The major indices looked to stabilize in the early morning trade, after Japan's Nikkei-225 ($NIKK) 10,226 managed to hold on to a fractional 22-point gain, but some positive comments from IBM (NYSE:IBM) $90.69 +1.48% and General Electric's (NYSE:GE) $28.70 +2.09% top brass that they were starting to see some resemblance of a stronger economy in their business trends, helped boost investor optimism and have the major indices reversing a three- session slide.
Investors did show some bullish caution in the first hours of trade after Mary Farrell, UBS's Wealth Management chief investment strategist commented that the sizeable valuation gap between the high and low price-to-earnings ratios within the S&P 500 (SPX.X) 1,058.53 +1.14% sectors was a cause for concern. Ms. Farrell told clients, "Recent encouraging economic reports continue to lend support to our optimistic market outlook, however we believe investor expectations should be tempered. It is clear to us that some of these upside 'surprises' have already been priced into market valuations."
Ms. Farrell added that the current price-to-earnings gap within the S&P 500 is "greater than 89% of all historical observations," and that, except for the boom-bust cycle of the last five years, it's near all-time levels.
With those words of caution, UBS then raised its 2004 earnings estimates for the S&P 500 to $63 a share from $60, an upward revision of 5%, citing prospects for a faster-than-expected acceleration of the U.S. economy. While UBS's analysts were crunching their numbers higher for earnings, Maury Harris, a UBS economist boosted his 2004 GDP forecast to 4.2% from 3.9%.
For me, Jeff Bailey, it was one of those sessions where I felt like I was being pulled at both ends.
The U.S. Dollar Index (dx00y) 92.29 -0.87% showed the dollar notably weak in this morning's early trade, and that had, and has me concerned as to how Japan's market participants, if not European investors are going to respond to the dollar once again showing weakness after some signs of stability.
While I was deep in thought about the perplexities of the dollar relationship with equities, my trade station alerted me that I was getting stopped out of a bearish trade in the NASDAQ-100 Tracking Stock (AMEX:QQQ) $35.81 +2.13% at $35.38 from yesterday morning's bearish profile of $35.20. Roughly 75 seconds later I profiled a bullish trade in the QQQ at $35.37, stop $34.95, with a target of $36.15, as my thoughts for a bearish test of WEEKLY S2 looked to be evaporating.
To be truthful, I thought it would be wonderful for a bull if the QQQ could achieve its WEEKLY Pivot of $35.65 by today's close.
Tonight's after-hours response to Applied Materials (NASDAQ:AMAT) $25.44 +2.16% quarterly earnings report, where the company beat analysts estimates by a penny found a positive reaction to $26.19. The bulk of the after-hour's boost came after the company indicated that cap ex spending in fiscal 2004 is expected to increase 25% compared to last year and in Q1 (January), orders for new equipment are expected to continue growing at a rate of 20% sequentially, while revenues are expected to increase 5% to 7% over the recently completed quarter. The guidance for AMAT's Q1 then implied revenue of $1.28-$1.31 billion, which was above Q1 consensus estimates for $1.24 billion.
While Applied Materials (NASDAQ:AMAT) represents a more modest 1.9% weighting in the NASDAQ-100 Index (NDX.X) 1,443.52 +2.4% and its Tracking Stock (AMEX:QQQ) $35.81, the QQQ currently ticks by at $36.00 in tonight's after-hours trade (after-hours high tick was $36.10).
At the 04:00 PM mark, I did suggest that QQQ bulls raise their stops to $35.45 (just under the WEEKLY Pivot) and leave the bullish target at $36.15.
After reviewing tonight's Pivot Matrix, I'm now going to suggest raising the profit stop higher to $35.59, which you will see is just below tomorrow's DAILY Pivot and correlative WEEKLY Pivot.
All equity sectors I follow in my U.S. Market Watch finished with gains, with the loan exception being the Utility Index (UTY.X) 288.63 -0.1%.
I don't know what the heck took place to have the AMEX Gold Bugs Index ($HUI.X) 224.82 +7.61% surging by 15.9 points in today's trade, other than the weakness in the U.S. dollar triggering an extensive amount of buying in the sector. One comment I heard on CNBC was that there may have been some hedges coming off in the commodity when gold broke above $290/oz. The December Gold futures contract (gc03z) $395.00 +1.75% closed at a contract high, after trading as high as $397.00 intra-day.
Here is a quick look at the pivot matrix. From what I saw on an intra-day basis, the S&P Banks Index (BIX.X) 332.13 +0.66% was first to trade back to its WEEKLY Pivot, and while its gains were very fractional, it did seem to be just enough of a bullish catalyst within the weekly levels to have the other indices following the lead. The Dow Industrials (INDU) 9,848.83 +1.14% was the last equity index in our matrix to reach its WEEKLY pivot, but today was the first day this week the INDU was able to reach this level and a sign of weekly strength.
Pivot Matrix -
With eyes squinting as if I've lit a fuse on a firecracker, we now await tomorrow's open, and I would once again be taking a pulse on Japan's Nikkei-225 ($NIKK). I see that my QQQ profit target of $36.15 is now snugly place right between tomorrow's DAILY R1 ($36.13) and WEEKLY R1 ($36.16).
I think most traders are ready for the MARKET to sell the AMAT news at the open. Right?
That's not illogical. After all, it was just last Wednesday evening when another technology bellwether Cisco Systems (NASDAQ:CSCO) $22.97 +2.77% reported quarterly earnings, traded higher in its after-hours session, and while the major indices moved marginally higher the following session (Thursday, November 6) sellers were formidable.
Well, here we are. CSCO is right back to where it closed on November 6, and so are the major indices. About the only difference I can point out as a technician is that Stochastics (which I put about 20% weighting toward) are closer to oversold levels than they were last week, when they were turning lower from overbought.
Some traders have been wondering "when" we might see some bearish capitulation to mark the end of this bullish run. And while its is difficult to say if bears will ever capitulate, it would seem only logical that when I am really determined to take a bullish profit and sell bullish strength, the bearish capitulation will certainly come and drive the indices to their weekly R2s.
NASDAQ-100 Tracking Stock (QQQ) - Daily Interval
I had full intention of locking in profits on a bearish trade back lower at the $34.62 level in the QQQ, then turning and going long. However, price action in the QQQ too strong today, consigned the loss and tried to get back on the right side of things. While Stochastics and MACD oscillators are still advising bullish caution, there certainly looks to be the setup for a strong push higher.
Today's trade saw a net loss of 1 stock to a point and figure sell signal in the NASDAQ-100 Bullish % ($BPNDX). This has the chart plotting a new "O" at 70% and has me skittish that the internals are NOT confirming the QQQ price action. Still "bear confirmed" at 70%.
S&P 500 Index (SPX.X) Chart - Daily Intervals
I didn't see quite the amount of strength from the Dow Transports (TRAN) 2,953.20 +0.88% or the S&P Banks Index (BIX.X) 332.13 +0.66% to have me thinking the SPX has an "easy" shot at the 1,070 level this week. Don't get me wrong. Both showed some strength today, but not enough to offset some of my concerns as it relates to the weakness in the dollar and what impact that may have on global markets, which may dampen bullishness for U.S. equity markets.
Today's trade saw no net change in the broader S&P 500 Bullish % ($BPSPX). Still "bull confirmed" at 80.6%.
S&P 100 Index (OEX.X) Chart - Daily Intervals
OEX resistance still looks more formidable at the 525 level and support at 516. Tough risk/reward trade here, but some sign of bullishness in the fact that OEX didn't test its WEEKLY R1 on recent pullback, as if buyers were more eager.
Today's trade saw a net gain of 1 stock to a point and figure buy signal in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" status, but edging up to 81%.
Dow Industrials (INDU) Chart - Daily Intervals
INDU chart is only one of the indices that shows Stochastics with %K above %D and a bullish crossover on this oscillator. If INDU can hold above 9,828 after tomorrow's economic data, psychology should stay positive for thoughts of Dow 10,000.
Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull correction" status at 83.33%.