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Index Wrap

100K could equate to 10K

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After a surprising 57,000 gain in new jobs for September, bulls staged another late session rally to push the indices back near or to new 52-week closing highs ahead of tomorrow's October nonfarm payrolls data, where economists look for the economy to have added an additional 65,000 workers to corporate payrolls.

With the Dow Industrials (INDU) 9,856.97 +0.36% just 143.03 points from the psychological 10,000 level, a nice round 100,000 nonfarm payrolls number might be what it takes to get the Dow back to 10,000.

The S&P Retail Index (RLX.X) 386.45 +0.78% shrugged off some mixed October retail sales numbers earlier this morning. Sector analysts said much of the weaker numbers were attributed to record high temperatures, with the wild fires in Southern California keeping shoppers out of the mall. Ross Stores (NASDAQ:ROSS) $53.75 +3.12% is reported to derive nearly 20% of its sales in Southern California markets, but still managed to close at a new 52-week high and today's 8th-best performer in the NASDAQ-100 Index (NDX.X) 1,440.08 +0.73%.

James Brown compiled some of today's same store sales data for various retailers and posted them in the Market Monitor.

Various October Same Store Sales reports

While investors poured through some of the October sales comparisons, transportation bulls were hauling away profits.

The economically sensitive Dow Transportation Average (TRAN) 2,985.49 +1.79% shifted into higher gear today, despite oil prices still hovering at the $30.00 per barrel level. Market as well as economic theory is that transports and deeper cyclicals will lead an economic advance. Theory also says that job growth is the last economic indicator to show improvement when an economy recovers and has tomorrow's nonfarm payrolls data being closely monitored.

Dow Transportation Average (TRAN) - Weekly Interval

Fasten your seatbelts and hold on for the ride. While Cisco's (NASDAQ:CSCO) $22.90 +5.04% grabbed headlines, it was the Dow Transportation Average (TRAN) that took today's top spot among sector winners. While I'm sure there's some shorts getting steamrolled in the transports, today's gains from a very economically sensitive sector could be the breakthrough sector to monitor in coming sessions if the major indices are going to make bold moves higher.

A quick check of Dorsey/Wright and Associates' sector bullish % shows the Transport/Non Air Bullish % (BPTRAN) "bull confirmed" at 85.37%. It would take a reading of 82% to reverse lower to "bull correction" status. In August of 1997, this sector bullish % reached 90% before reversing lower. The PnF chart shows the bullish % recently reaching 88%. Very BULLISH, but VERY overbought longer-term.

S&P 500 Index Chart - Weekly Intervals

Market theory is that the transports and deeper cyclical stocks will lead an advance. By taking retracement on the SPX from the benchmark weeks of 12/31/00 and 09/16/01, it sure looks like the TRAN has been a steadier, if not stronger performer and has been showing leadership.

We should probably keep tabs on the TRAN as it approaches what looks to be a past zone of resistance. I would think if the TRAN can tear down the wall, it should lead to gains in the SPX.

I marked some past relative weekly lows on the SPX at 1,049 and 1,074, where for some reason, buyers were able to get a short- term bounce. The thought is, that these levels should provide some type of resistance. The 1,049 level is broken, and 1,074 level looks to be in play, perhaps corollary with TRAN 3,050.

Pivot Matrix -

After seeing a stop loss triggered by 2-cent in a profiled SPY on October 24 by 2-cents, I may have smashed my trading terminals if the QQQ had traded my bullish stop of $34.33 by today's close.

Ooooeeee! I looks like there's a lot of correlative resistance levels stacked higher, but by golly, if the transports can smash through the 3,000 level (on a strong nonfarm number) then the major indices, should be able to break above their WEEKLY R1's and challenge their WEEKLY R2's into the weekend.

Let us not forget though, at 10:00 AM EST, September wholesale inventories will be released. Economists' expect inventories to rise 0.2% after a decline of 0.2% in August. Traders and investors should remember that a DECLINE in inventories is viewed as positive (demand pulling inventory off the shelf), and a RISE in inventories more negative (not enough demand for product). Then at 03:00 PM EST, September consumer credit is expected to come in at $5.3 billion, down from August's $8.2 billion.

As we begin looking at some of the major indices, a quick check of S&P futures (sp03z) shows today's settlement at 1,058.50 and above our bullish bias level of 1,051.20. Today's 1,058.50 settlement is a 52-week settlement high.

S&P 100 Index Chart - Daily Intervals

A bull's hopes for a bullish session were in the gutter early this morning as Cisco's earnings and positive economic data didn't seem to be catching hold. But when the lunchtime crowd returned and the major indices had clawed back to unchanged levels, bulls looked to be grazing ahead of tomorrow's nonfarm payrolls data.

I've always felt the MARKET always knows the news before it is announced, and it just doesn't make sense that the transports would be at the top of the sector's winner list, if there wasn't some type of good news coming.

I've placed what I think would be TRAN equivalents on the OEX chart at its WEEKLY R1 and WEEKLY R2 levels.

Today's trade saw no net change in the S&P 100 Bullish % ($BPOEX) and status remains "bull correction" status at 79%.

The broader S&P 500 Bullish % ($BPSPX) saw a net gain of 1 stock to a point and figure buy signal. Still "bull confirmed" at 80.6%.

Dow Industrials Chart - Daily Intervals

"I think I can, I think I can, I think I can" said the little train that could. Heavyweight Procter & Gamble (NYSE:PG) $97.56 +0.25% is still close to the $100.00 level, where a trade there might help the INDU reach the 10,000 level.

When we look at the Dow's bar chart, we have never seen a "spike" high on a relative high be broken back to the upside without a nice pullback. So far, the INDU hasn't had a "nice" pullback and a break to new highs would be DIVERGENCE from the past, and I think be a signal that 10,000 is in the cards.

Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull correction" at 80%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

It is impossible to say for sure, but some of my "short-covering" stock, or stocks I think should find support from short covering bears did not perform well today. I'm left with the impression that today's buying was largely from bulls, not bears. It may take a strong nonfarm payrolls number to get the QQQ above $36.15 and have shorts panicking for a QQQ rally to the $36.65 level.

Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Still "Bear correction" status at 74%.

Jeff Bailey

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