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Index Wrap

Few were immune

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Few stocks or sectors were immune from today's selling as upbeat guidance from Texas Instruments (NYSE:TXN) $23.42 -7.5% wasn't enough to support the stock's, and perhaps the Semiconductor Sector's (SOX.X) 441.89 -5.32% from profit taking.

While technology shares were hit lower a rebound in weekly mortgage and mortgage refinancing for the first time in several weeks saw homebuilders as depicted by the Dow Jones Home Construction Index (DJUSHB) 430.67 -4.55% develop a crack in their foundation, while banks that derive revenues from mortgage lending were robbed of a bullish session with the S&P Banks Index (BIX.X) 299.03 -2.3% falling just over 7 points.

Valuations may have been as stretched as some of the technicals in the various indices/sectors as it seemed Smith Barney was reducing ratings on just about every stock it follows with a focus on technology, but then raising it price targets from levels that had been achieved weeks ago to higher price levels found in recent sessions. No company or sector seemed immune as Solly cut its rating on IT service provider SRA International (NYSE:SRX) $37.45 -3.47%, telecom equipment maker Nortel (NYSE:NT) $3.95 -3.65%, Juniper Networks (NASDAQ:JNPR) $16.55 -5.37% and even casino resort operator MGM Mirage (NYSE:MGM) $14.70 -1.27%, which a month ago was fetching just $12.50 per share. Just when it looked like Smith Barney was going to run the table in today's downgrades, early gains from the firm upgrading Sonus Networks (NYSE:SONS) $7.76 -0.25% saw the stock pop to $8.25 at the open, to finish just fractionally lower as broader market selling was a tough current to swim against in today's trade.

Sector winners were few in the equity category with the Pharmaceutical Index (DRG.X) 320.06 +0.97% and dividend producing Utility Index (UTY.X) 282.81 +0.3% managing gains by the close.

And defense might be the operative word for today's trade. A $16 billion auction of 5-year Treasury notes found an impressive 2.47 bid to cover ratio with what would appear to be a meager 3.23% yield considering some of the recent gains for stocks. While we thought traders were a little jittery and perhaps found bulls sitting on their hands in yesterday's trade ahead of tomorrow's September 11th trade, which marks the 2-year anniversary of the terrorist attacks here in the U.S., some left mouse buttons may have been pushed in the afternoon session for selling when Arabic television broadcaster al Jazeera released a video tape of al Qaeda leader Osama bin Laden, with walking staff in hand, navigating a rock outcrop in what appeared to be the mountains of Afghanistan.

The CIA and analysts from around the world immediately began poring over the tapes to assess their authenticity and look for clues of when the tapes might have been made. Al Jazeera said the video was probably filmed in April or May. Voice tracks were also released, but played along with video film.

In September of 2001, just after the terrorist attacks, the U.S. Dollar Index (dx00y) gapped lower from its Friday September 9 close of 114.73 to open at 111.85 and then stage an impressive rally to the 120 level 5-months later as global investors awaited a U.S. military response. Today the U.S. Dollar Index (dx00y) 96.51 +0.07% edged up 0.07 points, while Treasuries bid strong into their close with the shorter-dated 5-year yield ($FVX.X) falling 11.0 basis points to 3.138%, its lowest yield close since August 4, while the benchmark 10-year yield ($TNX.X) dropped 10.2 basis points to 4.269%, while the longest-dated 30-year YIELD ($TYX.X) slid a more fractional, but notable 6.6 basis points to 5.160%.

Gold stocks, which have had as equally impressive move higher as technology stocks and the major indices themselves also found profit taking with the non-weighted AMEX Gold Bugs Index ($HUI.X) 200.38 -1.81% fell 3.7 points, while December Gold futures (gc03z) $381.10 -0.44% fell $1.70 and are edging up $0.80 to $381.90 as Thursday's session is already underway.

Pivot Analysis Matrix

While I'm looking for a pullback bullish entry in the major indices, today's weakness in the S&P Banks Index (BIX.X) 299.03 -2.3% where I saw the BIX slice through a WEEKLY S1, MONTHLY pivot and WEEKLY S2 in one session gave little hint that there are/were any computer programs set to do any institutional buying in this group. This is HIGHLY suspicious considering weekly mortgage and refinancing applications saw an increase, while Treasury YIELDS, which mortgage rates are tied to, also moved lower. This would be a sector of focus tomorrow for any bullish trades as the indices approach bullish entry points I was looking at in last night's wrap.

Let's cover some basis real quick. First, I'm marking the 296.14 level (BIX.X) in the "For Sept. Monthly low." This 296.14 level was the August low, where the BIX.X tested this 296 level twice in the month (early then late) and recently bounced back to the 308 area. My mindset is if the BIX.X gives up this level to the downside, it isn't going to be a good sign for the broader market in general. I've correlated tomorrow's DAILY S1 with this level and would be the only correlative type of support in the DAILY/WEEKLY/MONTHLY levels as the BIX closed below its WEEKLY S2. It's my thinking that 9/11 jitters alone shouldn't have found the BIX.X nearly doubling the losses of the S&P 100 Index (OEX.X) 508.77 -1% or the S&P 500 Index (SPX.X) 1,010.92 -1.19%. Therefore, I'd want to see some type of bid in the BIX.X back above WEEKLY S2 of 301.59 and correlative DAILY Pivot to then be looking for SPX/OEX rebound and you could include the NDX/QQQ and Dow Industrials with this also.

You will note that the BIX.X DAILY Pivot and DAILY R1 are dashed red. This signifies tentative levels of resistance as both were traded through to the downside today. However, the BIX.X 308 level sticks out like a soar thumb as more formidable resistance, when indeed has been a level of resistance the past 6 sessions before today's declines.

If today's trade was simply some good old fashioned profit taking, with a combination of 9/11 jitters, I'd look for early support in the BIX.X at/around the 296 level, then begin monitoring the other green levels in the Matrix for support, where I think we should be looking for some inventory replenishment by institutional market makers and specialists after the major indices pushed to new highs.

I've also highlighted in pink the relationship between the 10- year YIELD falling and the BIX.X falling this week and month. This is a negative I wanted to monitor. Throw in some dollar weakness and money leaving the U.S. and I begin counting on some bearish short-covering to really provide support. After all, mortgage refinances may have rebounded last week, but I think we need to understand the difference between a declining dollar and Treasury YIELDS of late differs from March-June when homeowners were refinancing at record levels and pulling equity from their homes.

Now... one chart I also did some work on today was our September S&P futures (sp03u) chart. In this evenings market monitor, Jim Brown noted that the Emini contract rolls over tomorrow with the beginning of the open outcry session to the December contract. Jim made these notes only to alert traders holding positions (short or long) to be sure to change their symbols from es03u to es03z. Jim's comments followed those made earlier in the day by Alan Knuckman at 01:59:34 PM EST when he discussed volume observations in the futures.

Market Monitor Snapshot

Alan's 01:59:34 comment jogged my memory as to my needing to update my S&P futures chart and "fitted retracement" that we started back in July in an "Ask the Analyst" column and ended up incorporating into an Index Trader Wrap from time to time. I posted the following chart at 02:24:50 PM EST and for me, serves as some guidance as to what futures traders and perhaps larger institutional traders are doing with S&P futures should they need to hedge some larger baskets of stocks.

Sept. S&P futures contract (sp03u) - Daily Intervals

For nearly 3 months, seller were able to keep the September futures contract below the 1,010.50 level, and all that needed to happen for the break higher was me going on vacation! Now that I've got a decent looking relative high to work with and a pullback, I'm just adding a new level of retracement on the upside.

The 991.40 level on the Sept. futures contract become more of an important level of support on a closing basis (in my mind) at this point. I've make note that the WEEKLY S1 of for the SPX cash (which you may be trading option on) is at 1,008.26, and would be between my new blue and old red fitted retracement levels. I've tried to show anchor and fit points in both the red and blue to signify a systematic approach of the fitted retracement technique.

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

Tech profit taking and bank weakness is a double whammy for the SPX and during today's session we made note in the Market Monitor that the SPX had violated its WEEKLY pivot in advance of the S&P 100 Index (OEX.X) 508.77 -1.00%. Tech stocks are correcting from what I consider overbought/extended technicals and we have observed that selling can get just as overdone is a short amount of time. Banking stocks tend to trade more "reasonable" as I would think that for every short-term trader in a bank stock, there's about 10 traders actively trading technology stocks.

As such, a 2.3% decline in the BIX.X is very notable considering the tech-heavy NASDAQ-100 Index (NDX.X) fell 2.79% and QQQ declined 2.4%, so I think with Treasury YIELDS pulling back a bit and weekly mortgage applications seeing a slight rebound after several weeks of declines, then if everything is OK, banks had better firm up pretty quick, perhaps tech stocks get a little more "oversold" on a relative basis.

S&P 100 Index (OEX.X) Chart - Daily Interval

One area in the OEX's WEEKLY retracement that really seems to tie in with some past resistance, when broken may serve as support is the 507.14 level from our WEEKLY retracement. This 507.14 level would be deemed as an area where a bear/short might begin considering squaring up some things after seeing a new high, but I thing a step lower near WEEKLY S1 gets the OEX a little deeper into the past area of resistance congestion.

When I posted the above chart in today's Market Monitor, one trader sent me an e-mail regarding a reverse head/shoulder pattern with the neckline at the WEEKLY S1, and shoulders at our MONTHLY 61.8% retracement level. With the "head" at roughly 485, he and I find this pattern objective of 523 rather peculiar with WEEKLY R2 at 524.85.

Cold it be? I think the BIX.X may eventually hold the clue.

Dow Industrials (INDU) Chart - 60-minutes interval

I thought I'd show the Dow's chart on 60-minute interval and perhaps shows some intra-day action where we might have looked for some short covering either by trend traders or shorter-term bears that may have shorted the Dow into this past weekend and decided to get flat when opportunity presented itself today. We can also see how the Osama tapes may have had a negative impact on investor/trader psychology as the INDU fell to now session lows.

One test I presented in today's Market Monitor was the lower Treasury YIELDS might have given a bid to stocks when the bond market closed. That didn't really happen as the Dow just tried to steady at the 9,400 area. I've marked "good bullish entry" and "major support" levels discussed in last night's wrap on the above chart so traders can get their bearings. While not components of the BIX.X, bankers Citigroup (NYSE:C) 43.95 -0.74% and JP Morgan (NYSE:JPM) $33.38 -2.56% saw weakness in today's trade.

Oh... I'm still monitoring Caterpillar (NYSE:CAT) $69.00 -0.57% where I thought Dow traders might have wanted to monitor this stock while I was out on vacation for any resistance back near its bullish vertical count of $72.00. Indeed, CAT rebounded from an August 26 decline of $68.13 to $72.90, but shows support back at $68.20 today. While CAT is just one stock in the Dow, and stock can always exceed a bullish vertical count, its a stock Dow traders may want to follow to see how a recent Dow winner is holding in.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval

A couple of trader's asked about today's increasing volume as perhaps being a key reversal type of trade. I can't come up with a definitive answer when I tried to go back and look as similar volume increases on a lower trade day. I do know that short interest as of August 15th had been building and the recent new highs in the QQQ should continue to find some bears looking to get square. Current levels is the first place I'm looking for support, but would assess any carry-over near-term selling to the WEEKLY S2 of $32.59, which does a pretty darned good job of market the mid-July and late-August highs where the upside break and close above that level seemed to build buying to new highs.

A final intra-day trader's note. In conjunction with planned memorial activities in New York, the New York Stock Exchange will observe one-minute moments of silence at 08:46, 09:03, 09:59 and 10:29 EST. During the latter two observances, which occur during the trading session, all trading on the NYSE will cease.

Jeff Bailey

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