Option Investor
Index Wrap

Total recall

Printer friendly version

The major indices struggled early but pressed higher by the close as the very broad NYSE Composite ($NYA.X) 5,876.56 +0.31% gained 18.5 points, a new 52-week high, and highest close since June 5, 2002.

As investors recall a similar closing high for the NYSE dating back nearly 16-months to the day, California voters began casting their votes today on whether to recall their state's current Governor, Democrat Gray Davis, who is accused of mismanaging the state economy.

As the NYSE Composite ($NYA.X) closes at a new 52-week high, two of its components Alcoa (NYSE:AA) $28.19 -0.28% and YUM! Brands (NYSE:YUM) $31.57 +1.08% traded higher in after-hours trade after beating Wall Street's quarterly earnings estimates.

The world's largest aluminum producer and Dow component Alcoa (AA) saw its stock rise 81 cents, or 2.8% to $29.00 over the New York ECN after it reported third quarter income from continuing operations of $283 million, or $0.33 per diluted share, compared to $229 million, or $0.27 per share, in the second quarter. This quarter's results were a 40% improvement over income from continuing operations of $202 million or $0.24 per share in the third quarter last year.

NYSE Composite (NYA.X) - Daily Intervals

The very broad NYSE Composite closed at a new 52-week high today and I've quickly benchmarked today's new high/new low breadth against its September 18 date and most recent 52-week closing high. Today's NH/NL breadth sees a greater number of new highs and fewer new lows, giving this leadership breadth indicator a bullish look, where an upside target of 6,000 should be achievable near-term. With MACD just crossing above signal yesterday and the NYSE Composite looking to get back on upward trend, we should expect some bullish momentum to carry over with limited overhead supply.

The also very broad NASDAQ Composite (COMPX) 1,907.85 +0.75% came within a frog's hair of closing a new 52-week high set on September 18 of 1,909.75, with today's NH/NL breadth at 304:7. On September 18, the NASDAQ Comp showed NH/NL breadth at 371:5, so bulls have some work to do.

I should also note the small to mid-cap Russell-2000 Index (RUT.X) 520.77 +0.78% closed at a new 52-week high, just edging out its September 19 closing high of 520.61.

Pivot Analysis Matrix -

Tomorrow we see multiple correlations of resistance at the DAILY R2 and WEEKLY R1s.

One plan I would want to have in place for tomorrow is any type of market reaction to today's California Governor vote. To be honest, I don't really have a bullish or bearish scenario in place for a market reaction, but would want to be ready just in case.

After today's trade, I'm pretty comfortable with past thought that bulls will protect profits with a stop just below SPX 1,025, and today's SPX test of MONTHLY R1 and session low of 1,026.19 gives me some confidence to this being a level of support.

While I doubt the replacement of current Governor Davis would draw a huge bullish reaction from the market, those of us here in Colorado know that Californian's can get a little crazy at times and some polls show the enthusiastic Arnold Schwarzenegger as a front runner to potentially be elected.

If I were to develop a bearish scenario, it would be the MARKET thinks things could get worse with the recall actually going through, while the bullish scenario holds that while Mr. Schwarzenegger may lack a political background, his enthusiasm and leadership skills along with a team of well-respected advisors will provide the change needed to lay the groundwork for the state's recovery.

With the S&P Banks Index (BIX.X) 317.61 +0.73% so close to its MONTHLY R2 and WEEKLY R1 correlative resistance, I've marked the BIX's DAILY R1 as a level, if broken to the upside, could then give hint that the major indices in our matrix could then be breaking above their WEEKLY R1's to new 52-week highs and then have their MONTHLY R2s in play as a next level of resistance.

I've still got my eye on Washington Mutual (NYSE:WM) $39.95 +0.25% as a "pulse" stock that in the banking group, that just hasn't been able to make the move above $40.00. Today's high on WM was $34.99 and its daily interval chart shows MACD just moving back above the zero level.

Dow Industrials (INDU) Chart - Daily Interval

The Dow Industrials' (INDU) most heavily price weighted Procter & Gamble (NYSE:PG) $95.10 +1.15% closed at a new 52-week high in today's trade and we'd have to go back to February of 2000 to find PG at these price levels. Today's Dow winner was McDonalds (NYSE:MCD) $24.72 +2.57%, which also closed at a new 52-week high after the fast food giant announced that total system wide sales for its McDonald's brands increased 11.1% in September and 10.8% for the recently completed third-quarter.

The INDU was "sloppy" at its MONTHLY R1 this morning, but found today's reversal coming just above its DAILY S2 of 9,532 to close just under its DAILY R2 of 9,656 for a round-trip trade within the DAILY Pivot. The only decent correlative support levels I see in the matrix for tomorrow is at the DIA DAILY S1 and MONTHLY R1, which I've dashed green as tentative support as the $95.93 level was pierced to the downside today, but becomes a leverage point for bulls on a break to new highs.

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

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

When I first profiled a bullish trade in the SPX on a move above 1,010, or was looking for strength, I was not targeting new highs, and was really only looking for a rebound to 1,025. On the above SPX chart, I'm trying to pull in the observation of the S&P Banks Index (BIX.X), which today challenges its intra-day 52- week high set on July 14th.

The point I would be trying to make is that the broader SPX itself is higher by roughly 24 points if benchmarked back to July 14th, and would show the BIX.X still lagging the advance. This is perhaps where an SPX bull needs "strength from the bottom" and the BIX.X to break to new highs, perhaps get a little short- covering move higher in the regional banks, for the SPX itself to make its move to new highs.

With a feel for the BIX.X still technically weaker RELATIVE to the SPX, I' also using Washington Mutual (WM) as a stock within the banking group, that is WEAKER than the BIX.X itself. In a way, I'm trying to measure and building strength from the bottom. This all goes back to a way I view how a market moves, as I think a market moves like and inchworm.

For an explanation of this analogy, see "The market is my inchworm" in the Bailey's Basics section at this http://members.OptionInvestor.com/archive/intraday/2002/052302_3.asp

Today's trade saw a net gain of 4 stocks to point and figure buy signals as the bullish % edged up 0.8%. Still "bull confirmed" at 78.40%.

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

If there's one sector that has the OEX looking weaker than the SPX, it would have to be the pharmaceuticals or the DRG.X 315.01 -0.26%, which in mid-June were trading new 52-week highs at the 350 level. The group has been lagging the advance in the OEX as there has probably been greater focus on the economy, where drug stocks on a broader scale will not attract as much attention.

For an OEX bull, this may place greater "need" for financials to continue to show strength, or need for the DRG.X, which just recently found support at a flat 200-day SMA of 309 to find strength from its trying to round out 50-day SMA of 312 and make a move higher.

Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX) and status remains "bull correction" at 78%.

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

I always find penny trades suspicious and today's trade at $34.01 has little technical significance, other than to think it comes a penny above psychological $34.00. On a move higher tomorrow, I'd be equally suspicious on a trade close to the WEEKLY R1 of $34.99, and on such a trade, would immediately move a bullish stop up to $34.74 for those that may have played the QQQ long above $33.21 and the monthly pivot as the QQQ looked to be following the INDU/SPX/OEX higher in the matrix.

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the NASDAQ-100 Bullish % ($BPNDX) as its bullish % edged up to 74%. Still "bear confirmed" and would need a reading of 78% to reverse up to "bear correction" status.

Jeff Bailey

Index Wrap Archives