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Index Wrap

Indices traded steady ahead of Q3 GDP

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The major indices finished today's session either fractionally higher or unchanged as yesterday's bullish tone held together as investors await a first look at how fast the economy grew in the third quarter.

Tomorrow morning and 08:30 AM EST, the government will release it preliminary third-quarter Gross Domestic Product (GDP) figures, where economists are forecasting the economy to have grown at a 6.0% annual rate in the third quarter, up from the second quarter's 3.3% annual rate and higher still from a 1.4% annual rate of growth in the first quarter.

On the heels of strong consumer spending, economists predict personal consumption expenditures to have swelled to 6.4%, the strongest level of personal consumption since the third-quarter of 1997.

Tomorrow's GDP brings a first test to yesterday's decision by the Fed to leave rates unchanged, despite signs that the economy is improving.

Why is this a first test? It a test for the market's reaction on weather the Fed has accurately measured its monetary policy, in relation to just how fast the economy is growing. It is probably hard to believe that the economy could grow too fast, and trigger a negative reaction from the market, and while this type of reaction would be unlikely, we'll want to keep an eye on gold and Treasury YIELDS just in case.

Today's trade saw the December Gold futures contract (gc03z) $387.00 +0.9% gain $3.60 and recoup the bulk of yesterday's losses, while the AMEX Gold Bugs Index ($HUI.X) 222.41 +2.82% shined as today's sector winner to close at an all-time high as it nears closer to its current point and figure chart bullish vertical count of 226.

Based on the premise of gold trading between $400 and $300 per oz., I thought the Fed should keep interest rates where they were, and while the markets greeted the decision with a strong session on Tuesday, tomorrow's Q3 GDP data is the first test of that decision.

If the Fed is "too easy" and GDP accelerates well above economists' forecast, I think we should have an eye on gold, which in its own right has been signaling thoughts of economic growth, which should bring some healthy signs of inflation in the early part of an economic recovery.

But just as Goldilocks preferred her porridge "just right" and not too cold or too hot, gold and Treasury YIELD trade may be two observations outside of the major market indices for traders to keep an eye on.

Just as I did not expect shares of Garmin (NASDAQ:GRMN) $52.05 +15.7% to trade an intra-day high of $54.08 when it triggered a triple-top buy signal in today's trade, I don't expect gold to shoot above the $400 level as if to signal the Fed is way to easy with its monetary policy, but it never hurts to be alert. With the December Gold futures (gc03z) showing a bullish vertical count of 442 (box size $2) on its point and figure chart, there is reason for gold bugs to be optimistic for higher price.

The www.stockcharts.com point and figure chart of the Continuous Gold Contract ($GOLD) set on $2 box scale, would look very similar to the December gold futures contract.

Gold - Continuous Contract ($GOLD) - $2 box

The PnF chart of $GOLD is bullish and today's low of $380 would have come at the extension of the recently broken to the upside bearish resistance trend (red +), and by session's end, demand found price higher at $386. Support looks firm above the $366 level, and should the preliminary GDP figure some in much above 6% to 6.5% tomorrow, gold equities, which often move ahead of the commodity itself are at 52-week highs. Newmont Mining (NYSE:NEM) $43.78 +2.4% is perhaps the bellwether for the sector, and any hedging the company may do with its gold production is very small and a good stock to closely track price movement with gold.

If memory serves me correct, NEM was profiled as bullish in early June (red 6 on a Pnf Chart) when it triggered a triple-top buy signal at $31. It's PnF chart currently hints at a bullish vertical count of $77, which at this point would only be negated with a trade at $37, just below its October (red A on PnF chart) low.

And just as gold recouped the bulk of yesterday's losses, Treasuries gave back the bulk of yesterday's gains with the benchmark 10-year YIELD ($TNX.X) rising 8.6 basis points to 4.275%. The one comment I heard today from market economists was that he would begin getting concerned for stocks on a near-term basis should the 10-year YIELD move much above the 4.5% level at this point. On a technical basis, the 10-year YIELD found YIELD resistance in August at the 4.6% level.

Here's a quick look at the Pivot Analysis Matrix. Little change today, but the Dow Diamonds (AMEX:DIA) $97.87 +0.24% did trade their WEEKLY R1, and showed some strength within the WEEKLY pivot matrix.

Pivot Analysis Matrix -

In last night's Index Wrap, about the only early correlative support level we could find in the MATRIX was at OEX 513. Tomorrow, the OEX once again looks to be the index to monitor for correlative support, but higher at 515 (DAILY S2 and MONTHLY R1).

I've "dashed green" some very early tentative levels, at the DAILY Pivots and WEEKLY R1s for the DIA, QQQ, BIX.X.

The upside bullish level looks to also have the OEX a key major index tomorrow at DAILY R2 and WEEKLY R1 of 521, 522 to be safe. It would have to be my thought that the MARKET just loves the way things are going if the OEX were to break above 522, and if so, that could have OEX 530 in play.

If yesterday's trade and bullish response to the Fed was just a hoax, the OEX 515, say 514 would fail to hold support.

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

Taking note of correlative support at 515 in tomorrow's matrix, this would be at the MONTHLY R1 and I still think traders need to give at least that much room to things. In fact, early today, with banks having trouble finding much of a bid and markets trading either side of unchanged, I was planning on the OEX trending back into 513, with the thought that market participants were going to sit things out ahead of tomorrow morning's GDP report. The OEX proved me wrong, and traded stronger than that analysis.

I'm going to remove a "cloned" trend we've had on the OEX chart for sometime. It just doesn't seem to be a trend that is in play. However, just as we had cloned that trend and placed it at the September 18 and 19 relative high, where it did appear to be in play on the rally back higher from 496, I'm going to simply slide that cloned trend to the recent highs, challenge the OEX, and if the OEX can get above this downward trend, the I think the "love trade" unfolds with the OEX having potential to WEEKLY R2 and MONTHLY R2 zone.

Should a bull "love" the OEX enough to plow every last dollar of his/her trading account into OEX calls on a break above 522 or 525? No way, but I would "like" a bulls chances should price action move above 522 and MACD see a bullish crossover above its SIGNAL.

Today's trade saw a net gain of 1 stock to a point and figure buy signal in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" at 79%, but up from Monday's relative low 77%. Nothing major here, but slight sign of a couple stocks where demand is outstripping supply.

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

While the Fed may see its first true test to keep interest rates where they were, tomorrow may be the real test for last week's scenario that the SPX could duplicate the mid-September rebound to make a new 52-week high.

Aside from my SPY bullish trade being stopped out by a 2-cent margin, the SPX duplication of the mid-September trade setup is very close to coming to fruition. Still, there's work to be done. A TRADER/INVESTOR is more alert to DIVERGENCE to the past than duplication, or history repeating. I would thing an SPX trade back below 1,038 would be this signal for DIVERGENCE.

This might also be a point where an AGGRESSIVE bear might look for a trade, but he/she may also be waiting things out into next week, to see what happens from an SPX 52-week high near 1,060. Just as history looks to be playing out for the bulls, we might well want to use the decline from SPX 1,039 to 1,000 to set up an AGGRESSIVE bear trade next week.

Again.. I personally am always more hesitant to try and short/put a security that is trading 52-week highs or has shown the ability to trade a high, as overhead supply is simply too limited and nobody likes to be short when an angry bear decides to cover.

Today's trade saw a net gain of 5 stocks to point and figure buy signals in the broader S&P 500 Bullish % ($BPSPX). Still "bull confirmed" and up 1% to 79.6% bullish.

If the OEX is going to see a "love trade" to its WEEKLY/MONTHLY R2 zone, and since we just talked about angry bear's, then let's look at the QQQ where short interest has been growing since April 15 and has a key economic report due out in less that 12-hours.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

Today's high in the QQQ matched yesterday's, and if anything, showed conviction by bears. At the same time though, bulls didn't cave in, and it looks like traders are ready for some fireworks tomorrow. I'd still want to be on the bullish side of things, especially if the QQQ kicks above $35.71.

One of our "short squeeze" pulse stocks found NetFlix (NFLX) $59.06 +4.56% trading another 52-week high, yet James Cramer said tonight on CNBC that there's no stock to borrow in order to short, meaning the public float is basically short and bulls aren't selling. While NFLX is not a NDX/QQQ component the run from $40 has been further painful to bears.

Breadth for the NDX/QQQ finished at 51 gainers, 2 unchanged, and 47 decliners. Just about as even as you can get in the NDX/QQQ.

SANM +5.29%, ERICY +4.13% and SSCC +3.75% lead the gainer's list, while GILD -12.5%, MNST -4.6% and GENZ -2.8% lead the list of losers. The most heavily-weighted MSFT -1.69% looks to threaten Friday's lows.

Today's trade saw a net gain of 3 stock to point and figure buy signals and edges back up 3% to 78%. Still "bear correction" status.

Dow Industrials (INDU) Chart - Daily Intervals

In an attempt to challenge the INDU with a downward trend, I cloned an "old" trend where resistance broken saw a move higher, then have the broken trend serve support on a retest. Cloning that trend and placing it at the recent 52-week high would have the INDU above that trend. Tomorrow, a move much above 9,800 has the INDU further above this broken trend and back into its upward regression channel. In last night's Wrap, we looked at a sliver of support in the DIA chart, and that is present in the INDU from 9,689-9,678, and would be deemed near-term support, and allow some wiggle room on a negative knee-jerk reaction to the GDP data. Still, a break below that level would spell DIVERGENCE to our bullish mid-September rebound to new highs.

Dow components setting new high had AA, HD, INTC, MMM and MO setting new intra-day 52-week highs. MO is perhaps the newest component to set a new 52-weeker as it did pierce its July 8 high of $47.07 today, when it traded a session high of $47.20.

JNJ set a new 52-week low.

Today's trade saw now net change in the very narrow Dow Industrials Bullish % ($BPIND). Still "bull correction" status at 83.33%.

Jeff Bailey

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