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Index Wrap

A good parade

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When I was a kid, I generally disliked parades, at least the first part. It was rather difficult to hold my attention as the first group of entertainers usually found the local Junior High School band with a couple of wild baton throwers, and I do mean throwers, first approaching the grandstand.

As the parade progressed, I'd warm up to things once the Shriners showed up in their little cars, some dressed like clowns, and by the end, the large floats were the main event as I'd push by elder brother and younger sister out of the way to catch candy treats hurled our way.

As the third-quarter earnings parade was kicked off on Wall Street, I felt like a kid again. The major indices didn't seem overly interested in the pre-market earnings announcements from AmSouth (NYSE:ASO) $22.75 +0.66% and Bank of America (NYSE:BAC) $82.50, as even the S&P Banks Index (BIX.X) received a modest obligatory round of applause from investors as it eked out a small gain at the open, to then finish at a 52-week high and gain 2 points to 325.42.

Still, the earnings parade started the morning off with 14 company's reporting bottom line EPS that beat analysts consensus, with 8 company's reporting in line earnings, where analysts must have had better looks at the books. Of the 22 company's reporting before the bell, not a single company missed the benchmark set by Wall Street's number crunchers.

It may be notable that Eaton Corp. (NYSE:ETN) $98.90 +3.3%, which is a global diversified manufacturer of various industrials products beat estimates by 13-cent per share and looks to test all-time highs found in 1997 and again in 1999 of $103, while broker Merrill Lynch (NYSE:MER) $58.07 -1.39% beat Wall Street's estimates by a similar 17 cents, but saw its stock edge lower by $0.82 per share. For those that have been yelling "It's the economy stupid," then perhaps ETN gets more cheers as the company boosted forward guidance. Eaton (ETN), which is a component of the Cyclical Index (CYC.X) 597.02 +0.53% was the index's second biggest gainer behind United States Steel (NYSE:X) $20.66 +4.5%, which at today's close, has now more than doubled from its March 31 low close of $9.83.

But as the trading session progressed, early losses in the major indices began to abate, in what seemed to be anticipation for what might be seen at the end of the session. After all, bulls had been able to dodge any flying batons and the first part of the session's earnings parade didn't reveal any unpleasant surprises.

A rumor circulated midday that Saddam Hussein may have been captured, and that may have been all it took for bulls to sound the trumpets for a late session move higher. After all, Intel's (NASDAQ:INTC) $31.08 +0.9% parade float was just hours away and with the stock at 52-week highs, hopes were high and a good parade always has some candy being thrown to anxious onlookers. Right?

After the close, the worlds largest maker of semiconductor chips, Intel (NASDAQ:INTC) $31.08 traded higher to $31.74 after reporting Q3 (September) earnings of $0.25 per share, which was $0.02 better than consensus of $0.23. Intel said revenues rose 20.4% year-over-year to $7.83 billion, which was ahead of analysts' $7.72 billion consensus. INTC added that it expects Q4 revenues to be $8.1-$8.7 billion, which surrounds to the upside consensus of $8.3 billion. Gross margins were expected to grow to 60% (plus or minus a couple points), and capex spending was expected to be $3.6-$3.7 billion, which is up from prior expectations of $3.5-$3.9 billion.

The best news for the chip-equipment makers was found from Intel actually raising its plans for capex spending, which found Applied Materials (NASDAQ:AMAT) $20.90 -0.47% gaining 25 cents to $21.15 in extended hours, while KLA Tencor (NASDAQ:KLAC) $58.81 +1.2% added 79 cents to $59.60. Novellus Systems (NASDAQ:NVLS) $37.42 +1.27% saw its shares rise to $37.96 after it reported a 4-cent per share profit (ex-items), which was better than consensus estimates of breakeven.

Novellus said sales were $221.1 million, down 4% from $230.5 million a year earlier. The company added that it saw only modestly improved economic conditions, although manufacturers are still spending on the most advanced 300 millimeter copper chip equipment to improve chip performance and reduce manufacturing costs.

In the fourth quarter, NVLS gave some forward guidance saying it expects earnings excluding charges in a range of 2 to 7 cents a share. Analysts had been expecting earnings on that basis of 5 cents a share. The company said sales will be in the range of $210 million to $220 million. Analysts polled by Thomson First Call had been expecting higher sales of about $240 million.

All tallied, of the 37 more major companies reporting earnings today I show 20 beat estimates, 14 matched, an 1 missed. I haven't seen after-the-close earnings from Alliance Gaming (NYSE:AGI) $22.44 +3.88% or Teradyne (NYSE:TER) $19.59 +3.92%. Today's miss on earnings was Powerwave Technologies (NASDAQ:PWAV) $7.55 +6.03%, which reported a loss of $0.08 per share, a penny below consensus estimates of $0.07. PWAV manufactures and sells ultra-linear radio frequency power amplifiers for use in the wireless communications markets.

I will admit that after this morning's open, I was questioning my late session bullish profile in the QQQ from $33.21, but that darned S&P Banks Index (BIX.X) traded tough, and the major indices at their weakest point of the session found trades at or near their DAILY S1s, and that was it. I was talking to a trading buddy of mine after the close and he actually laughed at how this morning's declines after some impressive gains the past two weeks couldn't find the sellers to really drive some meaningful profit taking. Let's take a look at the pivot matrix and I think tomorrows focus for further bullish gains will once gain be with the BIX.X as a general guide (DAILY R1/WEEKLY R2), and NDX/QQQ at their WEEKLY R1s/DAILY R1s.

Pivot Analysis Matrix

I think bulls in the major indices should continue to test/challenge the BIX.X for strength and tomorrow's test begins at DAILY R1 and WEEKLY R2. Remember, WEEKLY R2 is the last level in the matrix that stands between current trade and the BIX's relative highs dating back to May 2002 of 330-331.56.

Taking DAILY R1 correlative resistance from the BIX.X, I see similar DAILY R1 and WEEKLY R1 resistance in the NDX/QQQ, which also becomes a test tomorrow after the Dow Industrials (INDU) 9,812.98 +0.49% and S&P 100 Index (OEX.X) 523.30 +0.44% were able to find trade at their WEEKLY R1s today, which follow yesterday's SPX test of WEEKLY R1.

Here's a quick look at the S&P Banks Index (BIX.X) on a weekly interval. I should note that my QCharts bar chart is missing yesterday's (Monday's) bar from 319.84 to 323.66 and while this index looks like a high-tech index the past two weeks, there wasn't as big a gap higher as the chart would appear to show with yesterday's bar missing.

S&P Banks Index (BIX.X) - Weekly Intervals

The weekly interval chart gives us a chance to bring the May 2002 relative high into the picture, and aside from the WEEKLY R2, this would be the only potential level of resistance in the BIX.X that I can find to keep the BIX.X from testing those May highs. The 330 level was derived from a series of multiple highs from May 15, 16, then that little bull trap type of move to 331.56 on May 17, and then one last kiss of 329.90 on May 24th, before a heck of a washout to 242.95 by late July!

I went back to the OI archives and a May 16 Index Wrap from Leigh Stevens titled "Can we believe this uptrend?"

Today trade saw Dorsey/Wright and Associates Bank Bullish % (BPBANK) see a net gain of 0.74% as the bullish percent for this sector rises to 87.16% and is still "bull confirmed." When looking at this bullish % chart, its was back in April/May of 2002 when this sector's bullish % reached 88% and reversed to "bull correction" by June at 82% and eventually fell to 42% by October before reversing up to "bear correction" status at 48% later that month. It wasn't until early April of this year that this sector bullish % achieved "bull confirmed," and looking at the above weekly interval chart of the BIX.X, I'd say that came at around BIX.X 290-295.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

I don't want to get too far ahead of myself (or too bullish), but I was calculating the percentage rise from the QQQ in early August from roughly $30.25 to our current WEEKLY S1 of $34.26, and that move higher, before the recent pullback to $32.62 (MONTHLY 61.8% retracement) was roughly a 13% rise. From the $32.62 level to current trade of $35.33, the QQQ has risen approximately 8.3%. If I were to calculate at 13% rise from the $32.62 level, that would have the QQQ rising to $36.86.

In perspective of where we've come from, dating clear back to this Spring's lows, I don't think it is necessarily prudent to be projecting $36.86, as I do think some of the "good news" has been factored into things, but QQQ shorts are going to be under pressure, at least I think they will be, tomorrow. Not necessarily from Intel's bottom line numbers, but their raising of capex spending. In my mind, there is NO reason, with the information I have on hand, to think the QQQ would sell back below the WEEKLY Pivot, unless the QQQ and broader tech has simply reached a level where the bulk of the good news has been baked into the cake and it would take a trade back below WEEKLY R1, for the bullish soufflé to deflate.

Today's trade saw the NASDAQ-100 Bullish % ($BPNDX) see a net gain of 1 stock to a point and figure buy signal. This has the bullish % edging up to 79% and "bear correction" status.

You may be able to add the BIX.X together with the QQQ to see their rather simplistic impact of what to look for in the SPX as it closes just above its WEEKLY R1 by today's close. Here too, I see no reason at this point why the SPX would sell below its WEEKLY Pivot, thus a good place for a snugged-up bullish stop.

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

S&P December futures (sp03z) settled 1,047.60 and currently tick by at 1,048.50, and at this point, wouldn't be enough to indicate an SPX open above 1,051.16. Of the last seven trading sessions, the SPX has wanted to close above the 1,037.51 level and this WEEK's pivot, so I'm thinking the SPX should not sell off on some profit taking below the WEEKLY Pivot, and for any type of "flush" downside move to take place, our MONTHLY R1 and WEEKLY S1 should hold support.

While great focus may be given to quarterly earnings tomorrow morning, let us not forget economic data in the form of September retail sales, which economists see falling 0.1%, while the ex- auto retail sales is expected to rise 0.4%.

Ex-autos! That reminds me... General Motors (NYSE:GM) $43.97 +0.98%, the world's largest manufacturer of automobiles will report earnings tomorrow morning before the opening bell. Analysts are forecasting EPS of $0.67 per share.

I've shown "fitted retracement" on the S&P futures chart before and today's settlement came just under our fitted 19.1% retracement of 1,051.18 (say 1,051.20). If futures are above that level in the morning, I'd have to think the markets are in for a bullish session. There's a heck of a lot of earnings and economic data a trader would have to keep up with, which is nearly impossible, so keep an eye on your levels and have an action plan ready to either protect some gains, or look for higher trade as things unfold. I'm leaning bullish based on today's technical action, but just want to see some of the levels discussed broken to the upside.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a net gain of 3 stocks to point and figure buy signals. This has the bullish % edging up to 80.80% and still reading "bull confirmed."

The narrower S&P 100 Bullish % ($BPOEX) was unchanged and still reads "bull correction" status at 79.00%.

After looking at the SPX bar chart and WEEKLY/MONTHLY pivot retracement, I develop a bullish bias from the Dow Industrials Chart (INDU), with GM now in the balance.

Dow Industrials (INDU) Chart - Daily Interval

The Dow Industrials (INDU) will be my bullish "get out of jail free" index for tomorrow's trade. Just like the game of Monopoly, the "get out of jail free" card gets a player out of trouble should he draw a "go to jail card." The INDU looks like it wants to blow higher and closed right at its session high.

We're not idiots and I've pointed to two other "Close high" points on the Dow's chart, where we've seen closes right at a session high, and the next session have seen a little trap move higher, which was then reversed back lower to at least test a rising 21-day SMA.

Today the INDU closed at its high of the session, and its 21-day SMA is down by our WEEKLY S1 and MONTHLY S1. My first level for being alert to a reversal in the above chart is either today's low, or the 38.2% retracement from our WEEKLY pivot retracement. Here again, I don't think the INDU should trade back below its WEEKLY Pivot, as we've discussed in the above indices.

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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