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Index Wrap

Bulls push for lucky #7

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After throwing their hooves in the air late Friday as if to concede losses for the week, bulls battled back on Monday in an attempt to close the major indices in positive territory for a seventh-consecutive month, as August consumer spending data remained steady, rising 0.8%.

The broader S&P 500 Index (SPX.X) 1,006.58 +0.97% did gain back all of Friday's declines with a 9-point gain today, but a late- morning decline to 995, which undercut Friday's lows came as the U.S. Dollar Index (dx00y) 92.89 -1.04% reversed lower after five- weeks of declines on thought that U.S. Treasury Secretary John Snow would take a hard line on global trade with Japan and China after returning from the September 20 G7 meeting in Dubai.

As the dollar continued to decline, stocks recovered from their late-morning retreat as Treasury Secretary Snow said that the U.S. continues to maintain a strong dollar policy, and that many of the G7 comments as well as his own regarding currency intervention by Asian governments had been blown out of proportion.

By session's end, the Airline Index (XAL.X) 61.67 +3.68% held the top stop on the sector winner list with discounter JetBlue (NASDAQ:JBLU) $62.13 +4.84% trading an all-time high. Only the consumer sensitive S&P Retail Index (RLX.X) 348.08 -0.10 finished in negative territory, slipping fractionally lower, but well off its morning lows of 343.39. Shares of Wal-Mart (NYSE:WMT) $57.23 +0.75% gained 43 cents after it said September same-store sales were tracking near the high end of forecast. Both the S&P Retail Index (RLX.X) and Wal-Mart (WMT) trade just below their starting to flatten out 50-day SMA's of 351 and $57.62.

With the major indices showing some intra-day swings on Friday and then again today, I get the feel the markets are trying to get a foothold and show some price stability, where last week's declines may have been some combined jitters from the weaker dollar and G7 meeting, but also some end of quarter asset allocation as the third quarter comes to an end tomorrow.

I think it fairly important for a rebound to take place, the today's lows hold into tomorrow's close. After tomorrow's trade, we'll get new MONTHLY pivot levels, so right now, I think a pivot matrix trader is most likely monitoring DAILY/WEEKLY correlations, but making note of that the September MONTHLY pivots have been holding as support, and may indeed be a rather important near-term level of support.

Pivot Analysis Matrix

The Dow Industrials (INDU) 9,380.24 +0.72% gained 67 points today, but on Friday and again today saw trade at the MONTHLY Pivot of 9,304. This might be an index that now trades closest to a level of support in the matrix, where a break much below the past two session's low would build lower to WEEKLY S1. We see correlative near-term resistance in the INDU/SPX/OEX at their WEEKLY Pivots, and with Stochastics now "oversold" and looking to turn higher, would represent upside triggers for renewed strength after last week's pullback.

Dow Industrials (INDU) Chart - Daily Interval

The Dow Industrials (INDU) have come right back into what I would deem a strong level of horizontal support, based purely on the pullback to this summer's high, which were broken to the upside in mid-August, re-tested in late-August, where that test found the Dow ramping to new high found just over a week ago.

While a weaker dollar should be favorable for U.S. exports, I do sense some concern among traders that the rather sharp decline in the dollar does have market participants here in the U.S., if not around the world somewhat hesitant and perhaps not as aggressive to throw caution to the wind and thought that new highs are a given. I would maintain a bullish bias on the INDU above the 9,300 level, but much of a giveback of today's lows will have 9,200 in play, with some psychological damage being done and bears chanting... "9,000.... 9,000."

I would add that the dollar looks just as, if not more oversold than the major equity indices, but today's rather sudden reversal from gains to losses and the U.S. Dollar Index (dx00y) now challenging its summers lows is starting to get some comment from currency watchers as to the rather sharp decline being potentially harmful to a global economic recovery.

Today's trade did see a net loss of 1 stock to a point and figure sell signal and this has the very narrow Dow Industrials Bullish % ($BPIND) falling 3.33% to 76.67% and now reading "bear confirmed" status. This is the most defensive bullish % reading and at these high levels of bullish %, gives greater importance to 9,300. I would not be opposed to put positions on the INDU should a trade at 9,290 be found.

S&P 500 Index (SPX) Chart - Daily Intervals

We can see how the SPX has had more of a pullback into its summer's base, but here's where I think this week's Pivot (1,009.74) does a very good job of matching some historical resistance from this summer, which may well become the trigger point for an SPX rebound, or signs of renewed strength to be found.

I think it is also worth of note how the SPX may be slightly weaker on a technical basis than the Dow Industrials as it relates to this summer's highs and how important the Dow may be to investor psychology near-term. For lack of a better phrase, I would think the SPX is counting on the Dow Industrials for strength in order to help pull the SPX above 1,010.

Today's trade saw a net loss of 4 stocks to point and figure sell signals in the broader S&P 500 Bullish % ($BPSPX). Still "bull confirmed" and would take a reading of 76% to reverse back lower to "bull correction," and further internal damage to 72% to reach "bear confirmed" status like the Dow Industrials Bullish % ($BPINDU).

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

In Thursday's wrap we laid out two envisioning trades for the S&P's. One was bullish for the SPX, the other bearish for the OEX. While the OEX did look vulnerable to the 493 level, bulls answered the call on Friday and again today and look to have an upside reversal session today. The main near-term resistance for the OEX is not unlike that found in the SPX at the WEEKLY pivot, but an OEX move above 507 would have the OEX back on its aggressive trend and I would think a move to that level would have Stochastics kicking back higher from current "oversold" level, and have MACD rounding out just above its zero level.

The S&P Banks Index (BIX.X) may become a key index if the OEX is to get back above the 513 level this week. While just about every sector traded lower last week, I thought the BIX.X held tough, and perhaps hints of some strength as it relates to this WEEK's pivots, where bulls might just be BANKing on the banks for a rebound in the major indices.

On Friday, the narrower S&P 100 Bullish % ($BPOEX) reversed lower into "bull correction" status at 80% when it saw a net loss of 4 stocks to point and figure sell signals. That was the first reversal lower in the S&P 100 Bullish % since its reversal up in March at 28%. Today's trade saw a net loss of 3 more stocks to point and figure sell signals as the bullish % fell to 77%. New entry bulls can play long in here, but stop just below the September pivot of 498 at this point, and would play a rally to the 512 area.

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

I think a QQQ bull needs to be patient with a QQQ entry here, and oscillator setup may begin looking to duplicate early August, so be prepared for some intra-day volatility, and might even expect some continued FRACTIONAL undercutting of previous days lows.

Still a large short interest in the QQQ's that was building in September, and I'd have to view a close above $33.22 as bullish.

Today's trade saw a net loss of 1 stock to a point and figure sell signal as the narrower NASDAQ-100 Bullish % ($BPNDX) slipped back 1% to 78%. Still "bear correction" status and would take a reading of 82% to achieve "bull confirmed" or a reversal lower reading of 74% to turn back lower to "bear confirmed."

Jeff Bailey

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