Option Investor
Index Wrap

NASDAQ-100 is main index to monitor for weakness

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The major indices reversed their recent slide in today's session, bolstered in part to the Bank of Japan intervening on the yen in yet another attempt to stem the yen rise against the U.S. dollar.

The six foreign currency weighted U.S. Dollar Index (dx00y) 90.91 +0.64% showed the dollar strengthening against the major currencies. The two most heavily weighted foreign currencies had the December euro futures contract (eu03z) 1.1871 -0.60% and December yen futures contract (jy03z) 0.009154 -1.13% trading back from yesterday's highs.

And while a rebound in the dollar helped the major indices finish green, I view today's gains somewhat shaded, as if colored with artificial food coloring.

I've bitten into a few pieces of candy that were colored green, but instead of a refreshing peppermint taste, the green-color candy was nothing more than raw sugar that was artificially colored, and I was left wanting more. Not more of the sugared candy, but something with some bight to it.

Recent e-mail has had market monitor participants wanting continual hourly updates on short-term trading the NASDAQ-100 Tracking Stock (AMEX:QQQ) $34.21 +0.97%. On a day like today, this was a difficult task, but some potentially worthy observations were made, which we'll review in a moment. All day I felt like something was missing for a strong bullish move higher with the dollar rebounding as it was and perhaps tonight's updates on the market internals will show that it may well be that bullish leadership may be tiring and has today's gains being somewhat sugar coated.

Let's quickly review the pivot matrix, where the Dow Industrials (INDU) 9,690.46 +0.68% kissed its WEEKLY S2 of 9,619 early this morning for the first time this week, to close back near its WEEKLY S1 after trading a session high of 9,707.64 late this afternoon.

When reviewing tonight's closing values for the major equity indices, we will note the INDU, DIA, SPX, SPY and OEX all closed very near their WEEKLY S1s, with the NDX/QQQ lagging in the WEEKLY Pivot matrix. Keep this in mind when we later look at the NH/NL breadth indicators.

Pivot Analysis Matrix

While today's gains in the dollar undoubtedly helped put some near-term fears to rest that the dollar would simply fall apart, I think it important to understand that the dollar's rebound was largely due to intervention by Japan, and not necessarily the response of untainted market.

But as I've discussed with some extremely bullish gold bugs, that have said the only reason gold isn't at $800 per ounce and the dollar worthless, is that while bank interventions and various hedging or "manipulation" of markets may seem unnatural, the true trade will always work its way out in the end, and all is fair in love and war.

If the Bank of Japan has the clout to sell yen and buy dollars, which on this particular day stemmed the yen's advance and dollar's slide and influenced markets, then so be it. However, we take note of the Bank of Japan's actions may have had on today's trade, what impact similar interventions have had on the yen/dollar, and move on.

It has been awhile since we've looked at the NYSE and NASDAQ new high and new low breadth. While I sensed something missing for a more bullish session with the dollar's rebound, I think it may have been the lack of bullish leadership in the NASDAQ's NH/NL breadth.

NYSE and NASDAQ New High / New Low Daily Breadth

While tonight's focus will be the NSDQ NH/NL 10-day Average of NH/NL ratio (scale 0%-100%, just like the bullish % is scaled) I'm also showing the 5-day Average where I like to color it green and red to get the visual perspective similar to a 5-day moving average crossing above (green) or below (red) the 10-day average.

It is today's 91.4% reading which has me alert that today's trade and 117 new highs versus 29 new lows has the 10-day average reversing back lower to what would be considered "bull correction" status for this indicator of leadership. Please note that this is the NH/NL breadth for the NASDAQ Composite (COMPX) 1,899.65 +0.95%, but can be tied with the NASDAQ-100 for an observation of new highs versus new lows.

Here's a quick look at my hand charting of this 10-day average ratio of new highs versus new lows. Those of you that look at the FREE bullish % charts on a point and figure basis at www.stockcharts.com, will probably begin to see some similarity.

NASDAQ NH/NL 10-day Avg. Ratio Chart - 2% box scale

Today I'm charting a 3-box reversal back lower to "bull correction" in the NASDAQ Comp. NH/NL 10-day Avg. As you can see, on September 24th to be exact (red 9) I charted a reversal back up to 98%, and its has taken almost 2-months for another chart entry to be found. However, a chart entry at 90% would have this indicator of NH/NL breadth turning "bear confirmed" and then below its August (red 8) 92% reading. On August 14, 2004, the NASDAQ Comp. NH/NL 10-day Avg. was 90.1% and came just shy of the a 90.0% reading.

As a quick side note for the NYSE NH/NL 10-day average, it would currently take a 10-day average reading of 92% to reverse back lower to "bull correction" and a reading of 62% to then turn "bear confirmed." As a comparison, in August (red 8), the NYSE NH/NL fell to 64% before reversing back higher to an October reading of 98%.

While today's reversal is not OVERLY concerning to bulls, I feel it is certain WORTHY of note, and gives me a visual observation that may confirm what I "sensed" in today's NASDAQ-100 Tracking Stock (AMEX:QQQ) $34.21 +0.97% trade.

Here's a chart of the NASDAQ-100 Tracking Stock (AMEX:QQQ) that I showed in today's market monitor. While this chart was captured at approximately 10:21:55, it may tie in very well after viewing the above NH/NL breadth chart.

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

In an effort to concentrate on the QQQ in today's market monitor, we looked at multiple time intervals. The above chart has conventional retracement used where the bottom is anchored that the March lows (make this tie with the NH/NL reversal up) and the recent 52-week high of $36.17.

While we usually look at the QQQ with WEEKLY/MONTHLY pivot analysis retracement, where the QQQ violated its WEEKLY S2 yesterday, the above retracement at its 19.1% level of 19.1% may indeed be a level that found buyers yesterday, and after breaking below a rather longer-term trend from the March low, can be observed as an important near-term level of support.

From a Fibonacci retracement perspective, it is considered normal for a stock or index to retrace 38.2% or even 50% of an upward move. However, when trying to figure out where the actual top is/was, that's the most difficult part.

I begin to think that the NASDAQ-100 is going to break lower, and show DIVERGENCE from the PINK circled area of mid-August and that observation becomes what I think is a very good near-term test into next week, where I would look for the 21-day SMA to become a level of resistance.

Still, we may begin to see some lacking of bullish leadership taking place in the NH/NL breadth indications for the NASDAQ Composite. The NASDAQ-100 Bullish % ($BPNDX), which is "bear confirmed" status also saw a net loss of 2 stocks to point and figure sell signals today, and this different indicator of market internals has been weakening of late.

As such, traders and investors are VERY ALERT TO WEAKNESS in this part of the market, and weakness below yesterday's lows would be views as a NEGATIVE.

S&P 500 Index Chart - Daily Interval

On a near-term basis, the starting to round out 21-day SMA becomes a focal point of near-term resistance, as does the little sliver zone of resistance near 1,047, where Monday's trade saw a pretty share break below that level. With option expiration this WEEK, I might add a little room for resistance to the WEEKLY Pivot of 1,052.50 for volatility. A break below 1,032 would be viewed as further weakness as discussed in last night's wrap.

I would continue to hold yesterday's profiled put in the SPX.

Today's trade saw no net change in the S&P 500 Bullish % ($BPSPX). Still "bull confirmed" at 79.2%.

Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" status at 79.0%.

Dow Industrials Chart - Daily Intervals

I'm viewing 9,800 (give or take 10-points based on size of scale) and 9,600 (give or take 10-points) as a near-term consolidation range for the INDU. In past I've been more willing to buy this dip, but I'm a little more cautious with China trade developments, and yesterday's rather sharp decline in the dollar.

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

Jeff Bailey

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