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Consumer sentiment eases, investor sentiment holds strong

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Despite some softening in the University of Michigan's preliminary August consumer sentiment survey and terrorist bombings overseas, investors remained optimistic in today's session pushing the Dow Industrials (INDU) 9,428 +0.17% higher by 16 points to a second-consecutive 52-week closing high, while at the same time bidding the tech-heavy NASDAQ-100 Index (NDX.X) 1,299.69 +1.15% to a 52-week closing high and near its July 14 intra-day highs of 1,316.42.

A mixed session among financials, retailers and energy had technology gains being offset marginally, with the broader S&P 500 Index (SPX.X) 1,002.35 +0.26% recouping some mid-session losses to finish 2.6-points higher and highest close in more than a month.

Treasuries found a strong round of buying, sending YIELDS lower and helping calm fears that the recent rise in mortgage rates might dampen the housing market. The longest dated 30-year YIELD ($TYX.X) fell 10.8 basis points to 5.253% after nearing the 5.4% level earlier in the month and as recently as last week, while the benchmark 10-year YIELD ($TNX.X) fell 9.6 basis points to 4.381%. The setback in Treasury yields with still robust new home sales in July found the Dow Jones Home Construction Index (DJUSHB) 444.21 +3.24% challenging the AMEX Gold Bugs Index ($HUI.X) 186.29 +4.73% for today's sector winner.

Gains among precious metals stocks were bolstered by geopolitical events, and today's release from the Treasury, which showed a $54.2 billion deficit for the month, and larger than the $53.0 billion deficit forecasted by economists. Monthly receipts totaled $123.5 billion compared to $177.8 billion in outlays. For fiscal 2003 (ending September 30) the Treasury's deficit has grown to $323.9 billion, more than double fiscal year 2002's $157.7 billion.

Investors interested in a detailed account of the monthly Treasury statement can view the 32-page document at this http://www.fms.treas.gov/mts/index.html(copy and paste this link into your browser)

Volume levels picked up from yesterday with 1.2 billion shares traded on the NYSE, while NASDAQ turned 1.62 billion share. Advancers outnumbered decliners by a 5 to 3 margin at both the NYSE and NASDAQ, while the number of new 52-week highs neared those levels found on July 14th.

Market Internals - July 9 to August 19, 2003

Just yesterday, the NYSE NH/NL 10-day average reversed back higher into "bull confirmed" status and shows a resumption of bullish leadership over a two-week period. The NASDAQ's 10-day NH/NL 10-day average remains in "bull correction" status, but recent daily ratios upward of 95%, would most likely find its 10- day average steadying if not turning back higher.

Focusing in on the new high/new low ratios, some shorter-term traders may not find the above 10-day average ratio useful by itself. Below is a table showing 5-day average ratios, where I've attempted to color code bullish (green) and bearish (red) crossovers between the 5-day average and 10-day average ratios. In typical fashion, the NASDAQ has been more volatile.

5-day and 10-day NH/NL ratios for NYSE and NASDAQ

We'll take a look at some bar charts tonight and benchmark the bullish and bearish crossovers as to near-term shifts from bullish leadership to bearish leadership. It will become apparent that these crossovers aren't necessarily short-term predictors for major indices price action, but current assessment would be that short-term indication (5-day or less) are bullish, with NYSE intermediate-term (5 to 10 day) bullish leadership resuming, while NASDAQ intermediate-term firms.

The only word/observation of caution for bulls that I saw again in today's session was lack of bullish participation from the financial sectors. While both the S&P Insurance Index (IUX.X) 277.96 +0.15% and Securities Broker/Dealer Index (XBD.X) 572.50 +0.41% managed gains, the money-center KBW Bank Index (BKX.X) 884.97 (unch) and regional S&P Bank Index (BIX.X) 304.68 -0.15% have gone nowhere for 5 consecutive sessions and I would have thought the banking sectors would have seen greater bullishness with the 10-year YIELD now below its WEEKLY pivot. Instead, the BIX.X followed the lower YIELD move with a trade at its WEEKLY pivot today and seemed to have the SPX/OEX and to an extent the Dow Industrials trading either side of unchanged in today's session.

An upgrade this morning on Bank of America (NYSE:BAC) $81.21 +0.17% found a gap higher open at $81.81 finding sellers at its rounding lower 21-day SMA of $81.77, while a still rising 50-day SMA at $80.76 has been providing noticeable support the past 11 sessions.

Suffice it to say, I'm suspicious as to why the regional banks aren't participating more in the recent broader-market rebound, but would think a settling back Treasury YIELD, which should calm fears regarding higher consumer loan rates, should have found a bid in the regional banks today.

Pivot Analysis Matrix -

Correlative resistance levels for the INDU along with the OEX/SPX are represented in the DAILY R1 and WEEKLY R2s. The tech-heavy NASDAQ-100 Index (NDX.X) 1,299.69 +1.15% and its Tracking Stock (AMEX:QQQ) $32.37 +1.25% sprinted higher, to close above their WEEKLY R2's, and a while Dow/SPX/OEX component Hewlett Packard (NYSE:HPQ) $22.11, which disappointed on quarterly earnings and trade down 10.5% at $19.79 is not an NDX/QQQ component, correlative NDX/QQQ support at WEEKLY R1 and DAILY S2s may be tested.

I've marked BIX.X correlative resistance at the MONTHLY Pivot and tomorrow's DAILY R2, with near-term support at its DAILY S2 and WEEKLY S1 of 301.14/301.42.

S&P 500 Index Chart - 5 and 10-point box size

The SPX's point and figure chart has the SPX right back at a point of near-term resistance, where the SPX has had some trouble achieving the 1,010 level, but MONTHLY R1 of 1,016 ties in with the three consecutive tests of 1,010. When I think back to recent bullish entry at 965, I was looking for formidable resistance to form at the MONTHLY Pivot of 989.27 as overhead supply was encountered, however the rebound in technology sectors has been stronger than forecasted. Only the lack of participation from the financial sectors keeps the SPX from breaking above the 1,016-964 range.

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

S&P futures (sp03u) settled 1,002.90 and tick by at 1,001.30, so HPQ's after-hours earning's hasn't had the bear's den opening up with an angry crowd at this point.

As it relates to the NYSE and NASDAQ new hi/new low breadth, the July 14th high (marked by bullish % reading 79.8%) was where the NYSE 5-day crossed below the 10-day NH/NL. The recent August 6th low (marked by bullish % 74.2% reading) didn't find the 5-day NH/NL average crossing above the 10-day NH/NL average until the SPX first traded its MONTHLY pivot of 989.25 on this recent move back higher.

The various bullish % reading marked on the above SPX chart at various inflection points show the SPX's internals depicting that of bearish divergence. Not overly so, but notably so.

Today's action saw the broader S&P 500 Bullish % ($BPSPX) see a net gain of 3 stocks to new point and figure buy signals. Still "bull correction" status at 75.4%, and would currently need a reading of 80% to reverse back up into "bull confirmed" status.

S&P 100 Index Chart - Daily Interval

The SPX is closer to its weekly R2 than the OEX is to its WEEKLY R2 of 506, and I think its is only because the OEX lacks some of the broader technology and 4-lettered stocks that are found in the NASDAQ. Should the financials "catch fire" like technology has done then OEX has upside to its MONTHLY R1. However, the lagging of the banks and any type of negativity toward tech after HPQ's earnings, finds the OEX working its way back lower to 485.

For the most part, we can see that the narrower OEX bullish %, which has ranged from 80% to 84% is probably most analogous to the current MONTHLY R1 and S1 range, with each being more of an extreme type of range.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

It has been a long time since we looked at a bar chart using Bollinger bands (21-day SMA/close, 2 std dev), but a trader (I think holding long) was wondering what to do when MACD had given bullish crossover above its Signal, yet Stochastics were "overbought." His observations were that the QQQ tended to inch higher for a couple more days along the upper-end of the Bollinger band, before falling back below the 21-day and stabilizing, if not finding support at the lower end of the Bollinger band.

I would concur with that observation, but things are a little different today than perhaps the past 5-months. I'd monitor the upward trend (green) from the March lows, which was recently broken on August 1st as coming into play as resistance.

The trader also made note to increasing volume the last two sessions. I would make note of that too, and would think about 1/2 of it is short-covering.

Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net gain of 1 stock to a new point and figure buy signal. This has the bullish % rising to 68%, but still "bear confirmed." It would take a reversal higher reading of 70% to achieve "bear correction" status.

Another subscriber sent e-mail today regarding my posting short interest on the DIA, SPY and QQQ.

I looked again last night, but NASDAQ hasn't updated short interest at this point. Short interest is usually posted as of the 15th of each month.

Dow Diamond (DIA) $94.49 +0.22% has seen short interest building steadily since Januar 15th and July's short interest was 21.3 million shares with days to cover at 2.96, up from June's 2.52.

S&P Depository Receipt (SPY) $100.86 +0.37% has been building since March 14 (60.2 million) to July 15 levels of 96.3 million shares short with 2.39 days to cover.

QQQ short interest as been building since April 15th (151.7 million) to July 15th levels of 250.1 million shares, with days to cover at 3.09. That's the highest days-to-cover ratio in the last 12-months.

Dow Industrials Chart - Daily Interval

The Dow Industrials (INDU) 9,428.90 +0.17% traded their MONTHLY R1 and into my last "zone of resistance" to the WEEKLY R2. If the Dow can shrug off HPQ's disappointment tomorrow, and make the move above 9,460, then more power to them, but I think its time for a rest and pullback to 9,150. With the Dow making a new high, I think most technicians are going to be raising some near- term downside targets. At this point, it would have to take a CLOSE below 9,385 to signal any type of pullback in the making for the Dow.

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

Jeff Bailey

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