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Index Wrap

More economic data and expiration tomorrow

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Economic data released today was largely in line with economists' forecast and made for a rather steady trade as the major equity indices found gains by their close, while Treasuries finished mixed.

A trader that looks for volatility intra-day was probably disappointed with today's trade, and would have had to stick around after the closing bell to get some action in the Dow Diamonds Trust (AMEX:DIA) $93.10 +0.07%, S&P Depository Receipts (AMEX:SPY) $99.31 +0.27% and the NASDAQ-100 Tracking Stock (AMEX:QQQ) $30.90 +0.09%, which all dipped lower in after-hours trade on reports that parts of the North Eastern U.S. and South Eastern parts of Canada were seeing power grid failures.

Initial reports are that the blackout was caused by a failure at a Manhattan power plant that destabilized the power grid as far as Canada.

Industry experts say the chain reaction was most likely created when a Niagra Mohawk power grid went down on a demand surge (Niagra Mohawk has said it has no information at the time of this writing that its power facilities were the cause of today's power failures) where one power grid went down, creating a chain reaction for other system outages. Power safety measures took place, which most likely had the main power generating facility for that grid shutting down as demand for power suddenly became nonexistent. That action could then have the chain reaction of other power grids finding other power grids initiating other stop measures as a sudden power demand surge in an overlapping grid takes place.

The chain reaction had business as far west as Toledo, Ohio and Detroit, Michigan seeing power outages, with Canadian business centers in Toronto and Ottowa also seeing outages. New York City, which houses much of the world's major financial institutions and trading floors is currently without power.

As of this writing, it is expected by New York officials that power should be back up and running at some point this evening, but at this point, major exchanges in Chicago and New York are addressing the possibility of a delayed open for various futures, stock and options markets tomorrow.

New York officials have said there is no evidence of any terrorism.

Major airports in and around those areas impacted by this afternoon's power outages have grounded flights at this time.

While Chicago has not reported any power outages, the New York Stock Exchange has said it is trying to coordinate similar time openings for various markets, in order to provide a fair and orderly market when trading resumes tomorrow.

The September S&P futures contract (sp03u) settled at 987.60 and found its opening trade for tomorrow at 979.80, and current tick at 06:36 PM EST is 983.00.

Major index trackers have the DIA, which closed at 93.10 stable at $92.95, the SPY trading $98.87 after finishing today's session at $99.31, while the QQQ, which closed at $30.90, now ticking by at $30.80, after spiking to an after-hours low of $30.35, when at the time it was uncertain if the power outages were terrorist related.

Index traders will most likely note some disparity between these tracking stocks percentage gains or losses in tomorrow's trade, as they close at 04:15 PM EST, which is 15-minutes after their corresponding indices close for trade at 04:00 PM EST.

Utilities HOLDR (AMEX:UTH) - Daily Interval

Higher dividend paying utilities have been finding selling in recent weeks as Treasuries, which are perceived as safer investments have seen their yields rising. These higher Treasury yields may have become more attractive to income investors that may have been holding some utility stocks in recent weeks. While the sector can be sensitive to interest rates, the group was also negatively impacted when regulatory issues arise. Some industry analysts claim today's major power shutdown was created by power swaps, industry consolidation and deregulation that has helped create a larger interdependence on power delivery, and when one power source goes down, a chain reaction can occur. Some say the problem is becoming more difficult to cure as utility providers lack the cash resources after an economic downturn to fund the construction of new facilities.

At this point, it is difficult to say what impact today's power outages might have on the industry, but it is somewhat evident that the backup in Treasury YIELDS has had the sector under pressure.

According to Dorsey/Wright and Associates, their Electric Utilities sector bullish % (BPEUTI) is currently "bull confirmed" at 79.61%, and would take a reading of 74% to reverse into "bull correction" status. Dorsey's Gas Utilities sector bullish % (BPGUTI) is "bull confirmed" at 86.79%, and would take a reversal reading of 80% to turn lower at "bull correction" status. In late 2002, both sector bullish % fell to lows of 18% and 16% respectively.

According to Standard and Poors, utilities comprise a 2.8% weighting in the S&P 500 Index (SPX.X) 990.51 +0.65%.

Pivot Analysis Matrix

Tomorrow is perhaps a little more tricky for pivot level traders as we might look for some posturing into expiration. Despite the continued move higher in the 10-year Treasury YIELD to its WEEKLY R2, I thought the major equity indexes traded rather strong as economic data continues to show a steady recovery taking hold in the economy.

The U.S. Dollar was strong today as the German economy looks to have slipped back into recession, which had the heavily weight euro weaker against the dollar. September euro futures (ue03u) 1.1236 -0.57% fell by 0.0065 today.

Dow Industrials Chart - Daily Interval

The Dow Industrials hit their session low of 9,220, then made an about face to a session high by 12:10, then traded flat around the 9,300 level the remainder of the afternoon. Deeper cyclical names in the Dow like Alcoa (NYSE:AA) $27.80 +2.88% and International Paper (NYSE:IP) $40.80 +2.79% lead today's gains, with IP trading its first 52-week high, with a trade above its August 9, 2002 high of $40.82. Alcoa (AA) set its first 52-week high just recently (July 31 at $27.90) and matched that high trade today.

Today's trade saw no net change in the very narrow Dow Industrials bullish % ($BPINDU) and status remains "bull correction" status at 80%.

S&P 500 Index Chart - Daily Interval

There's little August open interest that would look to be in play for expiration, but I made note above at how evenly distributed and bulk of open interest is for the September strikes at 995 in both calls and puts. This could be a settlement type of trade for tomorrow and not too far off from last months settlement. Just for grins, I took a retracement from the SPX recent matching lows near 963 and matching highs of 1,015 and midpoint is right where the SPX closed today.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a net gain of 2 stocks to point and figure buy signals as the bullish % rose 0.4% to 74.6%. Still "bull correction" status and it would take a reading of 80% to reverse up to "bull confirmed."

The narrower S&P 100 Bullish % ($BPOEX) saw a net gain of 1 stock to a point and figure buy signal. Still "bull confirmed" at 81%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

The only observation I would make today is by asking the question... "why did the QQQ reverse from $30.35 in this evening's trade?. The QQQ fell sharply, not on the DELL news, but the power outage news. Is there something about $30.35 that may be in play that I'm not aware of. About all I can come up with is that tomorrow's DAILY S2 is at $30.40 (you should have seen me scrambling after the close to punch in the QQQ high, low, close in the DAILY Pivot to get some levels) and perhaps computers were already set up for tomorrow, and when the more extreme S2 level was traded, computers gobbled up some Q's from after-hours traders. Today's high was $31.19, so a short-term trader might well keep an eye on tomorrow's DAILY R1 of $31.17 as resistance.

Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net gain of 1 stock to a point and figure buy signal. This has the bullish % edging back up to 65%, but still "bear confirmed." It would take a reading of 70% to reverse up into "bear correction" status.

Jeff Bailey

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