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Index Wrap

Watching the paint dry with a thin coat of red

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Today's trade was somewhat similar to watching a fresh coat of paint dry, where by session's end, the lack of economic data and few key earnings reports had profit taking leaving the bulk of sectors and major indices finishing lower with a thin coat of red.

Like oil and water, the AMEX Gold Bugs Index ($HUI.X) 212.99 +1.97% recouped just about 1/2 of yesterday's losses and took today's top spot for equity sector winners, while the U.S. Dollar Index (dx00y) 93.28 -0.40% gave back nearly half of yesterday's gains.

Outplacement firm Challenger, Gray and Christmas said layoff announcements more than doubled in October to 171,874, the highest in a year, but the news was taken with a grain of salt as October is typically the largest month for layoff notices, as companies slash costs at the end of the fiscal year.

John Challenger, the CEO of the company that bears his name said, "While perhaps shocking to some, the October spike follows a trend of heavy year-end downsizing that has occurred since we began tracking job cuts in 1993. With factors like technology, outsourcing and consolidation working against job creation, any job market rebound we see in the near future will be relatively small."

The Challenger layoff report showed the auto industry sent 28,363 workers down the road in October, followed by 21,169 announced layoffs in the retail sector and 21,030 in the telecommunications sector.

Shares of the Big 3 automakers found General Motors (NYSE:GM) $42.90 trading unchanged, while Ford Motor (NYSE:F) $12.32 +0.81% and Daimler Chrysler (NYSE:DCX) $37.84 +1.04% posted gains.

Both the Combined Telecom Index (IXTCX) 176.12 and North American Telecom Index (XTC.X) 541.23 shed just more than 1% in today's trade, while the S&P Retail Index (RLX.X) 386.45 fell 0.73%.

A separate poll conducted by Challenger, Gray and Christmas had 78% of corporate personnel managers saying there would not be a significant rebound in hiring before the second quarter of 2004. Eleven percent of those polled said a rebound in hiring wasn't likely until Q3 or Q4 of next year, while 11% said they didn't see a rebound in hiring for 2004.

Treasury bulls found the Challenger report to their likely with bonds finding a bid in today's trade, with the shorter-dated 5- year YIELD ($FVX.X) falling 6.6 basis points to 3.259%, while the 10-year YIELD ($TNX.X) fell 6.3 basis points to 4.305%. The longest dated 30-year YIELD ($TYX.X) edged down 4.5 basis points to 5.138%.

Tomorrow's economic schedule has the Institute of Supply Management Services Index for October being released at 10:00 AM EST, where modest expansion to 63.4 from September's 63.3 reading is forecasted by economists. The ISM Services report doesn't get as much attention as the recently released ISM Manufacturing Index, which was released on Monday.

Also slated for release at 10:00 AM EST is September factory orders, where economists' look for orders to have increased 0.6% after a -0.8% decline in August. Some economists have edged up their numbers in recent days after seeing Q3 GDP data, which was much stronger than previously forecasted, so I wouldn't expect the September factor orders data to provide much surprise.

Pivot Matrix

The Dow Diamonds (AMEX:DIA) $98.58 +0.07% showed a gain despite the Dow Industrials (INDU) 9,838.823 -0.19% posting a 19-point loss only because a 04:15 PM EST closing trade late Monday at $98.51 created today's discrepancy.

Often times we will see the trackers like the DIA,SPY,QQQ show some fractional differences from their parent index with the extra 15-minutes of trade past the 04:00 PM EST mark providing the difference.

Some of the correlations that show up in the pivot matrix at DAILY R2 and WEEKLY R1 will most likely be difficult levels to break through on an intra-day basis tomorrow, as Cisco Systems (NASDAQ:CSCO) $21.58 -0.59% is slated to report earnings after tomorrow's close.

My gut feel is that the major indices trend higher into the CSCO numbers, where a potential bullish type of "blow off" trade to the still correlative MONTHLY R1 and WEEKLY R2s would only be found on some very bullish forward looking comments out of CSCO.

While I'm not much of a "gut feel" trader as it relates to risking large amounts of capital, I will trade my instinct and past observations to an extent.

My first observation tonight is that S&P futures (sp03z) settled 1,052.30 and that's above our "bullish bias" level of 1,051.20.

With correlation showing up in the MONTHLY R1 and WEEKLY R2 in the SPY, there's still an "old trade" and recent observation eating at me. Here's the S&P Depository Receipt (AMEX:SPY) $105.76 -0.21%, where I'm trying to think through the October 24th trade, and observations made in the weekend Market Wrap on October 26. Here's the link to that Market Wrap.

S&P Depository Receipts (SPY) Chart - Daily Intervals

The yellow spot marks the observation of multiple sell programs on October 24, where those sell programs were gobbled up by the MARKET. Was that "smart money" targeting yesterday's highs as it knew about the strong GDP data and October ISM Index data?

Since we find similarity to our prior scenario, its time to look for DIVERGENCE to the past.

For bullish DIVERGENCE to the past, the one thing a trader looks for early in the session is for support from 105.18 (note MONTHLY 38.2% retracement matching DAILY S2), firming there, and the makings of a rebound back higher, where my "gut feel" is that a trade back above 105.40 would be the pre-rally signal into Cisco's (CSCO) earnings, when reported after the close, has the SPY trading MONTHLY R1, where just by coincidence, the Dow Diamonds (DIA) $98.58 trades MONTHLY R1 of $100.13, which is equivalent to DOW 10,000!!!!

Anyway.... this would be a good test for tomorrow, but I don't think the buying done from $102.24-$103.21 has sold yet, but waiting for $107.36 as the bullish target.

Today's trade saw a net loss of 2 stocks to point and figure sell signals as the S&P 500 Bullish % ($BPSPX) slipped back 0.4% to 80%. Still "bull confirmed."

Dow Industrials (INDU) Chart - Daily Intervals

If a Dow 10,000 is to be traded this week, and I do think there is potential for it to be traded, then I'm tying in the SPY observations and tests with the INDU chart above.

I'm not EXPECTING disappointing economic data, tomorrow, but see the trade setup for the markets to trend lower early in the session, look for support at DAILY S2's, where a rebound builds into CSCO earnings, where the "good news" then gets sold at 10,000.00 as if market participants just glad it took place.

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

Volume levels in the QQQ suggest there isn't much interest the past three sessions, as if there is some event on the horizon that is deemed more important. I think it is CSCO.

Don't take my trade scenario for QQQ as complacent bullishness. It isn't, but this is the kind of thing I think some may not be looking for, and should it happen, THEN the complacent bull scrambles to buy a gap higher near $36.61, just as they get smacked with a load of stock from liquidating longs on the "good news."

The BIG test for the QQQ is to show strength above $36.15, and unless some big broker makes comment during tomorrow's trade about how great CSCO's earnings or guidance is going to be, I think the QQQ stays pegged under the $36.00 level, but look for support above the weekly pivot, keeping in mind the QQQ tends to overdo things on the up and downside.

Jeff Bailey

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