Option Investor
Index Wrap

Not enough umph

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I thought today was one of the more exciting sessions that we've seen in awhile as I felt great pressure building, mostly from the bearish camp, that the major indices might make a bold break higher, but an anyone point in today's trade, there was something lacking where buyers just couldn't muster conviction for a push higher.

I must also say there wasn't enough of a catalyst to get bears to further cover some short positions, as it relates to one of my primary catalysts for a continuation move higher being a good short-squeeze, which I think was largely due to yesterday's gains after the FOMC meeting.

For the S&P 500 Index (SPX.X) 1,025.97 -0.32% which finished down 3.3 points and the narrower S&P 100 Index (OEX.X) 515.43 -0.37%, there just wasn't the "umph" from the S&P Banks Index (BIX.X) 304.81 -0.2% or the KBW Banks Index (BKX.X) 879.24 +0.14% to get a good push from these two financial sectors. The Securities Broker/Dealer Index (XBD.X) 608.90 -0.63% slipped 3.9 points by the close, only after this group of financials traded a second- consecutive 52-week high of 619.72 in the first-half of the session, but its tough to run forward when you're constantly looking back over your shoulder for some support from your friends.

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

If there was one equity index that juuuuust didn't have some of the bullishness I think needed to really get the major averages to break some key levels of pivot analysis resistance in today's trade, it was the BIX.X.

One pattern that I want to be aware of that I just noticed today when trying to figure out why the BIX.X found suspicious trade at 305.99 (I always find penny trades suspicious as it hints that somebody's eager just prior to a level) is a POTENTIAL head/shoulder pattern, which only comes to my attention as we've been noting how darned important 296 support, which could be a neckline for the pattern, has been holding support in recent months.

The one question we won't get until earning pre-announcement season is in full swing is what impact higher lending rates (caused by higher Treasury YIELDS) had on the quarter. Was it overly negative? We know from our tracking of weekly Mortgage Banker Association data that new applications and refinancing dropped off notably from their spring fling. The probe into mutual fund dealing is currently underway and just beginning. The POSITIVE starting to form was a rebound last week in the MBA statistics and Treasury YIELDS starting to edge back.

Today's trade saw the benchmark 10-year YIELD ($TNX.X) fall 10.0 basis points to 4.191%, matching a relative yield low in early August, with today's trade seeing this YIELD come very close to our WEEKLY S1 of 4.145%. Here too we may have seen some cash that could have bought equities to new highs flow toward Treasuries today, and that may have taken some of the "umph" out of gains that could have pushed the major indexes to new highs.

Yesterday's gains for the dollar evaporated today with the U.S. Dollar Index (dx00y) 96.81 -0.88% still trading and falling and lower by 0.86 points. Just as yesterday's gains were a rather substantial move higher, today's declines for the dollar just as notable.

We may think that some of my comments today that yesterday's gains in the dollar was foreign capital moving to the U.S. ahead of the FOMC report, and quickly leaving with a nice short-term gain from yesterday's equity performance. While this may be a crazy thought to some, just remember what Stanford Professor Zitzewits found from some of his research. In a CNBC interview, he said the bulk of the illegal after-hours trading was being done if International Funds, where hedge funds were more actively trading one-day trends based on a market's gyrations. Is it foolish to think foreign capital moves to the U.S. in one day for a trade, to then book a 1% gain in equities to move on the next? Professor Zitzewits's findings give the impression it may be a more common practice than we think. If a hedge fund is day trading mutual funds, it is no different than buying DIA, SPY, QQQ (or futures) for a day and selling the next on large scale. Is it?

Oh.... It is LEGAL to trade DIA/SPY/QQQ and futures after 04:00 PM EST.

Speaking of futures and lack of "umph," I was using the S&P futures contract (sp03z) with our newly fitted upside retracement, along with a very simplistic intra-day retracement technique to try and find that KEY level where a futures trade might send the equity markets into a state of euphoric gains. The pink and dark purple retracement brackets will be erased for tomorrow, but here too there just wasn't enough "umph" to get the move higher. Here's a quick recap of that chart, with today's session now complete. I'm writing down, and have an upside alert set at 1,029.90, say 1,030.00 for a good round number, in combination with the 1,029.10 level already discussed.

S&P Futures (sp03z) - 5-minute bars

With some mixed economic data and more of a mindset that it would be short-covering that would have the major indices being able to break above the two key levels in the INDU and NDX discussed last night, I was trying to identify a "trigger" level that might have the markets jolting to new highs.

One benchmark on a closing basis for signs of further bullishness is if the S&P futures (sp03z) can hold a close above 1,029.10, which had 1,029.10 being settlement values for September 5 and 8. Why the futures can't close that level remains a mystery, but became a "fitted" retracement level that a curious trader marks. After all the MARKET seems to think it important.

But the question for some traders today was.... C'mon Jeff! If you think I'm going to wait and see if the sp03z can close above 1,029.10 and when it settles 1,040 you then tell me we've got a further bullish bias signal from the futures market, then you're out of your mind! Can you give me an action point to get long these buggers just in case we sprint higher?

A rather crazy, but technique I found that seems to work pretty good is to use your retracement tool with percentage levels set as shown (we use the same on our other bar charts) where all we do is monitor the first 5-minutes of trade (everyone has woken up by then and ready to go) and immediately set retracement levels as described. Once you've got the first 5-minute bar, you're simply taking that 5-minute range and defining up and down levels.

Long-story short, I defined the 1,029.90 level as a trigger level, which if broken, might be a level that saw early morning gains progress higher. However, even the futures market just didn't seem to have enough "umph."

I used this technique in the futures chart, only because I have my cash SPX chart nicely set up with the WEEKLY and MONTHLY levels and wanted to show a systematic approach of using more of a "fitted" retracement technique to display levels.

Still, such hard work taken on by a full-time intra-day trader can be tied in with pivot analysis work as levels from the matrix (futures traders will use the futures matrix) can be tied together to sniff out potentially important levels.

This can also help trader make sense from intra-day market commentary provided by Jonathan Levinson and Jim Brown, when from time to time I see them making comments regarding order depth at the bid and ask.

Futures Monitor Comments -

If you're trading futures, which have high intra-day leverage, I'd sure try and have some levels defined and follow along with other comments. Was Jonathan's observation of order depth meaningful? It made some sense to me.

If I'm a cash SPX/OEX trader and see some tie with futures and the DAILY pivot matrix level of 9,529.21, was short/put going into the FOMC and saw SPX 10-points post-FOMC, then maybe, just maybe a bear is lining up his bid around the 1,024 level too?

Let's take a look at tomorrow's pivot analysis matrix, and once again we see some of yesterday's "key" levels of resistance coming into play, and why I was trying to get some intra-day upside action points lined up in today's market monitor as WEEKLY R1s were traded in the Dow Industrials (INDU) 9,545 -0.22%, DIA $95.95 -0.05%, SPY 103.38 -0.19%, OEX 515.43 -0.37%, NDX 1,387.45 -0.43% and QQQ $34.26 -0.04%, but just lacked the "umph" or an upside trigger to extend yesterday's gains.

Pivot Matrix

Crud. After marking some boxes/levels I wanted to quickly cover, I didn't color the bulk of tomorrow's DAILY pivots red and with time limited, I decided to not go back and redo everything.

Notes in PINK are to simply show how close the major indices and trackers (DIA, SPY, QQQ) traded with their WEEKLY R1s, and why I was trying to find that "trigger level" in the futures contract to push thing over the edge for a short-covering extension to yesterday's gains. Just not enough "umph." The S&P 500 Index (SPX.X) came within fractions, and if my intra-day commentary or work in the Market Monitor kept one anxious bull from perhaps jumping the gun on a new bullish entry today, then I feel that work may have been worth it.

WEEKLY Pivots and DAILY S2 are full of correlative support. Remember, index expiration is tomorrow and there may be some last minute gyrations on index expiration and that's reason enough to think a DAILY S2 trade after bulls just didn't get the upside gains to get an extension of the rally continuing, to think a weaker open tomorrow, might have some shorter-term bulls pulling out early and looking to play the WEEKLY Pivot one more time.

The BIX.X has just about every S2 to Pivot colored green, but each is a level, if broken to the downside, would have me thinking it takes some pressure off of broader market bears to cover. While I hold no bearish index trades at this point (except a QQQ put from May than went poof a long time ago) a rater easy giveback of early gains in the BIX.X didn't give the bearish side of me the impression that bears were overly pressed to cover further, as long as YIELDS were lower and BIX.X were not bidding from early open highs. Earlier comment on the BIX.X showing a POTENTIAL head/shoulder top pattern, with neckline at 296, would have that 296 between MONTHLY S2 and S1, so I have a sense of field position as it relates to the BIX.X and its MONTHLY pivot matrix as this week now grows shorter.

Some traders have expresses an interest in viewing the SPX chart with a "fitted" retracement, similar to what I had done previously with the S&P futures chart on its daily interval bar chart, when we added an upper level of retracement when the futures contract broke to new highs. Here's the cash (SPX.X) chart using similar fitting technique used in the futures chart. What do you think? Are these levels in play? Have they shown some historical significance that would tie in with past trading, where the levels are being carried over to current day? What isn't explained in this retracement?

S&P 500 Index Chart - Daily Intervals

Wow! I like the support fit at 19.1%, and 38.2% and while we never know for certain, even the 50% looks like it was some type of target as the SPX broke to new highs and closed right at that level on September 2nd, when traders returned from the Labor Day holiday.

What isn't explained by this fitted retracement is why the SPX was only able to reach the 1,032.41 level on September 8th. Hmmmm.... I had just gotten back from vacation myself and updated the WEEKLY pivot matrix levels for the 09/08 to 09/12 week. Boom! WEEKLY R1 was 1,031.93. Today, the WEEKLY R1 of 1,031.46 was almost tested. But, there just wasn't enough "umph."

I've also shown some very simple upward trends using conventional anchoring to the March low and a relative low pullback. For lack of better terminology, I've labeled them aggressive, intermediate, and longer-term. Now I would be as amazed as even the most bullish of bulls if this longer-term-labeled trend held for the next several years and would deem 960 the biggest level of important support. But we can note how pullbacks to a first test of trend (after anchor and attachment to a relative low) combined with some of the levels shown from fitted retracement have offered some support when both were tested.

Look at the MONTHLY Pivot analysis levels. See where MONTHLY S1 is at 1,006.76? That's pretty darned close to the fitted 38.2% retracement of 1,007.68, and may begin to be deemed a more important level of near-term support.

Two separate tools giving indication of 1,007 correlative support this month, and may have to wait to look at next WEEKS pivot matrix to see of something near 1,036 shows up? We've noted the WEEKLY/MONTHLY 1,042-1,044 correlations, and yesterday we may have been more bullish at WEEKLY pivot than we were today at WEEKLY R1. The MARKET obviously was.

S&P 100 Index Chart - Daily Intervals

We can perhaps sense a bit of a "bull trap" in the making this morning as the OEX made a little juke-move above WEEKLY R1 with a session high of 518.54, but the afternoon rally between 12:00 and 01:00 did have the same impact as the OEX pegged 518.29 on that second test. Do bears have the upper-hand? Not hardly as buyers held the 515.29 level.

I've said before that I don't like to enter new positions so close to expiration, but I've outlined a potential trade setup to look for tomorrow, where we might look for some option expiration volatility to see a early moved to 512, then a "swoosh" reversal back higher to an expiration close of 520. That would be something if it happened and my only reason for thinking something like this might unfold, is that I do truly believe there was some heavier call selling this summer, where the call selling by institutions in a range-bound market would have had quarterly (September) calls being sold. One way to mitigate or save some positions is to try and get a lower move going into expiration (sell some long stock you're going to lose in the covered calls), and when they get to a destination, turn and close out the calls more aggressively, get a rally going, and buy back equal dollar amounts in different stocks that may be gaining new favor with the market longer-term, which can then spur the rally back to 520.

Dow Industrials Chart (INDU) - Daily Intervals

INDU and OEX look very similar as it relates to the WEEKLY Matrix. INDU didn't match its early-September highs as closely as the OEX, and while I don't put GREAT weight in Oscillators, INDU's MACD below its SIGNAL is still somewhat cautious and most likely needs that kick above 9,618 to have MACD giving a bullish crossover. The last two weeks, it seems like I've seen a lot of comments about round number support/resistance all from 9,400, 9,500 and 9,600. One level not mentioned yet is 9,700, so let me be the first to mention this level, which would tie to WEEKLY R2 of 9,702.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Intervals

Recent economic data hasn't been that "hot," and 80% of the bullish part of me is looking for bearish short-covering to provide the bulk of the upside emphasis after the bounce from $33.00.

If I were to grow some fur and take on a bear's technical view of things, imagine myself short 200,000 shares at $33.00, I'd be sweating a little, grasping to the observation that MACD is at relative high levels where pullbacks have come from, but when PRICE action matters, I'm staring at that WEEKLY R1 and hoping like heck it holds resistance so I can get things squared up back at $33.00.

Bullish percent results today showed that the very narrow Dow Industrials Bullish % ($BPINDU) remained unchanged and still reads "bull confirmed" at 83.33%.

The narrow S&P 100 Bullish % ($BPOEX) was also unchanged and still reads "bull confirmed" at 88%.

The narrow NASDAQ-100 Bullish % ($BPNDX) was unchanged and still reads "bear correction" at 78%.

The broader S&P 500 Bullish % ($BPSPX) saw a net gain of 3 stocks to point and figure buy signals with the bullish % inching up 0.6% to 82.4%. Still "bull confirmed."

And the broadest-of-broad bullish % indicators had the NYSE Composite Bullish % ($BPNYA), which is compiled from roughly 3,000 point and figure charts show a net gain of 0.15%, say 5 stock seeing new point and figure buy signals. Still "bull confirmed" at 73.28% after reversing up to "bull confirmed" in early April at 42%.

The NASDAQ Composite Bullish % ($BPCOMPQ) saw a rise of 0.28% (also about 3,000 PnF charts) to 76.68% and still reads "bull confirmed" after reversing up to bull confirmed status in April at 42% bullish.

Jeff Bailey

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