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Index Wrap

Fed's concern creates optimism

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Stocks edged higher into today's 02:15 PM EST FOMC decision on interest rates, held steady as traders and investors quickly reviewed the Committees brief notes, where observations had the FOMC leaving its fed funds rates unchanged, then put together a bullish move higher as the Fed's concern for historically low levels of inflation and a weakening jobs market created bullish optimism.

At least that's what the MARKET seemed to think as the major indices begin to press new 52-week highs yet again with the Securities Broker/Dealer Index (XBD.X) 612.77 +2.72%, Airline Index (XAL.X) 64.28 +0.7%, Dow Jones Transportation Index (TRAN) 2,773.38 +1.47% and PHLX Housing Index ($HGX.X) 311.88 +1.93% closing at new 52-week highs in today's trade.

While I may be stretching things to say investors and traders found optimism from the Fed standing pat on interest rates with concern that a weakening jobs market and still anemic pricing gains could stall the economic recover, but it didn't take long for buyers to move in on a lack of weakness after the FOMC's announcement and brief comments.

Today's post-FOMC trade certainly had the look of short covering and perhaps some institutional stock inventory rebuild after observing new 52-week highs in the major indices earlier this month.

Over the next couple of days we should get some short-interest readings on the Dow Diamonds (AMEX:DIA) $96.02 +1.25%, S&P Depository Receipts (AMEX:SPY) $103.58 +1.45% and NASDAQ-100 Tracking Stock (AMEX:QQQ) $34.40 +2.71%, but it is my guess that there's still some rather eager bears willing to cover when negative comments refuse to bring the declines, as recent pullbacks have been shallower, but the moves to the upside come quicker and sharper.

One downgrade that may have helped boost equities in today's session was Hurricane Isabel, which is slated to strike land near North Carolina was downgraded to Category-2 status, but storm watchers continue to warn that Hurricane Isabel is still packing a punch and spillover effects of the storm could bring heavy weather as far north as the border into Canada.

Was today a bullish session? One report on CNBC actually mentioned that any damage brought by Hurricane Isabel could help boost Gross Domestic Product (GDP) here in the U.S. as consumer spending for preparedness and any reconstruction activities after the storm's passing could drive demand for various goods and services along the East Coast.

The S&P Insurance Index (IUX.X) 273.82 +1.95% gained 5.2 points in today's session, recouping all of yesterday's losses to close back above both its 21-day and 50-day SMA's of 273.

The U.S. dollar had a strong session against the euro today, with December euro futures (eu03z) $1.1144 -1.16% falling $0.013 as the U.S. Dollar Index (dx00y) 96.67 +0.71% currently gaining 0.69 against a basket of 6 major currencies on a more mixed session (note: the euro is most heavily weighted currency in dollar index).

Treasuries saw some intra-day volatility with early selling then turning to buying on the FOMC data, but then reversing that trade to finish lower on price with YIELDS higher. I was keeping an eye on the dollar/bond trade just after the FOMC data to see if the WEEKLY pivots in the major indices were going to find buying and thought they would, but gave traders some things to look for after staring at a tight index trade for the bulk of the afternoon session. Here's a brief recap of Market Monitor notes I was making just before, during and immediately after the FOMC announcement.

Market Monitor comments/observations/thinking

I wouldn't say it was "mass confusion" after the FOMC announcement, but stocks did begin to edge back from their pre- FOMC levels. However, I will admit I was a bit surprised that the major indices advanced above the WEEKLY pivot AHEAD of the FOMC news, which in itself may have been a hint that demand for stocks was strong to begin with today.

S&P 500 Index Chart (SPX.X) - 30-minute intervals

It made "no sense" (in my mind) for the SPX to bid above its WEEKLY Pivot of 1,019.58 AHEAD of the FOMC meeting. Usually, market participants take more of a wait and see approach to things. Maybe there just weren't any sellers, that were also taking a wait and see approach? The SPX didn't quite retest its WEEKLY pivot after the FOMC meeting and ramped from there, which I can only think was eager bears looking to cover (loaded for bear) or institutional computers looking to gobble up some stock after the recent new highs in early September.

My mentality right now for making money on the bullish side is for the MARKET and perhaps a bullish trader, to have a mentality of inflicting as much pain on a bear as they can and try and get in the mindset of where a bear's pain threshold is too much.

If we think a bear's pain threshold at the weekly pivot was a bit much today, then further pain comes on a continuation above 1,035 tomorrow, where WEEKLY and MONTHLY R2's of 1,044.28 and 1,043.46 then mark the only levels for any institutional computer programs to feed stock out after a break to new highs.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) edge up 0.2%, so a net gain of 1 stock to a point and figure buy signal was found. Still "bull confirmed" at 81.80%. While longer-term risk is HIGH for bulls and has been since late May, bear hunting is not a low risk proposition.

Pivot Analysis Matrix

The major indices (Dow, SPX, OEX, NDX) all show very SIMILAR levels of pivot support/resistance this week as if everything is moving in unison. In the past, we've often seen them stagger (NDX usually offset from SPX/OEX).

Dashed green should be levels of tentative support (DAILY S1 and WEEKLY Pivot) tomorrow as these levels were all traded through to the UPSIDE today. Remembering last night's wrap showed "dashed red" as tentative resistance, when broken today saw strong moves higher.

I can't say that any of the FOMC's comments were a "surprise," but the market response was favorable. Maybe, just maybe the market likes the fact that the Fed is on the lookout for danger and willing to keep an easy money policy until inflation shows up, or the jobs market shows signs of steady strength/recovery.

A key level of resistance once again is Dow Industrials (INDU) 9,611 (give or take 10-points on this larger index value). I should have also highlighted NDX WEEKLY R1 1,387 and MONTHLY R1 1,389 too. Neither of these levels have been traded so far this month, but both were close to being traded on September 8, when the indices made their recent 52-week highs.

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

Today's "kick above 1,020" and gains from there did indeed find MACD above its Signal. Oscillators getting more bullish and technical bears are going to be eyeballing the recent highs for resistance. Bulls are cognizant of a potential double-top like that found in July, but I think bulls have the upper hand and some momentum, where a bears confidence that the September 8 high of 1,032.41 is going to hold much resistance.

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

Bulls like the increase in volume after a light session yesterday. Bears that didn't get a chance to cover on the recent pullback will be looking for that opportunity on a break above the $34.56 level.

Bulls should NOT be overly cocky. I have placed a new "cloned trend" on the chart, but we're still dealing with current cloned trend. The trade that bulls look for from here is the QQQ to break to new highs, short-covering to $35.31 (WEEKLY R2) for a MAX WEEKLY gain, but on such a trade, would have to be looking for a re-test of the current "cloned trend," picking up on the pattern we've noted when we first started cloning these trends.

Note tomorrow's DAILY S1 of $33.80 is close to WEEKLY Pivot of $33.79. I consider this "near-term" support, and more formidable support (risk to bull) at $33.00.

A note here relating to QQQ intra-day is that QQQ pullback AFTER FOMC came at $33.82, which was just above WEEKLY Pivot of $33.80. When I look at this intra-day chart, I really sense the demand from short covering. When studying QQQ volume patterns on 5- minute intervals, see BIG volume and price rebound when QQQ came close to WEEKLY pivot on post-FOMC, then follow through volume on break to intra-day high above $34.00.

Today's trade saw no net change in the narrower NASDAQ-100 Bullish % ($BPNDX). Still "bear correction" at 78% and would need a reading of 82% to achieve "bull confirmed" status.

Dow Industrials (INDU) Chart - Daily Interval

A hurricane helping boost Gross Domestic Product? I'll believe that when the INDU breaks above 9,622 (10-points above 9,611) and trades 9,702 or MONTHLY R2 of 9,807 (9,800 good enough).

This is NOT an index where I would look for institutional buy programs to have been lined up at the WEEKLY pivot, but intra-day charts show some type of buying was influenced as Dow saw good reversal after FOMC weakness of 9,478, about 6-points below the WEEKLY pivot.

Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull confirmed" at 83.33%.

A quick after-hours note is that Dow/SPX/OEX component Altria (NYSE:MO) $40.46 -0.34% on today's session jumped to $44.63 in after-hours trade after an Illinois judge once again changed his mind about the company's required bond and lowered it back to $6 billion from $12 billion while the company's Phillip Morris unit appeals a prior "light cigarette" ruling.

Jeff Bailey

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