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Index Wrap

Market's applaud Fed's no decision

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Investors approved today's Federal Open Market Committee's (FOMC) decision to do nothing and leave its fed funds rate unchanged, despite some signs that the economy is well on its way to a recovery, with little sign of inflation.

While in no certain terms would even the most bullish of bulls say the U.S., or even the global economy is completely out of the woods and showing growth exuberant growth, but today's market reaction to the Fed's inaction was greeted with bullish gains.

The dollar showed gains with the 6-currency weighted U.S. Dollar Index (dx00y) 91.69 +0.38% rising 0.35 points.

Treasuries found price gains and reversed earlier losses with the benchmark 10-year YIELD ($TNX.X) falling 7.6 basis points by its close to 4.189%, after trading a session high of 4.317% just prior to the Fed's decision to leave rates where they are for the foreseeable future.

Despite the losses in gold, where the December Gold futures contract (dc03z) $383.50 -1.2% fell $4.70 and remains below the $400 level after Friday's intra-day spike above $390, the non- weighted AMEX Gold Bugs Index ($HUI.X) 216.30 -1.26% recouped some if its session's losses with the Fed's ultimate decision to leave rates at historically low level, with a bounce from its session lows of 212.74 which were found at 02:00 PM EST.

Today's sector winner found the Semiconductor Index (SOX.X) 491.11 +6.28% surging to a new 52-week high and gaining 29-points on the session, I'd still have to think today's decision to keep rates unchanged found a bullish response in the sector. At 02:15 PM EST, the SPX was trading higher by 20 points at 481, but added an additional 10 points into today's close to have the SOX not only close, but trade new 52-week highs.

Taiwan Semiconductor (NYSE:TSM) $11.56 +10.72% got the bullish ball rolling for today's sector gains. While the world's largest chip foundry reported quarterly EPS of $0.11, which beat consensus estimates of $0.10 per share, the company's raising of its prior industry growth guidance from 9-10% to 13-15% for calendar 2003 and for calendar 2004 sales growth to improve by 15% to 20% sent the sector into a state of euphoria.

Volume levels showed great interest with the NYSE Composite ($NYA.X) 5,945.93 +1.29% turning just over 1.63 billion shares, its highest volume total since September 3, when the big board pumped out more than 1.65 billion shares. Advancers outnumbered decliners by 2229:1033, which showed a bullish build from the 02:00 PM EST breadth of 1813:1354. New highs versus new lows ended at 307:9, also building strength from their 02:00 PM breadth of 202:8.

The NASDAQ Composite ($COMPX) 1,932.26 +2.62% gained 49 points in a bold move back above its trending higher 21-day SMA of 1,898 on volume of 2.04 billion shares. While today's NASDAQ volume was nowhere close to its September 3 volume of 2.3 billion shares, it was the highest volume since September 24, when the NASDAQ churned just over 2.11 billion when it fell from 1,900 to close down 58 points at 1,843.70 and just below its then 21-day SMA of 1,853.50.

NASDAQ Composite (COMPX) - Daily Interval

The above chart is very similar to the one shown in Sunday's Market Wrap, but I've added a retracement bracket from the October 2002 lows to the January 9, 2002 relative high of 2,098.87. I also marked the September 24 bar, which was noted as the most recent heavy volume day compared to today's trade (almost looks like those sellers got back in on Friday). If I asked myself what side of the market I'd want to be on, I'd want to be on the uphill side of the PINK trend, where bulls "know" where a recent level of support was found on a successful second- test of trend, but bears are now guessing if 1,950 will hold resistance, or if round number 2,000 is the next upside risk level.

Suddenly, Stochastics are ramping higher again, and MACD begins to curl upward. I've eyeballed 2,000 as not only being psychologically round, but also where an old trend that was broken, served bullish resistance at the recent highs, but now extends to 2,000. This 2,000 mark may also be a price level where MACD could cross above signal for another bullish crossover.

RISK AVERSE bulls can use the COMPX as a broad market guide in the indices, with a downside alert set at 1,910. Meanwhile, the COMPX remains technically bullish above PINK trend, which was tested as support on Friday.

Today's trade showed some of the major indices seeing trade at their WEEKLY R1s, where the INDU, SPX, NDX and QQQ managed to close above these levels and once again has MONTHLY R2's in play where Friday marks the end of the month. Today's trade certainly hints that bulls are looking for treats into Halloween eve.

Pivot Analysis Matrix -

Can bulls extend today's rally, or was it just a "relief" follow through and short-covering driven by bears that may have made some bets that the Fed might raise rates? If OEX 513.00 (DAILY S1 and WEEKLY Pivot) can hold support early tomorrow, and I think it will, then bulls should have the upper hand with a DAILY R2's and MONTHLY R2s in play for the INDU, DIA, SPX, SPY, NDX.

Please note the QQQ MONTHLY R2 ($35.71) is more correlative with its DAILY R1 ($35.72), compared to the NDX's DAILY R2/MONTHLY R2, as the QQQ continued higher in its final 15-minutes of trade from 04:00 $35.28 to $35.38. In after-hours trade, the QQQ's last tick has been $35.29.

I make note of QQQ's last hours of trade, only to check some late session market monitor thinking per a trader's question regarding the QQQ.

Market Monitor - Thinking about levels, and bullish bias

S&P futures (sp03z) settled 1,044.70, and while I mistakenly typed 1,051.80, when our fitted retracement is actually at 1,051.20, this 1,051.20 was upside risk to a bear in the overnight session, and depending on a bulls tolerance for risk, may have been worth hanging onto a bullish trade in the QQQ, to see what happens tomorrow.

I'm not sure, but I do think the trader that posed the question at 03:56:14 to me, was a short-term trader that may have played the QQQ long earlier this morning on the QQQ gap higher open at $34.43, when the morning "pullback" to $34.37 found support right at the WEEKLY Pivot of $34.38.

Linda Piazza was also discussing thoughts of "should I hold, or close out?" based on recent session observations. I find her 15:56:07 comment worthy of note. While the bullish side of Linda is a bit jittery at the declining VXO or VIX, I wonder how calm that October 15 put buyer of December $33 puts is feeling if still holding those puts after seeing the QQQ rally from Friday's low of $33.49. That's a heck of a move isn't it?

You can be the judge, but doesn't the QQQ bar chart look like bears were a little jittery in today's session, if not the close? In today's market monitor, I also benchmarked the various levels of trade in the major indices, immediately after the FOMC decision. The QQQ was trading $34.72, the NDX.X 1,396.

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

I've placed a "dashed red" trend on the QQQ, and that would be the current bearish trend, that bears are looking to hold, but at this point, much shorter in duration that the green trend and base of our regression channel. The Q's, just like the NYSE and NASDAQ saw good volume today. I've colored the $34.75-$34.84 zone as near-term support.

One thing I want to make quick note of today is that the AMEX Composite (XAX.X) 1,066.95 +4.48% was actually today's biggest percentage gainer of the major or broader indices. I'm not sure why, but I think it may have to do with some of the gains seen from the various ETF's that are listed on the AMEX.

For instance... the GS Semiconductor iShares (AMEX:IGW) $61.81 +5.71%, Semiconductor HOLDRs (AMEX:SMH) $41.12 +5.46%, GS Networking iShares (AMEX:IGN) $26.64 +3.41%, QQQ $35.36 +3.36%, MSCI Taiwan iShares (AMEX:EWT) $11.87 +2.41% had some pretty good percentage gains and may have attracted some institutional action today. Tough to say if it is pure bullish buying, or some near- term bearish hedges coming off.

Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Still "bear correction" at 75.00%.

S&P 100 Index Chart - Daily Interval

The OEX was trading 514.15 when the FOMC announced its decision on interest rates. While I was simply bullish a day early (Thursday) and improperly established a stop 2-cents too tight on Friday, I'd still have some faith in my prior bullish analysis and be more tempted to control a bullish trade with a trailing stop under 512, and give the OEX a chance to work higher.

I still think short-covering a good part of today's strength, based on observations of individual stocks, even "overvalued" ones like eBay (NASDAQ:EBAY) $57.53 +2.97%, which at today's close had reclaimed its 10/16/03 close of $57.50, when the stock gapped lower from there after reporting earnings.

While EBAY isn't notably above its 10/16/03 close, the ability for the stock to even see that level based on thoughts of "overvalued" gives some thought that the MARKET might have been pleased with the FOMC's decision today. I will continue to monitor some of our "pulse" stocks, but maybe the Fed leaving rates where they are, still gives some further upside to things.

I continue to hold a long position in EBAY stock, and protective put. So far the stock side of the trade is looking better than the put side of the trade.

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the S&P 100 Bullish % ($BPOEX). Still "bull correction" status, but edging back up 1% to 78%.

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

Intra-day, it seemed like traders were looking at each other, like a bunch of kids with eyes wide open waiting to see who was going to either sell or buy after the FOMC decision. Not unlike some of Friday's observations where some program trades were seen, but the SPX just sat there for awhile, the eventual move today was higher, and when the SPX reached a session high and stuck its head above 1,039.71, the move was on with the SPX closing at its session high and just above WEEKLY R1.

The SPX seems to resemble the QQQ more than it does the OEX, and this has an SPX bull wanting to see the OEX track higher, showing some strength from the bottom, while at the same time, would love to see some short covering action in the QQQ or tech to new highs to get the SPX above that "double top" in the bar chart, where I've marked EXACT highs of 1,053.79. I have NO CLUE as to why that was a sell level, but we aware of it.

A BULL that thought his/her portfolio was going down the drain late last week. Here's your chance to get things under control. If you were overly concerned on Friday with your holdings, you may have been "too long," and simply placing a profit stop under some holdings at SPX 1,038 may be a good way to let the market make a decision for you.

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the broader S&P 500 Bullish % ($BPSPX). Still "bull confirmed" at 78.60%.

Dow Industrials Chart (INDU) - 60-minute intervals

In the other charts we've looked at tonight, we see some "zones of support" that may be near-term levels of support early tomorrow, should a morning pullback take place. I thought I zoom in on the Dow's chart and make some observations and compare some stochastics. We "know" from intra-day observation where the major indices were just after the FOMC announcement, and what took place from there. In the Dow's 60-minute chart, I try and prepare traders for morning weakness, where I compare back to similar MACD. On 10/01/03 the INDU had rallied up to close just above our CURRENT WEEKLY S1 of 9,458.90. Then on 10/02/03 opening higher in the first hour (60-minutes of trade) but dilly- dallied around that WEEKLY level for awhile before kicking higher on October 3.

With the INDU right at its WEEKLY R1, don't be shocked, if INDU were to edge back to 9,678-9,689 and this would be SIMILAR to a past 60-minute observation. The DIVERGENCE is what we're really interested and a move much above the WEEKLY R1 (10-points or more) most likely sees a quick dart to 9,800. I would be more alert to weakness on the INDU trade back below the 50-hour SMA of 9,654.

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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