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Index Wrap

Gold, Brokers and Homebuilder lead advance

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Bullish sentiment continued to push the major indices higher with the AMEX Gold Bugs Index ($HUI.X) 202.65 +2.57%, Securities Broker/Dealer Index (XBD.X) 649.68 +2.25% and Dow Jones Home Construction Index (DJUSHB) 536.49 +2.28% holding today's top spots for sector winners, while the bond markets took today off in observance of Columbus Day.

It was on August 3, 1492 that Christopher Columbus and ninety men set sail on the flagship Santa Maria. Two other ships, the Nina and the Pinta also joined the journey, a dangerous one, as many felt the world was flat (some still do). Just more than three months later, on October 11, at ten o'clock at night, Columbus saw a light. The Pinta kept sailing, and reported that the light was, in fact, land. The next morning, at dawn, the explorers landed on what is now known as Cuba, which they thought was Japan.

And just as the Santa Mari, the Nina and Pinta brought the explorers to new worlds not yet discovered by the Europeans, it was gold, brokers and homebuilders that helped lift the S&P 500 Index (SPX.X) 1,045.35 +0.7% to its highest close in more than 15 months.

Today's volumes were light. Many Canadian investors took the day off in celebration of Thanksgiving, while Japanese investors observed Sports Day, a day when sports of all kind are celebrated, and everyone is supposed to head outdoors or to a gym and exercise.

Despite light volume of just over 1 billion shares on the NYSE and steady volume of just under 1.5 billion on the NASDAQ, bulls continued to flex their muscle with advancer outnumbering decliner on both exchanges by a 2 to 1 margin at the NYSE, and nearly a 3 to 1 margin at the NASDAQ. The NYSE reported 484 stocks hitting new 52-week high compared to 2 stocks hitting new 52-week lows, while NASDAQ reported 375 new highs and 7 new lows.

Baby bell Verizon (NYSE:VZ) $31.88 -1.45% was a notable one of two stocks listed on the NYSE that traded and closed at a new 52- week low. With Dow components AT&T (NYSE:T) $20.15 -0.19% and SBC Communications (NYSE:SBC) $21.70 -1.13% also exhibiting weakness in the bells, I'm left to summize that last week's decision by a federal judge that states cannot regulate Internet telephone calls the way it does conventional calls was a temporary defeat for phone companies looking for access charges, which internet telephony has managed to escape. Still, some telephone companies like AT&T (T) are not necessarily eager to see Internet telephone services regulated, which they themselves have been using for several years within their own networks. AT&T converts some standard calls into Internet data packets and then sends huge amounts of their own traffic on Internet lines in an effort to cut access payments to other carriers.

Quarterly earnings season revs up this week with over 270 companies reporting results.

Before tomorrow's opening bell, banker AmSouth (NYSE:ASO) $22.60 +1.25% and Bank of America (NYSE:BAC) $81.74 +0.76% are scheduled to report earnings. In recent weeks, the S&P Banks Index (BIX.X) 323.42 +1.11% has been a strong sector and helped set a positive catalyst for the major indices and looks to have bulls counting on some strong results in the group. Consensus estimates for ASO is EPS of $0.44 per share and BAC quarterly EPS is forecasted at $1.69.

Pivot Analysis Matrix

More formidable support looks to be building in the BIX.X at its MONTHLY R2 and WEEKLY Pivot, and this would be a sector in our Pivot Matrix from which to monitor recent sector strength to continue to lead the major indices higher. Especially the SPX and OEX. Both the BIX.X and SPX saw early weekly tests of their WEEKLY R1s intra-day, with the BIX.X able to hold above its WEEKLY R1 by the close.

Correlative resistance levels this week are difficult to find in the WEEKLY/MONTHLY levels, with only the S&P 500 Index (SPX.X) showing correlation at WEEKLY R2 and MONTHLY R2 near 1,059.

I think this SPX 1,059 is achievable before the week's end, with correlative resistance at the Dow Industrials (INDU) DAILY R2 and MONTHLY R2 tomorrow.

NASDAQ-100 traders should also note that after tomorrow's close, chipmaker Intel (NASDAQ:INTC) $30.80 +1.2%, which closed at a new 52-week high and chip-equipment maker Novellus Systems (NASDAQ:NVLS) $36.95 +1.31% are scheduled to report earnings.

A full list of tomorrow's earnings reports can be found in the Events section of the site under Earnings Calendar.

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

Formidable support should be building at the correlative MONTHLY R1 and WEEKLY S1 near 1,027 as Friday now looks to have the SPX digesting last week's gains and poised for the move higher to 1,060. I must not forget that my fitted retracement on the December S&P futures contract (sp03z) 1,044.70 +0.4% at 1,051.18, but breaks above this 1,052 should set the SPX on a course to 1,060. Tomorrow morning's earnings out of ASO and BAC and market reaction to those earnings are what I feel to be more closely monitored.

Two stocks that I mentioned last week as short-squeeze candidates in PLCE (mentioned 10/09/03 near $24) and NFLX (mentioned 10/02/03 near $41) continue to move higher and both of these stocks saw BIG gains on initial bullish news prior to our mention. Banker Washington Mutual (NYSE:WM) $41.41 +1.32% broke the $40 barrier last week, and traded $41.79 intra-day today. I wasn't "crazy" about WM as a bullish trade above $40.00, but wanted to at least monitor the stock for strength above $40.00, and I'd have to say it has shown at least 3.5% worth of strength in the past four sessions, and that's pretty bullish for any bank stock, especially a laggard.

Today's trade saw a net gain of 2 stocks to point and figure buy signals in the broader S&P 500 Bullish % ($BPSPX) as the bullish % edges up 0.4% to 80.2% and still reads "bull confirmed."

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

Should ASO and BAC both meet or beat Wall Street's estimates before the bell, I'd be bullish the OEX above 513 all day and look to target further gains to the WEEKLY R1 of 528 as a target. Today's trade saw the OEX able to close above our cloned downward trend, something the OEX wasn't able to do. It was Thursday's close below this trend, which didn't have me too upset that a bull might have taken some profits off the table. With a close now seen above this trend, I would think a bullish bias is there to be trading long the OEX.

Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX) and status remains "bull correction" status at 79%.

A bearish trade in the QQQ that I profiled on Thursday, when the QQQ fell back below $34.72 was profiled as stopped out on this morning's gap higher. Late today, I thought bulls could play long on the move back above $35.20, with a MAX WEEKLY target of $35.90, stop just under WEEKLY S1 of

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

I've placed a new upward regression trend on the QQQ chart, which in Thursday evening's Index Wrap, would have the lower end of the channel closely representing that night's PINK trend. I also slid one of our downward trends up to the 09/18 and 09/19 highs, which I've done to now monitor extension of that trend as support, which would cross WEEKLY S1 of $34.26. This $34.26 level becomes more of a meaningful level of support.

I've also cloned one of the short downward trend, and set it at this week's WEEKLY R2 and upper end of regression. I do not put much weight in this trend as resistance, but wanted to get a feel for a downward channel of consolidation, where $35.71 might be crisscrossing resistance ahead of Intel's earnings.

Today's trade saw a net gain of 1 stock to a point and figure buy signal and this has the bullish % reversing back up to "bear correction" status at 78%. It would now take further bullishness to 82% to achieve "bull confirmed" status.

Dow Industrials (INDU) Chart - Daily Intervals

The Dow is within 236 points of "Dow 10,000" and by Wednesday's close, 4 components will have reported earnings. Unless the wheels come off and analysts have overshot their EPS estimates, the INDU may have a shot at 10,000 by week's end, where the midpoint of our upward regression channel, which hasn't been tested as resistance since September 4th, would cross the 10,000 level on October 17th. That's 4 days and 4 Dow component earnings away. I'm viewing support above 9,550 and 10,000 as a euphoric level of resistance. JNJ has been a real Dow laggard since April, and I don't expect much in the way of upside earnings based on the MARKET's treatment of the stock. Should JNJ surprise to the upside, then that might build further near- term upside hopes for INTC, GM and IBM.

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

Jeff Bailey

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