Option Investor
Index Wrap

Idle minds give opportunity for idle chatter

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While volumes picked up from yesterday's lowest volume levels of the year, another light volume of trade was seen as economic data released today was largely inline with economists' forecast, or close enough considering most of Wall Street's movers and shakers are most likely on an end of summer vacation.

And when the cat's away, the mice will play as lack of order flow gives traders ample opportunity to stare at a chart screen, twirl their pencil and talk with a buddy at another trading desk across town, or worse yet, talk to a fellow pit trader about potential news that might liven things up and serve as a catalyst for some volatility.

Treasuries reversed early losses to finish in positive territory with yields lower on the session. Whether it was today's 2.9% decline in monthly new home sales (July to June), concerns from the current status of consumer confidence, or rumor that Fed Chairman Alan Greenspan's job might not be safe which triggered the reversal and a somewhat defensive type of trade to all this news and rumor, the benchmark 10-year YIELD ($TNX.X) fell 4.1 basis points to close with a 4.486% YIELD after briefly piercing the 4.6% level after July durable goods orders matched economists' forecast for a 1.0% rise.

Just as the 10-year yield was edging above the 4.6% level, the shorter-dated 5-year YIELD ($FVX.X) had traded 3.601%, just above its recent 52-week YIELD high of 3.584% set on August 7. While the seemingly fractional piercing of a recent high is miniscule and there isn't a full crowd of bond traders taking part in this week's action, there's a few Treasury bears that see a Fed tightening before another cut in this Fed cycle.

While bond traders had their Greenspan rumor to liven things up, stock traders may have felt left out when late afternoon rumor started circulating that Saddam Hussein's capture, if not his demise had taken place.

As I type, Mr. Greenspan is still fully employed, and the whereabouts and health of Saddam Hussein are as certain as they were yesterday.

However, the major equity indices are slightly higher than they were yesterday after seeing some of the major equity indices trader their WEEKLY S1's with the Dow Industrials (INDU) 9,340 +0.24% WEEKLY S1 of 9,280, the Diamonds Trust (AMEX:DIA) $93.60 +0.12% violating its WEEKLY S1 of $93.09, the S&P 500 Index (SPX.X) 996.73 +0.3% and the S&P Depository Receipts (AMEX:SPY) $100.11 +0.18% having traded just below their respective WEEKLY R1s at 985.82 and $99.06, while both the NASDAQ-100 Index (NDX.X) 1,309.05 +0.18% and its Tracking Stock (AMEX:QQQ) $32.54 +0.09% holding above their WEEKLY S1s, to rally late and hold a close back above the WEEKLY pivots.

The U.S. Dollar Index (dx00y) 98.93 +0.10% currently holds a daily gain of 0.10 points after trading as high as 99.49 in today's early morning trade, which coincided with its MONTHLY R2 of 99.49. Since the Dollar Index (dx00y) trades roughly around the clock, I'll remind traders that in the DAILY pivot, I'm only using its 09:05 AM EST to 03:00 PM EST trade range, which would more closely correlated with the Treasury bond market's trade.

With no economic data on tomorrow's calendar, shorter-term traders may well look for a bullish session into Thursday's before the bell preliminary Q2 GDP data (forecast +2.9% compared to Q1's +2.4%), preliminary Q2 chain deflator (forecast +1% compared to Q1's +1%) and weekly jobless claims (forecast for +4K rise in weekly claims to 390K, from prior week's 386K). Then at 10:00 AM EST, what I consider to be the jobs demand indicator has the July help wanted index being released, where economists look for gradual improvement to 39, from June's 38 reading.

The stock I've associated with the Help Wanted Index is online job poster Monster Worldwide (NASDAQ:MNST) $27.72 +1.61%, which closed at a 52-week high today (I took into consideration its trade under the symbol TMPW for 52-week high values). MNST is a volatile little bugger, but I still like this name not only as a play and pulse for some improvement from the job hiring part of things, but as discussed in a past "Ask the Analyst" (July 27) and recent short interest checks, which has bears looking a bit complacent, with days to cover building to 7.93 from June's 6.56 with short interest falling by just 200,000 shares in the past month to 13.4 million short. I say/think shorts have been complacent only because I would have thought the recent decline to the $21 level and subsequent rebound to $24 by August 15, when short interest is tabulated, would have seen a drop of at least 1 million shares.

I no longer hold a bullish position in MNST, as I was holding September expiration. Since I will be out on vacation next week, I wanted to close out this short-term expiration, but have stuck a bid in for the December $25 calls (BSQLE) for $3.25 while I'm away.

Pivot Analysis Matrix

We're going to take a quick look at the S&P Banks Index (BIX.X) 301.10 +0.16% in a minute, but I'm making some quick observation as to the BIX's intra-day low of 297.11 coming right at its MONTHLY S1 which the BIX.X tested on August 4th. While the BIX.X is in a more noticeable downward trend that the other equity- based indices in our pivot analysis, the BIX.X does look to be trying to firm above 295, where we will see three levels of support this week.

It has been my observation that the lagging financials may dampen gains for the SPX and OEX, if not lead to a decline, and to a point that has happened. But I'm observing several levels of correlative support at 295 and with Stochastics (5,3,3) nearing "oversold" where we might look for a bounce back near WEEKLY R1 of 304, which was a level last week where the BIX.X hovered before the recent slip back lower. SPX/OEX finds correlative levels tomorrow at DAILY and WEEKLY S2, and it would be my thinking that BIX.X 295 and SPX/OEX 978/490 represent stronger near-term support levels for the remainder of this week.

With that noted, dashed green boxes would represent tentative support tomorrow morning. Economic data has been strong enough in my opinion to think bears are jittery ahead of Thursday's economic data. I say this now after seeing equities close today's session at their highs. Early support tomorrow would be looked for at these dashed green correlative support levels, with more formidable support existing at solid green.

Pink notations in the NDX/QQQ WEEKLY R1 may be considered short- covering targets for bulls, where these levels correlate closely to last week's 52-week highs. As noted in last night's Index Trader Wrap, short interest has continued to build, and I'm thinking there will likely be some bears looking over their shoulder tomorrow at those highs, with no economic data on tomorrow's calendar. Short-covering rallies can be similar to a childhood game of leapfrog, where jittery shorts simply begin leapfrogging each other to try and close out some positions ahead of potentially market moving data, or a 3-day weekend.

In this afternoon's market monitor before the close, I made note I was looking for a bearish/short entry in the QQQ, but only on a late session looking trade below the WEEKLY pivot. I was punching in today's High/Low range on the QQQ and could see how the DAILY/WEEKLY Pivots might line up. My bearish stance was only due to the declining Stochastics. While that WEEKLY Pivot would have been considered tentative resistance in early trade tomorrow, the higher session close in the NDX/QQQ also serves a short-term bulls early level of support for a short-covering pop back to Friday's 52-week highs.

S&P Banks Index (BIX.X) - Daily Interval

My q-charts BIX.X chart is missing a bar from last week, but the last three bars are indeed Friday, Monday and today's trade. My gut feel based on observation is that the BIX.X tries to consolidate the recent move lower with resistance at 304 and support from 295-296. I've placed what I consider a VERY bearish, or aggressive downward regression channel on the BIX.X, which in my mind would only hold under some very negative developments, which I currently have no information about. Those market participants bidding above 295 must have bullish convictions on the group, or are comfortable with the mortgage rate picture and recent increases in consumer loan rates. Those bulls not so certain may look for the door on the break below 295 and the early August lows.

While it would be inappropriate market analysis to day the MARKET (SPX/OEX) is made up of technology stocks (QQQ/NDX) and regional bank stocks (BIX.X), in a way, this is what we may be doing in the pivot analysis matrix without following 50-different sectors. It gives us a quick glimpse of some major groups of stocks that carry some weight in the major indices we're trading.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

In my opinion, there wasn't anything in today's economic data that would have had me buying or selling the QQQ. The only explanation I can come up with for the higher close (I've heard Saddam rumor too many times) was if I was overly short and simply saw an opportunity to square things up a bit. With no economic news out tomorrow, I think today's higher close within the range of today's session along with a pretty good pickup in volume is going to have most retail short (you and I) looking at the 52- week high set on Friday, then weighing that against the possibility of poor economic data on Thursday. Q2 GDP most likely fully discounted if not already marked higher for Q3 and WEEKLY jobless claims have been steady at or below 400,000 last few weeks. Aggressive bulls may look for DAILY R1 and WEEKLY Pivot support early to leverage a bullish trade on short-covering back to Friday's high.

On a bullish session, would hold a bullish trade on close above $32.85, which gives some padding back to the WEEKLY pivot of $32.35, where I thing greatest downside risk to economic data would be in the WEEKLY jobless claims data. I remember last week that some economists felt the prior week's reading of 386K was artificially low due to the blackout in the North East, where some claimants delayed their filings late that week due to the power outages.

Today's trade saw a net loss of 2 stocks to new point and figure sell signals. This has the bullish % slipping back to 73% bullish. Still "bear correction" status and would take a reversal lower reading of 68% to reverse back lower to "bear confirmed."

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

After the 10:00 AM EST release of economic data and SPX's quick move to WKLY R1, I was looking for decline tomorrow into a zone of support from 976-978 to then look for further direction signal in the SPX as Stochastics neared "oversold." I've tried to equate SPX trade with "zones" of yellow resistance and support with the QQQ and BIX.X and in my mind, makes for difficult entry by today's close. Bears may be a little pressured in the SPX/SPY too, but I don't think as much as QQQ traders seems to be. SPX/OEX bear still finds some conviction with financials not really acting overly strong and SPX/OEX still has a downward channel associated with the chart.

Today's trade saw a net loss of 2 stocks to new point and figure sell signals with the bullish % slipping 0.4% to 77.05%. Still "bull correction" status.

The narrower S&P 100 Bullish % ($BPOEX) also saw a net loss of 2 stocks to reversing lower point and figure sell signals as its bullish % slipped back 2% to 82%. Will make mental note of this after the OEX Bullish % did get back to its bull cycle high reading of 84% the past three sessions. Still "bull confirmed" at 82% and would take a reversal lower reading of 78% to reverse into "bull correction" status like its broader counterpart and the S&P 500 Bullish %.

Dow Industrials Chart - Daily Interval

Similar to the NDX/QQQ, the Dow Industrials is holding more of an upward trend. As such, MACD above the zero level is considered bullish oscillator, but MACD (blue line) threatens to cross below its Signal, which would only come from lower price action and a close back below the 21-day SMA.

I mention Caterpillar (CAT) $69.55 -0.15%, which last week did achieve its bullish vertical count of $72 and did trade $73 before a downgrade yesterday based on valuation sent the stock lower. CAT has been a major driver for the Dow's gains this year, and while stocks can always exceed their bullish vertical counts, CAT and other leadership stocks may warrant some monitoring in the next several sessions. A trade at $72 in CAT would be a 3-box reversal higher on its PnF chart, which would then have CAT generating a double bottom sell signal at $68, should such trade action develop in the next several sessions.

As it would relate to the Dow Industrials Bullish % ($BPINDU), CAT would currently have to trade $53 to generate a PnF sell signal, without ever reversing up into a column of X. I don't see that happen and more likely see CAT trading back to $72.00 (watch for $72.01 and quick reversal lower) to potentially signal some eager selling for INDU 9,450 type of trade.

While this type of trade monitoring in CAT seems a far fetched, I'm still a bit suspicious on why the INDU traded 9,499.97 on Friday, but not 9,500.

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

Jeff Bailey

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