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Index Wrap

Take a peek and see what's there

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If it were October 31 and Halloween, I'd have thought the major indices had dressed up like a groundhog named Punxsutawney Phil, stuck its head above yesterday's highs to see what was there, and went back in a shallow hole the remainder of the session to wait out some earnings reports and tomorrow morning's release of weekly jobless claims and September import/export price data.

The tradition of Groundhog Day dates back to 1887 and was originated in Europe. The first official trek to Gobbler's Knob in 1887 had Punxsutawney Phil seeing his shadow, crawling back in his hole, and predicting six more weeks of bad weather.

Only a twisted mind like mine could come up with such an analogy, but a 2.5% decline from Japan's Nikke-225 on concerns for the weakening dollar having a negative trade from the land of the rising sun, weighing on the major indices here in the U.S.

That's right. The major indices popped their head above just above breakeven, perhaps saw a shadow of weakness out of Japan, and decided to wait things out in today's trade.

An upside earnings report from Dow component Alcoa (NYSE:AA) $28.67 +1.70% after yesterday's closing bell did see the stock jump to a session high of $29.21, but short of its 52-week set on September 15, as top line revenues of $5.32 billion were slightly below consensus of $5.55 billion. While AA said it saw increasing demand for aluminum products, there's still some wonderment when top line growth shows more than a 3.1% year-to- year increase.

In today's after-hours trade, shares of Yahoo! Inc. (NASDAQ:YHOO) $38.79 -0.35% sees after-hours trade at $39.50 after the global Internet company reported Q3 (September) earnings of $0.10 per share, which was a penny better than Wall Street's estimates. Revenues grew 43.4% year-over-year to $356.8 million, which was above estimates for $337.2 million. Looking forward to Q4, YHOO said it sees revenues between $462-$502 million, which includes an anticipated $105 million contribution from its recent Overture acquisition. Consensus estimates for Q4, which do not included Overture's contribution are at $371.95 million, and by my calculation would have YHOO's comparable to consensus guidance being between $357-$397 million and a range that is inline with consensus.

Today's trade saw the CBOE Internet Index (INX.X) 165.50 -0.24% slipped 0.41 points in today's trade, while the Internet HOLDRs (AMEX:HHH) $46.50 +0.49% edged up 23 cents to close at a new 52- week high. In extended hours, the HHH gained an additional 37 cents to $46.87.

The U.S. Dollar Index (dx00y) 91.63 -0.28% continued to show dollar weakness in today's session with December euro futures (eu03z) 1.1781 +0.24% and December yen futures (jy03z) 0.9141 +0.21% both gaining ground against the dollar.

Treasuries finished mixed in today's session after the Treasury auctioned off $16 billion in new 5-year notes that brought a yield of 3.139% and drew a bid to cover ratio of 2.25, which was slightly stronger than the 2.2 average of the previous four sales.

Comments from the auction had Drew Matus, senior financial economist at Lehman Brothers saying, " This was a pretty good auction. A five-year at 3.14% is not such a bad deal when you look out at the inflation forecasts and the fact that the Fed seems willing to leave rates alone." Federal Reserve Governor Susan Bies seemed to echo Matus' comments when saying she did not see a large risk of inflation pick-up any time soon.

The 5-year YIELD ($FVX.X) finished down 1.8 basis points to 3.095%, while the benchmark 10-year YIELD ($TNX.X) edged down a fractional 0.2 basis points at 4.242%. The longest dated 30-year YIELD ($TYX.X) rose 2 basis points to 5.167%.

Pivot Matrix

There was little action or range in today's trade, and while the BIX.X did lead in the WEEKLY pivot with a kiss of its WEEKLY R1, buyers in the group (bulls or jittery bears) didn't feel an urge to get a breakout to new highs going in today's trade. Tomorrow, an upside trigger would be present at DAILY R1 (highlighted in PINK) which could then set the stage for a sector leading rally to the BIX's MONTHLY R2 as this would be the last level in the matrix where I would look for resistance.

I've also highlighted the QQQ's DAILY S1 at $34.15 as a level where we would see some correlation with its WEEKLY 38.2% retracement, but with MONTHLY R1 at $34.07 and Tuesday's "suspicious" low at $34.01, I'd still hold a shorter-term bullish bias above $34.00.

All I'm trying to do with the BIX.X and perhaps the DAILY S1's is observe a rather tight collar on the major indices at this point, after a rather impressive run the past several days, where our Stochastics on the daily interval charts are at "overbought" levels, but where MACD's still present the observation that bullish momentum exists.

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

I think I lost some subscribers with the comment that the BIX.X was showing strength in its Pivot Matrix, relative to the major indices. When we look at the SPX chart, the BIX.X looks similar in that it too is challenging 52-week highs, but its is the FIRST to test its WEEKLY R1 this week, and it was the FIRST to test and move through WEEKLY levels last week, which may have hinted of further bullishness for the major indices.

If the BIX.X can make the move to knew highs, this SECTOR has good upside potential to its WEEKLY R2 of 323.41 in my opinion, and the more "ramping higher" MACD gives the look that there's still some upside momentum to be had.

I did get an upside alert on Washington Mutual (NYSE:WM) $40.33 +0.95% today, where $40.00 had been resistance the past two months. While WM is NOT a component of the BIX.X, it is a component of the more super-regional and multi-nation KBW Banks Index (BKX.X) 915.53 -0.4%. What I take away from WM is one of two things. Either some shorts are giving up on WM as a bearish play as mortgage rates have eased back lower in recent weeks, or some "value" bulls got a little more aggressive with the stock today, as it has lagged the move higher in the broader banking sector. One clue we might take away from this is that the MARKET might have some type of confidence to buy a lagging or weaker bank, on thoughts that there is some good news coming soon. I can think of no other reasons for the stock finally breaking above the $40.00 level.

In the above chart, I make an "eyeball approach" to thinking that WM trades at a BIX.X equivalent, with the benchmarking observation back to WM's 52-week high set on June 17, when the BIX.X was trading around 315.00.

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

I've place some BIX.X levels on the SPX.X chart, which is my mindset as to how the banks should impact the SPX. I'm going to remain positive/bullish here after our weaker Washington Mutual (WM) showed some strength from the bottom, but I still think it would benefit the SPX if the banks bust the vault open and sprint to new highs.

Economic data due out before the opening bell have economists forecasting weekly jobless claims at 394,000, compared to prior week's 399,000.

I don't see any economists' forecast for September Import/Export prices. In August, import prices (excluding oil) fell 0.2%, while export prices (excluding agriculture) were flat at 0.0%.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a net gain of 5 stocks to point and figure buy signals as the bullish % edges up 1% to 79.4%. Still bull confirmed.

The narrower S&P 100 Bullish % ($BPOEX) saw no net change and status remains "bull correction" status at 78%.

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

QQQ tried to take a peek at its 52-week highs set on 09/18 and 09/19 of $34.86. Unfortunately for QQQ bulls, German software maker SAP Aktiengesell (NYSE:SAP) $38.55 +14% doesn't have 4- letters in its stock symbol and isn't a component of the QQQ. MACD has been above Signal for 2-days now and QQQ shows some intra-day new highs as a result. I would think it wise to snug a bullish stop at $33.97. This would be juuuust enough under MONTHLY R1 and yesterday's lows, where even slight clearing out of bullish stops at $33.99 might still keep a bull in the stock, but where $33.97 may be the loss of near-term momentum that has the QQQ slipping back to fill its recent gap higher back lower again.

Today's trade saw no net change in the narrower NASDAQ-100 Bullish % ($BPNDX) and status remains "bear confirmed" at 74%.

Dow Industrials Chart - 50-point box

With the Dow having traded in a tight range today, I wanted to take a moment tonight to look at the Dow's PnF chart with WEEKLY and MONTHLY levels overlaid. From last night's bar chart, we can perhaps see how the MONTHLY 19.1% retracement is matching the recent highs of 9,650 on the PnF chart, and how this WEEK's S1 and MONTHLY Pivot give the only "zone of support" that would tie in with the INDU's PnF chart, which eventually had the Dow giving a spread-triple-top buy signal at 9,400, where the 9,350 area looks to be more of a zone of support right now. The MONTHLY levels will be with us for another 3-weeks, while the WEEKLY's will change. But lets look at the Nikkei-225, and see how the INDU and NIkkei or oscillating back and forth, where the Dow tries to lead and the Nikkei tries to follow, with the yen/dollar being a common demonator, that the MARKETs seem to be trying to sort out.

Nikkei-225 ($NIKK) Chart - 50-point box

The $NIKK got drilled lower after giving a double-bottom sell signal at 10,850 and fell to 10,150 before a recent reversal back higher to 10,900, and has reversed back lower, very close to where the double bottom sell signal was given.

I've marked a column of X, which came during Japan's "tankan" survey, which had Japan-based companies saying they held a positive outlook on the economy, as long as the yen didn't strengthen too much against the dollar. During that time, it was also disclosed that the Bank of Japan has been intervening in the currency markets and selling yen and buying dollar to try and stem the yen's rise against the dollar.

However, in recent sessions, the yen continues to show strength against the dollar, and this now has me putting some emphasis on the Nikkei-225 needing to find support above 10,100, or we might be alert for weakness in the Nikkei-225 below that level to have U.S. markets softening. A break below Nikkei-225 gets as much attention as did the break above 10,000 in the Nikkei-225 as it relates to investor optimism in Asia.

As I conclude tonight's wrap, the Nikkei-225 is open for trading and currently trades higher by 16 points at 10,558.51. So far, its high/low has been 10,561-10,485, so a PnF chartist would chart an additional "O" to the above chart.

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

Jeff Bailey

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