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Index Wrap

Data points, not surveys

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The major indexes witnessed another seesaw intra-day session to close lower after the Conference Board's Consumer Confidence Index, which polls 5,000 households, fell in July, as consumers expressed skepticism toward a jobless recovery.

An early afternoon rally, spurred by rumors of Saddam Hussein's capture helped lift the major indexes from their lows, but those gains faded quickly when the Pentagon said it had no information to validate the reports.

While the economic report, which some traders discarded as "a survey and not hard data" brought a negative reaction from the stock market upon first release, and found some correlative defensive buying in treasuries, by session end the bond market took more of an "its not worth the paper it was written on" approach as Treasuries saw another sharp round of selling by with the longest-dated 30-year YIELD ($TYX.X) jumping 8.4 basis points to close at an 11-month high. The benchmark 10-year YIELD ($TNX.X) rose 10.7 basis points to 4.391%, with its September futures contract (ty03u) 111'195 -0.63% falling 23/32.

And while I would agree that Treasuries look vastly oversold compared to much of the economic data on hand, bond bulls are either hesitant to step in front of the recent decline, or the bond market has suddenly become aware of some resurgence in economic growth, which some Fed officials have been hinting toward months ago.

Tomorrow's release of the Fed's Beige Book will provide anecdotal economic observations from the Federal Reserve Bank districts, but if traders are truly waiting on some "hard data points," before making any type of meaningful decision toward equities, like bond traders seem to be willing to make toward Treasuries, then I'd look for another "range-bound" session tomorrow until Thursday's pre-market release of weekly jobless claims (consensus 400K), employment cost index (consensus +1%), advanced Q2 gross domestic product (consensus +1.5%), advanced Q2 chain deflator (consensus +1.4%). If that's not enough "hard data" for traders to digest, then the 10:00 AM EST release of the June Help-wanted index (consensus 37) and the July Chicago PMI (consensus 53.8) should have traders pouring a stiff drink after all data is analyzed.

I (Jeff Bailey) continue to lean toward the bearish camp, but will admit the strong selling in Treasuries and still rather firming dollar as depicted by the U.S. Dollar Index (dx00y) 95.43 +0.38% have me still hesitant to be overly bearish as cash has to be piling up on the sidelines.

Pivot Analysis Matrix -

My main observation again tonight is some of the divergence seen between the S&P Banks Index (BIX.X) 308.03 -0.63% and still rising 10-year YIELD ($TNX.X) which we discussed last night regarding a more favorable spread between loans and borrowing costs potentially being negatively offset by fewer loans being generated as a result of higher interest rates for the consumer.

Based on the pivot matrix, I'm currently left with the impression that WEEKLY S1 and WEEKLY R1's define the trading range, but with a bearish slant toward things at this point I'm looking to capture bearish gains on a decline to WEEKLY S2's.

I've "dashed red" the SPX and OEX at DAILY and WEEKLY pivots for tomorrow, as both indexes traded either side of these levels to only give me the impression that they would serve tentative resistance in tomorrow's trade. While the S&P Banks Index (BIX.X) did trade 310.66 has a session high, there may have been more sellers lined at the WEEKLY pivot and a level an SPX/OEX trader might look to use as a more meaningful level of resistance for tomorrow's trade.

Dow Industrials (INDU) Chart - Daily Interval

What a perplexing group of stocks the Dow currently holds. McDonalds (NYSE:MCD) $22.15 +4.18% may be the "turnaround" story of the year a as quarterly sales trends look to be improving. Meanwhile, Merck (NYSE:MRK) $55.39 -2.24% extends losses and breaks below its 200-day SMA and Boeing (NYSE:BA) $32.05 -2.19% looks like it wants to test its 200-day at $30.87. Then there's "Mr. T" which jumped above its 200-day SMA yesterday, on speculation that any further discovery of wrongdoing haven taken place by Worldcom may have long-distance carrier closing its doors for good and never coming out of bankruptcy, leaving a large number of customers for a new long-distance service provider.

I'm left with the impression that the Dow is range-bound from 9,050 to 9,350 for now, and would look to trade that type of range.

Stockcharts.com did make the corrections to their very narrow Dow Industrials Bullish % ($BPINDU) chart, and that is good as it lessens confusion. No change today and still "bull confirmed" at 86.67%.

S&P 500 Index ($SPX.X) Chart - 5-point box size

Yesterday's trade at 1,000.68 was enough to get a double-top buy signal generated on the SPX, while today's trade at 984.15 sees a 3-box reversal. The trade at 1,000 is bullish enough to have a bear looking to take a profit on a decline back to 970, but bears need to break 975 to get it.

I'm still keeping a close eye on the number of 52-week lows among NYSE listed stocks and today's NH/NL ratio was 139:56 (10-day average is 79.4% and lowest since 04/21/03 when it was trending higher). The 56 new lows is the highest number of new lows since late March and still has me leaning more toward the bearish side in the SPX as there is sign among 1, 2 and 3-lettered stocks that there is some softening at the bottom and bullish leadership isn't as strong as the NASDAQ, where today's NH/NL ratio was 227:13 (10-day average is 94.4%, but yet to show needed reversal reading of 92% from 98%).

Today's trade saw a net loss of just 1 stock to a point and figure sell signal as the broader S&P 500 Bullish % ($BPSPX) slipped 0.2% to 77.2%.

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

For the purposes of the Index Trader Wrap, I'd still consider the trading range of the OEX from 507 to 488, while a tighter range of trade can be found from 495 to 502 and be inside the "wedge." My only "bearish indication" in the OEX right now is that the OEX has found some resistance holding at 502 as Stochastics begin to reach the "overbought" level. Meanwhile, MACD is still advising bullish caution as it has yet to see a bullish crossover with MACD above signal. I would think a bear in the OEX gladly covers some profits on any type of break back near 488 as that most likely finds buyers while MACD is above the zero level and I'd envision Stochastics nearing "oversold" on OEX consolidation there. By no means am I currently "counting" on an OEX decline to 488 as the rising 50-day SMA and my "dashed pink" trend need to be broken first.

Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX) and still holds at 84% bullish.

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

The Q's have been "sloppy" at the various levels of pivot analysis retracement with exception of "extreme" spikes lower. Tomorrow's DAILY R1 of $32.04 does tie in with some recent relative highs of $32.02 found this morning and then on July 24th. If looking for any type of resistance level that has shown some significance near-term, then that would be the level to watch just ahead of tomorrow Beige Book Report for any type of selling into some gains as Stochastics approach "overbought." I'd have to view support at/around WEEKLY S1 of $30.93 to $30.75.

Today's trade saw no net change in the narrower NASDAQ-100 Bullish % ($BPNDX) and status still remains "bull confirmed" at 75% for a third-straight session.

Jeff Bailey

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