It is good to be back from a week's vacation in the high mountains of Colorado. After a week in the woods, traders look to have experienced a trade similar to my vacations where I didn't see a bear and the bulls (elk) were bugling from the mountain tops as they begin rounding up the herd as summer comes to an end.
It's not easy for a trader like myself to be away from the markets for a full week and begin analyzing things immediately, but suffice it to say, I was impressed with the bullish gains, especially in the broader S&P 500 Index (SPX.X) during my brief respite.
Just before I left for vacation, there were reports that sell side traders and hedge funds were mumbling, "just you wait until all traders return as these pre-Labor Day gains mean nothing." I see that Tuesday, September 2 the major indices packed on the bulk of their move with some follow through on Wednesday (09/03/03) on BIG volume with the NYSE turning 1.65 billion shares and NASDAQ churning 2.3 billion shares that day. The BIG volume on the break above this summer's highs at the SPX 1,015 level certainly looks like the bulls were bugling and bears headed for hibernation early.
Before I continue, I will thank Jonathan Levinson for his covering of the indices while I was gone. I've written two market wraps (Jonathan also writes the futures wrap) at the conclusion of a day's trading and it is a tough job. Jonathan put forth a lot of effort in a short amount of time and I certainly appreciate his work.
I saw pyrite in some rocks last week and thought I'd struck gold. That wasn't the case, but today's trade did find the non-weighted AMEX Gold Bugs Index ($HUI.X) 204.08 +2.67% today's standout sector winner as other commodities, not just gold, show signs of breaking out of longer-term resistance.
CRB (Commodities Research Bureau) Index - Monthly Chart
Last week the CRB moved to a 6-month high and looks set to test a downward trend at 250. The rise in gold along with other basic materials suggests inflation and will warrant attention from equity traders as the February 2004 Gold futures contract (gc04g) $383.60 +1.75% approaches the $400 level (see Ask the Analyst on 08/31/03). George Soros recently made comments that he could see high levels of inflation in the not too distant future and too fast a rate of inflation could stall an economic recover as the Fed is forces to tighten interest rates.
However, as Jonathan Levinson noted in Thursday's wrap (09/04/03), Treasury Secretary made comments that low interest rates from the Fed would be around from some time to come.
Stocks took a rest today and gave back Monday's gains with the U.S. Dollar Index (dx00y) 96.44 -0.74% getting hit lower. September euro futures (eu03u) 1.1226 jumped 1.19% breaching the $1.1212 level some currency traders felt was euro resistance, while Japan's efforts to maintain a weaker yen to help underpin an economic recovery there, had the September yen futures (jy03u) 0.00856 falling 0.24% against the dollar. Currency traders said they saw Japan's government selling yen against the dollar and parking cash in Treasuries.
Equity sector gains were limited with the Securities Broker/Dealer Index (XBD.X) 602.55 +0.65%, Biotech (BTK.X) 490.79 +0.21%, Drug (DRG.X) 316.98 +0.2% and Insurance (IUX.X) 0.11% posting more fractional gains.
Sector action started out broadly lower and finished that way in today's trade with the S&P Retail Index (RLX.X) 350.91 -3.04% ringing up an 11-points loss after Goldman Sachs downgraded Dow component Home Depot (NYSE:HD) $32.15 -4.74% on thoughts that the recent month's rise in mortgage rates and Treasury YIELDS are going to have more of a negative impact on HD's long-term growth prospects as Goldman expects housing turns to decelerate. Some of Goldman's tie in with the rise in mortgage rates and drop-off in mortgage applications and refinancing may have also brought selling into other retailers with many economists' and analysts feeling that the bulk of consumer spending had been fueled by mortgage refinancing, not job growth or increased incomes.
With the S&P Retail Index (RLX.X) being one of the better sectors to represent the consumer, traders and investors should monitor the rising 50-day SMA at 345, which served support on a pullback in early August at the 330 level before the RLX.X recently set a new high of 371 early last week.
Pivot Analysis Matrix
On Monday evening I updated the WEEKLY and MONTHLY pivot levels and the closest level of correlative resistance would have been found at Dow Industrials (INDU) 9,611 in WEEKLY R1 and MONTLY R1.
The dollar has been seeing selling in recent sessions and while conventional wisdom has a weaker dollar benefiting U.S. exporters, the sudden notable weakness in the dollar does hint of foreign capital moving out away from U.S. assets. While the Dow Industrials (INDU) 9,507.20 -0.82% made a nice move higher on September 2, when traders returned from a lengthy holiday, the Dow has traded sideways for 5 consecutive sessions.
As it relates to our pivot analysis, the Dow is lagging in the pivot by not trading its WEEKLY R1 and just trading its WEEKLY Pivot today. There may be a few jitters ahead of Thursday, September 11th which will mark 2-years since the terrorist attacks here in the U.S, but support should be firm at the Dow's WEEKLY S1 near 9,400.
Dow Industrials Chart - Daily Intervals
A strong move higher from the Dow when traders returned from the Labor Day weekend is being digested and after making a new high last week we may find some near-term negative psychology ahead of the two-year anniversary (not sure anniversary is proper terminology) of the September 11 terrorist attacks. I can't say "I love a bullish entry" here, but find a rising 21-day SMA and WEEKLY S1 near 9,400 a good near-term level of support. With the Dow still in an upward trend, MACD gets greater weight among the oscillators, where Stochastics turning lower from "overbought" suggests the Dow make take a rest. The zone I've marked from 9,281 to 9,304 would be a formidable zone of support where after the Dow traded a new high at 9,500 certainly looks to have found support and bullish enthusiasm and bears that were looking for a strong sell last week and found just the opposite should be strong buyers just above this 9,300 level.
Today's trade saw no net change in the narrow Dow Industrials Bullish % ($BPINDU). Status reversed up to "bull confirmed" on September 4th from 80% to 86.66% and currently remains "bull confirmed" at 86.66%.
S&P 500 Index Chart - Daily Interval
Bears certainly didn't see selling after the Labor Day holiday and there may well have been some bears counting on resistance holding at/near the 1,013 level or 1,015 matching highs from earlier this summer. The SPX now has about 3-months of support building below the WEEKLY S1 of 1,008, while 1,013 is a level I'm looking from bears and bulls to buy a pullback where a target of 1,042 wouldn't be out of the question for a swing-trade bull.
I made note as to strong volume levels on 09/03/03, which was two days after Labor Day, and one day after the SPX made the bold move above 1,008. The NYSE turned 1.65 billion shares, while the NASDAQ traded over 2.3 billion shares. While we haven't seen a big follow through to the upside, that type of volume after new highs has me thinking specialists (NYSE) and market makers (NASDAQ) were most likely having to short quite a bit of stock to market participants (especially overly short bears) and I would think an inventory rebuild would certain find good support at/near the 1,013 level.
I don't have my WEEKLY/MONTHLY retracement levels set for the S&P 100 Index (OEX.X) 513.92 or the S&P Banks Index (BIX.X) 306.08 - 0.77% at this point, but a quick look at the BIX.X shows it has rebounded back up to the 307 level, where it broke below that then "zone of support." When the BIX.X broke back below its then rising 50-day SMA of 306 the more regional banks have found support at 296. Current trade on the BIX.X finds a close at 306.08 with the 50-day flat at 305.75.
When the BIX.X fell below its 50-day SMA, that did bring some weakness into the SPX and OEX, and similar action may provide some near-term weakness in the SPX/OEX back near their WEEKLY S1's, but a level I think bulls can look for entry points and support.
The broader S&P 500 Bullish % ($BPSPX) saw a net gain of 6 stocks (1.2%) to new point and figure buy signals today. After reversing back up to "bull confirmed" status on September 3rd at 80.2%, still "bull confirmed" at 82.2%.
The narrower S&P 100 Bullish % ($BPOEX) saw no net change in its bullish % and still remains "bull confirmed" at 89% for a fourth- straight session and still a bull cycle high reading.
NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals
Other than looking extended after a 13% move from the $30.00 level I can't any bearish technicals in the QQQ. MACD is back near levels where we've seen some meaningful profit taking, but $33.00 looks to be a formidable level of support where our "cloned" downward trend and the base of our old upward trending regression intersect with WEEKLY S1 of $33.27.
Today's trade saw a net gain of 1 stock to a point and figure buy signal and status remains "bear correction" status at 80%. It would take a reading of 82% to achieve "bull confirmed" status and then have June's bull cycle high reading of 90% in reach.
The bullish % for the NASDAQ-100 Index and QQQ represents a greater degree of BEARISH divergence in the indices when compared to the actual indices themselves. The reason I say this is that the new highs in the QQQ/NDX are nowhere close to being confirmed by the bullish %, where the INDU/SPX/OEX are at least showing closer matches from the bullish % and new highs in their respective indices. As such, new bull entries will be well advised to show some caution.