Option Investor
Index Wrap

Call buyers and put seller abound!

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The major indices put in a mixed to higher trade today with the Dow Industrials (INDU) 9,747.64 -0.3% declining 30 points, the S&P 500 Index (SPX.X) 1,046.03 +0.12% trading in a tight 6-point range to finish up 1.3 points, while the NASDAQ-100 Index (NDX.X) 1,422.13 +0.9% gained 12.8 points.

In recent year's Wall Street's biggest firms have been cutting staff, especially at the analyst level, but that hasn't deterred many of the small-to-mid cap stocks of the Russell-2000 from filing their quarterly earnings. Today the Russell 2000 Index (RUT.X) 525.53 +0.99% gained just over 5 points, to edge out the NDX for major market average winner.

While fundamental analysts were undoubtedly busy poring over another heavy round of corporate earnings, volumes were steady and showed some pickup to recent sessions with the NYSE turning just over 1.45 billion shares, its heaviest volume in 5 sessions, while the NASDAQ showed over 1.71 billion shares traded.

Not unlike the major indices themselves, breadth at both the NYSE and NASDAQ reached their best levels of the session by 01:00 PM EDT and flattened out from there with the NYSE finishing positive at 1809:1412, while NASDAQ breadth ended bullish at 1850:1351. New highs compared to new lows remained bullish with the NYSE reporting 232 stocks hitting new 52-week highs compared to 7 stocks hitting new lows. NASDAQ found 239 four and five-lettered stocks trading new 52-week highs, while just 6 stocks saw trade at a new 52-week low.

While few of the above observation would not be considered eye- popping, today's most notable technical event may have been the Market Volatility Index (VIX.X) 16.55 -2.87% falling to levels not seen since February of 1998. Thought by many to depict a bullish market that shows no fear and perhaps complacency among bulls, its low levels has been as perplexing to market participants as have the high levels of bullish % from the point and figure charts.

While the question posed for the bullish % has been "how high will they fly?," it has been a question of "how low will it go?" for the VIX.X.

Market Volatility Index (VIX.X) - Monthly Intervals

In my opinion, the VIX.X was today's most notable technical event as it hit a milestone not seen since July 1998, and approaching levels not seen since February of that same year. Similar to the bullish %, the VIX.X doesn't tell us anything about price action for a broader market average like the S&P 500 Index (SPX.X) 1,046.03, but its continued decline tells us that put sellers and/or call buyers greatly outnumber their opposition.

I've used the above retracement on the VIX.X for several years, only because it helps divide the VIX.X into levels, which at times, like in March of this year, served as a good alert for trader to be on the lookout for a potential reversal in trend, not only in the VIX.X, but the major indices.

With the VIX.X achieving a milestone, today with a trade at VIX.X 16.78, trader and investor are simply alert that we might be at an inflection point.

If I were to look for an inflection point in the S&P 500 Index (SPX.X), that might be correlative with what we find in the VIX.X by today's close, it would be a relative low dating back to May of 2002 at 1,048.96, which may be a near-term level of resistance, not unlike what we discussed in the S&P futures contract (sp03z) where a close above 1,051.20 in the futures market could give further bullish bias to things. If so, then I would think the VIX.X might also continue its trend lower, perhaps as low at 10.00.

Tonight I wanted to look at the S&P 500 Index (SPX.X) 1,046.03 +0.12% on a weekly interval chart. We've done this before, but I wanted to see if there might be an inflection point currently in play, that we might monitor against with the VIX.X at a more historical low and inflection point. Just think of the VIX.X has a measure of how bullish market sentiment is, but then tie it to the SPX.

S&P 500 Index Chart - Weekly Intervals

In May of last year, current levels of SPX resistance were a near-term support level, where the SPX found a decent bounce back to 1,100, but when it gave up the 1,048.96 level in early June, it quickly moved back to the then October lows of 950. With the VIX.X moving to new lows today, there was obviously some bullish sentiment being displayed in the options market, but the SPX itself didn't seem to reflect that sentiment, at least not overly so. This kept me rather tentative for a new bullish entry and still preferring a pullback entry type of trade.

SPX 1,050 as a round number seems to be important and showed up in May of last year, is pretty close to what we discussed in the S&P futures contract of 1,051.20, and even shows up in our WEEKLY pivot analysis at 1,049.88.

Let's keep an close eye on the VIX.X again at current levels of some historical significance and bulls would feel better, but not complacent, if the VIX.X continues its trend lower, while the SPX can clear this 1,050 area of resistance.

Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see no net change. Still "bull confirmed" at 81%.

Here's the updated Pivot Matrix for tomorrow.

Pivot Analysis Matrix

As dull as today's trade seemed to be for the major indices, I feel tension as I write tonight's wrap.

I think its because the QQQ traded just below its WEEKLY R1 for the bulk of this afternoon's trade, and did see a brief tick at $34.55 to be the only equity index in our pivot to get a trade at its WEEKLY R1, while the Dow Industrials (INDU) 9,747.64 -0.3% never could shake off earnings from AT&T (NYSE:T) $20.00 -5% and traded lower for the bulk of the session. It feels like a rubber band is being stretched at both ends.

We see some correlative support show up early tomorrow at the DAILY S1s and WEEKLY Pivot, and I would only play a move higher above the WEEKLY R1s if the OEX can take out 524. I wouldn't necessarily view the DAILY R2 as resistance by themselves, as today's tight trade has tomorrow's DAILY S2 to R2 also tight. It would be my thought if the OEX can clear the 524 level, then the pressure I feel tonight, should release itself to the upside. I would still much prefer bullish entries on pullbacks to the WEEKLY S1s.

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

NASDAQ-100 breadth finished positive at 72:28 with ICOS +6.12%, RYAAY +5.5%, CEPH +4.79% and MERQ +4.62% outpacing declines in XRAY -3.12%, ROST -3.12%, LNCR -2.22% and PCAR -2.21%. I think there was some "relief selling" in after-hours trade when Amazon.com (AMZN) $59.35 -0.4% slid to $58.08 after reporting quarterly earnings that beat estimates by a penny, while heavier weighted Amgen (NASDAQ:AMGN) $63.65 fell to $62.00 after beating estimates by 3 cents, but gave EPS guidance for 2003 of $1.85- $1.95, where the range of that guidance was at the low end of consensus estimates of $1.93.

Today's trade saw a net loss of 1 stock to a point and figure sell signal as the bullish % edged back lower by 1% to 78%. Still "bear correction" status and would take a higher level of bullish % to 82% to achieve "bull confirmed" and a lower reading of 72% to reverse back into "bear confirmed" status.

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

If there's an index that still mimics the "priced to perfection" it would be the OEX. Texas Instruments (TXN) was today's standout percentage gainer, with fellow tech stock EMC not far behind. Still, a simple listing of OEX winners/losers doesn't really show much of a sector theme.

A subscriber noted the other day in an e-mail to me that the OEX just hasn't been showing very many intra-day point swings of 10 point or more, and by my count, the OEX has closed between 518 and 524 the past nine sessions, as if the market feels that this is a very "fair value" with the information on hand. As earnings continue to be revealed, the MARKET will sort things out.

The only economic data due out this week is on Thursday with weekly jobless claims. Economists' forecast is for 385,000, which is relative flat compared to prior week's 384,000.

Today's trade saw no net change in the S&P 100 Bullish % ($BPOEX). Still "bull correction" status at 79%, and would take a reading of 84% to reverse back up into "bull confirmed" status.

Dow Industrials (INDU) Chart - Daily Interval

The INDU is a tough trade as it settled right at this WEEK's Pivot. However, as each day passes, a more fractional decline allow Stochastics to creep closer to oversold, and may put pressure on bears.

If anything, I thought the lower trade in the Dow just seemed to weigh a bit on bullish psychology as it might have related to the QQQ just not being able to gather enough buyers to get a move going above its WEEKLY R1. I didn't feel like buying an Index today and it was probably because the Dow was in the red for the bulk of the session.

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

Jeff Bailey

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