect the distribution of dividends is incorrect and if any SPX/SPY bear is basing their investment decision (especially bearish bias) on the bullish %, I would error on the side of caution and defer to Dorsey/Wright and associates methodology. Yes, there may be some "bad ticks" in these 500 point and figure charts, but some traders subscribing to both point and figure services asked why one reads different than the other.

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

Two sell program premium alerts were found this morning from the 504 level in the OEX, but they were not enough to get the OEX back below the psychological 500 level. This WEEK's R2 and S2 depict a wider "range" of trade for the OEX and are tighter than last week's range. S1 and R1 are also tighter. The only "bearish" sign I really see in the OEX is the "bearish divergence" from MACD and lower lows and lower highs, when compared to the OEX trade of equal highs at 511 and a higher recent low of 491.69 when compared to the July 1st low of 485. It's this "bearish divergence" at this point, which I feel, based on observation should find OEX resistance at 507 and WEEKLY R1.

According to www.stockcharts.com, the OEX Bullish % ($BPOEX) saw a net gain of 2 stocks to PnF buy signals and has the bullish % "bull confirmed" at 84%. Dorsey/Wright's OEX Bullish % (BPOEX) shows a net gain of 1 stock to a PnF buy signal to 85%. Both are still "bull confirmed" and show little sign of internal weakening among the narrower S&P 100 Bullish %.

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

The QQQ closed right where it opened. I'm not a "candle sticker," but this is a pattern I'll look for that show's "neutrality" on the session, but can signal a reversal of near- term trend where buyers and sellers agree, yet disagree on price and a break higher or lower can have price action making a sharp move. I would think the QQQ more responsive tomorrow to the consumer confidence data.

Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX) and remains "bull confirmed" at Friday's reading of 75%, where the bullish % slipped 1% from 76%. It would currently take a reading of 74% to achieve "bull correction" status, and any decline to 72% would be "bear confirmed."

Jeff Bailey

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