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Index Wrap

Is that why they call it the Beige Book\?

HAVING TROUBLE PRINTING?
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Beige. Desert sand is a beige color. Deserts, which are usually dry and tough to walk through, will sometimes offer the drifter an exciting and sometimes heart pounding observation of a colorful lizard or poisonous snake.

As I struggled to read brief bits and pieces from the 12 districts (Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco) I find the reports interesting as it relates to how dynamic and different the various regions of the country are as it relates to economies as I love economic dynamics.

Still, the main question I was left with after quick review was, "why doesn't Denver or Salt Lake" cover the void north of Dallas and distance between St. Louis and San Francisco?"

In essence, there were little surprises or seemingly heart pounding observations to be made from Beige Book, but sometimes you just never know for sure. I still look forward to reading the Beige Book report in greater detail later this evening after I write the wrap, as there's got to be something to be learned from its contents.

Here's a http://www.federalreserve.gov/fomc/beigebook/2003/20030730/default.htm(copy and paste this link into your browser) to the Beige Book summary, and even if you want to skip the various district summaries, the Current Economic Conditions at the very end gives the broader scope of things.

A day like today gives a trader time to think. For me, this can be dangerous. One thought I had, which I posted in today's market monitor was in regards to auto sales and 0% financing.

I know for a fact that the worlds largest automaker recently said it was extending its 0%/60-month financing offers on many of its models. Heck, the 5-year Treasury YIELD ($FVX.X) has rising from roughly 2% to 3.158%. Are 0% financing deals about to go "poof?" They might be and a little tidbit from the Beige Book showed sales were flat to lower in Chicago, Cleveland, Dallas, St. Louis and San Francisco districts, while sales were steady in Philadelphia and Richmond, but were mixed in Atlanta. However, in the Kansas City District, motor vehicle sales improved, and I quote "in areas outside of Colorado and Minneapolis" reported that automobile sales were above year-go levels.

What? In areas outside of Colorado? I think the report is suggesting bordering states (Wyoming, Nebraska, Western Kansas, New Mexico and Utah), but if we had a Denver District, then things would be more clear.

I've got a point here. Were you thinking of refinancing your mortgage about a month ago, but didn't? Now your looking at higher borrowing costs as both the 10-year YIELD and 30-year YIELD have risen? I'm not trying to rub salt in the wound, but I'm wondering just how many "new car buyers" have been putting off the purchase of a new automobile with the thought that 0%-60 month financing is going to stick around forever?

Are people on the outskirts of Colorado, and near the Minneapolis area better off than other people around the country, or is there a trend developing, that there might be some smarter farmers and ranchers outside of Colorado, or citizens near Minneapolis starting to smell the coffee that 0% financing for 60-months may not be around forever?

A couple of weeks ago, General Motors (NYSE:GM) $36.87 -0.10% was hovering around the trending lower 200-day SMA of $35.75, but since that time, the 21-day SMA ($36.18), 50-day SMA ($36.10) and 200-day SMA) $35.79 have started to curl back higher.

I took a partial position in a GM January 2005 LEAPS today, and now I kind of look forward to the next release of the Beige Book to see what type of trend, if any is taking place in the other districts.

Still, if you're like me, you're probably thinking it just doesn't matter if GM offers 0% financing, as you still have to make a car payment. If you don't have a job, you aren't thinking about 0% financing and purchasing a new car. Heck, some people may have tried to refinance the house the morning of June 16th, when the 30-year YIELD ($TYX.X) 5.237% was trading 4.135%, but the lender wouldn't talk to you because you didn't have a job and they didn't want to take on the risk.

While we walk out of the desert and see fractional losses in the Dow Industrials, but nearly a 1% decline in the NASDAQ-100 Index (NDX.X) 1,263.78 -0.89%, tomorrow could be a jungle with 4 economic reports due out before the bell, and 2 reports at 10:00 AM EST.

I'm expecting volatility tomorrow, and if you're a trader that is highly leveraged and using tight stops, expect to get stopped out during the day.

I'd use some of the economists' estimates as a guide, but from what I've seen in recent weeks, as economists explain away some of their forecast misses due to a seasonal weekly or monthly event, I'm more apt to look for a market reaction that lasts more than 10-minutes.

As a benchmark for the open, S&P futures (sp03u) settled at 986.50, and trade 986.30 here.

The two main numbers that will garnish attention before the open is going to be the advanced Q2 GDP, where economists' forecast the economy grew at a 1.5% rate. It would be my thought that a higher reading gives some bullish thought that the economy might have been growing a little faster than originally thought, and that indeed the equity markets have correctly been looking ahead. Much weaker than a 1.5% rate, and traders will question the gains and perhaps Fed Chairman Greenspan's recent comments regarding potential 4% to 5% growth in 2004.

Weekly jobless claims are forecasted to increase by 14,000 to 400,000 after last week's "seasonal surprise" where weekly jobless claims plunged by 29,000 to 386,000, the lowest weekly reading since February. Economists continue to say that jobless claims are a lagging indicator. I can't argue this point. If I owned a company I'd want to see a pickup in business before I hired people, while stable business conditions would probably have me putting the pink slips back in the credenza.

Tomorrow, the weekly jobless claims data tells us about the rate of layoffs, but the Help Wanted Index at 10:00 AM EST (forecasted at 37 for June, up from 36 in May) gives an observation of job postings in the paper.

In last night's Index Wrap, I tried to verbally discuss some weakness from the NYSE new high/new low ratio. Let's take a quick look at the hard data, where we will note major differences between the NYSE NH/NL 10-day average and NASDAQ NH/NL 10-day average, and perhaps the main reason I lean toward bearish trading in the S&P 500 Index, which would obviously contain more 1, 2 and 3-lettered stocks listed on the NYSE.

Market Internals

On July 18, the NYSE NH/NL 10-day average found a 3-box reversal take place after a recent high reading of 98%. However, the NASDAQ NH/NL 10-day average at 94.1%, would still need a reading of 92% to see a reversal back lower. Again, this is a tool whereby we try and assess bullish and bearish leadership. My only observation here is that bullish leadership in the NYSE has been fading since July 18th and would only serve as an early alert to a potential longer-term shift toward bearish leadership.

One thing that has the bearish side of me still more eager to trade a range as discussed in last night's Index Wrap, and willing to cover a spike lower is the slight abatement in the NYSE 10-day SMA rate of change. Per last night's Index Wrap, and little change in today's trade, this would be a spike back lower near 970 in the SPX, should the market react negatively to any of tomorrow's economic data.

A quick update on the very broad NYSE Bullish % ($BPNYA) has the current reading at 69.48% and lowest bullish % reading since the July 15 relative high reading of 73.13%. Still, it would take a reading of 66% (6% from 72% on 2%-box scale) to get a reversal lower into "bear alert" status.

The also very broad NASDAQ Composite Bullish % ($BPCOMPQ) currently stands at 72.15% and not all that far off its July 15 relative high reading of 73.5%. Today's 72.15% bullish % reading is slightly above the July 25th low reading of 71.83%.

I thought I heard somebody on CNBC say trade volumes were light today. I don't see trade volumes having been notably light in today's trade and would instead argue that for summer seasonality, trade volumes remain rather strong and depicts that of interest in equities where buyers and seller are still rather active.

Dow Industrials Chart - Daily Interval

From the perspective of the WEEKLY pivot retracement and a trading zone from 9,367 to 9,050, traders did a good job leaving the Dow looking rather "neutral" in front of tomorrow's economic data.

I've place a pink downward trend on the Dow's chart, and while it is downward in trend, it is gradual. Our more aggressive downward trend (red) that I like to leave in place had be a bit concerned on Monday as it looked to serve support that day after being broken above on Friday, but bears may rest a bit easier (say 40-points easier) with it coming into play early this morning.

At most, I would have to say a MAX decline in the next couple of weeks being 8,950 due to this gradual downward trend and the still rather sharply rising 50-day SMA might only get cut like hot butter on a negative Q2 GDP of 1.3%, which would be below Q1's GDP of 1.4%.

Often, I get too focused on things as it relates to a shorter- term time frame like the above chart. Here's a very clean chart of the Dow Industrials (INDU) where I go way back in time, but have drawn the WEEKLY S2 to WEEKLY R2 levels on the chart.

Dow Industrials Chart - Daily Interval

Several observations can be made on the above INDU chart. One is that WEEKLY S2 has some historical significance to a relative high in late November and may partially explain why the Dow Industrials managed to rally back on July 1st, when some rather negative economic data was released. Construction spending declined 1.7% and economists' were expecting a 0.3% rise that day.

As I look at the above chart, it would certainly give the look that the Dow is currently in a trading range of WEEKLY S2 to WEEKLY R1 and WEEKLY S1 has the look of being the mid-point of this range.

Today's trade saw a net loss of 1 stock, Intl. Business Machines (IBM) $80.96 -1.02% to a point and figure sell signal (at $81.00) and has this very narrow bullish % slipping back 3.33%, but still bull confirmed status at 83.33%.

S&P 500 Index Chart - Daily Interval

Not much change in the SPX chart today and while a wavering 21- day SMA, that seems to have little sense of direction served some resistance at today's high, the SPX still looks locked in a range and building wedge, where WEEKLY pivot certainly served the mid- point of the range. Stochastics give the look that the SPX is set for a decline, while the sloooooow approach of MACD to zero level has the bearish side of me feeling the jitters right now.

My stomach turns with the feeling that pressure is building and I expect volatility into the weekend, but still feel it worth a bears time to hold bearish, but need a break at 975 to get the move to a bearish target zone of 968-973.

I really think the Q2 GDP data is the "key" number tomorrow and I would think it takes a 1.8% or higher Q2 GDP reading to get the SPX above Monday's high of 1,000.68.

Without showing another longer-term chart like I did in the Dow Industrials, I made two additional benchmarking notes in the SPX chart at the recent July 1st low, which just about the exact close of an August 22, 2002 close and relative high before the big reversal lower to 768.63. My thinking for the July 1 low to have found buying is that there may well have been a BIG institutional short in the futures market that may have made some big bets on that August 22, 2002 high holding resistance and when it didn't, was more than glad to have covered on the July 1 spike lower.

As it relates to the observation of the Dow Industrials July 1 low and tie into the December 2nd relative high (marked by WEEKLY S2 in Dow chart), I've tied the SPX's December 2nd relative high to MONTHLY 80.9% retracement.

The observation I get from this type of tie in is this. Does anyone remember the stage of events on the move higher? It was the NASDAQ-100 that broke above its December highs first, then it was the broader S&P 500 index and S&P 100 Index, and then it was the Dow Industrials.

If memory serves me correct, we picked up on the NASDAQ-100 leadership to then think further bullish the SPX, OEX and then the Dow for new bullish entries.

And by golly, it would appear that the SPX bullish % is softening a bit, but we have yet to really see some of the NASDAQ internals weaken sufficiently enough at this point, to now act like a sledge hammer, or even a small hammer, to try and tap things lower.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) find no net changed in its bullish % and still stands at 77.2%. Now, I KNOW that IBM gave a reversing sell signal, so at least one other stock gave a buy signal. Heck, 10 stocks could have given sell signals and 10 stocks could have given buy signals. Today, the internals matched the externals of the SPX and were basically unchanged.

The narrower S&P 100 Bullish % ($BPOEX) did see a net loss of 1 stock to a point and figure sell signal and has its bullish % slipping back 1% to 83% bullish and now just 1% off its bull cycle high reading of 84%.

S&P 100 Index Chart - Daily Interval

Very similar to SPX chart, but perhaps the downward trend we've left in place is the only "good trend" that may have found some technical significance as it relates to an OEX close.

Two notes that may come in handy tomorrow morning to get a read on things with the pre-cash-market economic data. I've made a couple of notes as to where the S&P 500 futures (sp03u) 21-day and 50-day SMA's currently reside. The S&P futures settled smack dab in the middle of their 21-day and 50-day SMA's, but the notes I've made above in the OEX chart may give early guidance as to how bullish, bearish or "still rather neutral" the early response is.

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

Didn't get the "pop" to $32.04 I was on the alert for last night. Only correlative resistance I see tomorrow is WEEKLY Pivot of $31.48 and DAILY pivot of $31.48. Last tick I see in QQQ is $31.40.

I've outlined a "bearish wedge" formation in the QQQ, but if it is to hold, then should find resistance at $31.81 but 50-day SMA support that crosses an "old" trend that may well have served as a spot for buying support July 21 decline.

Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX) and still holds at 75% bullish for the 4th consecutive session.

Pivot Matrix

Several early session correlation in the WEEKLY pivots and DAILY pivots can be found. I've highlighted some various correlations in the DAILY and MONTHLY too.

Remember, after tomorrow's close we'll have new MONTHLY levels. The BIX.X may be the "key" index/sector for SPX/OEX traders to still monitor away from the OEX/SPX itself. Still see this 310 level showing up, and serving resistance today.

Jeff Bailey

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