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Dollar firming sees leisurely advance

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The major indices recouped the bulk of yesterday's losses as the U.S. Dollar Index (dx00y) 94.12 +0.28% firmed against major foreign currencies after this weekend's G7 meeting.

After one of the biggest declines in a year on Monday, the dollar was little changed against major currencies. The greenback was flat at 112.22 yen after sinking to 110.04 overnight, while the euro dropped 0.2% to $1.1445, with some overseas analysts optimistic that a weaker dollar might have the European Central Bank (ECB) lowering interest rates.

Stocks recovered from a mid-morning dip into negative territory as President Bush addressed the United Nations in a preliminary attempt to gain financial support for its rebuilding efforts in Iraq.

As President Bush was laying the groundwork for eventual UN financial support for rebuilding Iraq, a broad downgrade in defense-related stocks by Smith Barney after a poll showing a drop in public support for increased defense spending has the sector in the final innings of government spending, which the firm feels could peak as early as 2005. The broad downgrade had the PHLX Defense Index ($DFX.X) 172.77 -1.6% leading today's sector loser list, and bucking a broader bullish session for the bulk of sectors we follow.

The North American Telecom Index (XTC.X) 526.75 -1.03% was the only other sector to find a loss of 1% or more after baby bell Verizon (NYSE:VZ) $33.13 -4.55% lowered its full-year 2003 earnings forecast due to pressures on its domestic telecom business stemming from regulatory constraints and the economy, weak demand for business voice and consumer landline phone services.

The CBOE Internet Index (INX.X) 164.18 +2.45% nudged out the Disk Drive Index (DDX.X) 136.81 +2.4% for today's sector winner with online retailer Amazon.com (NASDAQ:AMZN) $50.44 +6.26% surging above the $50.00 level for the first time since June of 2000. The Internet HOLDRs (AMEX:HHH) $44.93 +3.05% closed at a 52-week high on volume of 852,000 shares, after trading upwards of 979,000 shares in yesterday's session. I take note of these volume patterns as it relates to NASDAQ market site statistics showing average daily volume from August 15 to September 15 running at 211,390 shares, where short interest has been growing with a notably high 12.57 days to cover. The bullish vertical count on the HHH from its point and figure chart was developed in November and has not yet negated its bullish vertical count of $50.50.

Online auctioneer eBay (NASDAQ:EBAY) $55.36 +2.31% rebounded from both a 21-day SMA and 50-day SMA at $54 and may be a stock that attracts Internet bulls with a bullish vertical count of $123.00, which would only be negated with a trade at $50.00. The stock has been consolidating between $50 and $58 since mid-July and may now have started to digest its impressive move from October's triple-top buy signal at $31.00 (post split) where the stock's PnF chart didn't see a 3-box reversal until the stock recently achieved a 52-week high of $58.93 on July 24. eBay is still off its all-time high of $63.75 (post split).

The Airline Index (XAL.X) 63.62 +2.15% was also among today's sector gainers, helped in part by component JetBlue Airways (NASDAQ:JBLU) $60.44 +4.27% jumping to a new 52-week high on heavy volume of 9.5 million shares. I thought the volume suspicious considering average daily volume at just over 862,000 shares and noted this evening that the stock was added to the S&P MidCap 400 Index today, replacing Hispanic Broadcasting, which was acquired by Univision (NSYE:UVN) $35.20 +0.77%. It should also be noted that JetBlue (JBLUE) was sued by the Transportation Security Administration for sharing confidential customer information with a government contractor that is testing federal passenger profiling software.

Pivot Analysis Matrix -

A wall of green support correlations presents itself tomorrow at the WEEKLY S1 levels, with the OEX, NDX, QQQ and BIX.X the indices in our matrix that managed to hold a close above their WEEKLY Pivots, so I've marked the QQQ WEEKLY Pivot and DAILY Pivot as an area that we might look for early support to hold on a mixed open.

In today's market monitor, I profiled a bullish DAY TRADER trade in the QQQ at $34.12, target $34.49, which was a bit aggressive, but I want to note here how $34.29 (the WEEKLY Pivot) was a constant level of resistance up until today's bond market close. The only reason I profiled a bullish DAY TRADER trade in the QQQ was the Dollar Index (dx00y) 94.18 +0.35% was showing a firming dollar trade, and seemed to find a somewhat relieved market.

I can't say that I feel the dollar's decline or turmoil is over with just today's trade and will note that the QQQ has now filled its gap lower from Monday morning to Friday's close with today's trade and there's still work to be done for bulls to get a continuing rebound building higher, with support looking firm at the WEEKLY S1s.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - 5-minute intervals

QQQ $34.29 got a lot of attention today, and while our day trader's 5-minute interval retracement technique also marked the $34.29 level as an intra-day resistance level, I'm thinking it was the WEEKLY Pivot that created the bulk of today's resistance. All the QQQ did today was fill its Monday gap lower, where a short-term trader may have looked for an area void of near-term supply get filled back to the upside. With the NDX/QQQ the only major indices to have closed above their WEEKLY pivots in today's trade, today's intra-day observations of $24.29 resistance is where traders (INDU/SPX/OEX) might look for some early index support.

Enough intra-day observations, lets step back and look at the daily interval chart, which has the QQQ back above our cloned downward trend and WEEKLY pivot.

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

I sense the QQQ is going to have to be the "leading" index for bullishness to pull the INDU/SPX/OEX above their WEEKLY Pivots, and it may well be the Internet as a sector that drives the QQQ to correlative resistance at $35.15-$35.17. Support begins to look firm at $33.73 as today's gains come as oscillators advise caution, but may provide a swing-trade bull more confident bullish entry back near $34.00, with WEEKLY S1 support at $33.73. Just as a little dollar stability may have pressed some shorts to cover today, a little dollar weakness could see a QQQ pullback to the $34.00 level yet again.

Today's trade saw a net gain of 1 stock to a new point and figure buy signal and has the narrower NASDAQ-100 Bullish % ($BPNDX) edging up 1% to 81% and still "bear correction" status. A reading of 82% would have this index back in "bull confirmed" status. Millennium Pharmaceuticals (NASDAQ:MLNM) $16.50 +2.67% is a stock in the NDX that I see giving a new point and figure buy signal and boy its is a doozy! Today's trade at $16.50 is a "bearish signal reversed" and a popular pattern to look for a short squeeze. The pattern is described as needing a MINIMUM of 7 columns of alternating X's (demand) and O's (supply) where a pattern of lower highs and lower lows is reversed to the upside, where the eventual buy signal can trigger buying as distribution that had been taking place now finds the stock void of sellers.

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

The OEX looks to find support at its WEEKLY S1 of 512 and MACD still holding above its Signal. The shorter-term 21-day SMA still provides shorter-term momentum and bulls will be targeting 525 with support at 512. Some bears may have taken yesterday's dollar weakness as an opportunity to cover some positions, while further bullishness above the WEEKLY pivot should lend itself to further covering by bears.

Today's trade saw the narrower S&P 100 Bullish % ($BPOEX) see a net loss of 1 stock to a point and figure sell signal with the bullish % slipping to 86%. Still "bull confirmed" status at 86%, and would take a reversing lower reading of 82% to achieve "bull correction" status.

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

Both the OEX and SPX percentage gains mirrored those found in the S&P Banks Index (BIX.X) 308.18 +0.46%, KBW Bank Index (BKX.X) 897.93 +0.69%, Broker/Dealer Index (XBD.X) 623.52 +0.59% and S&P Insurance Index (IUX.X) 274.23 +0.49%. A slight decline in the 10-year YIELD ($TNX.X), which slipped lower by 2.7 basis points to 4.214% didn't hurt. Bulls would like more of the same (with some dollar strength) to get a move going above the WEEKLY Pivot tomorrow.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a net loss of 2 stocks to point and figure sell signals as the bullish % slipped 0.4% to 82.2%. Still "bull confirmed" status and would take a reversing lower reading of 76% to reverse into "bull correction" status.

Dow Industrials (INDU) Chart - Daily Intervals

Four of the 5 most heavily price weighted Dow components found gains today, with and offset weakness in the bells like T -2.27% and SBC -3.76%, which traded lower with non-component Verizon (V).

Dow very similar to SPX as it relates to WEEKLY Pivot as near- term resistance, but a rising 21-day SMA, WEEKLY S1 and base of our regression channel provide some formidable near-term support at the 9,490 level.

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

Jeff Bailey

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