Option Investor
Index Wrap

A good day for the consumer!

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It was a good day for the consumer as well as the investor as the major indices recouped nearly all of last week's losses on Monday as a rebound in the dollar underpinned a broad-based rally ahead of tomorrow's important economic data.

The foreign currency weighted U.S. Dollar Index (dx00y) 91.60 +1.07% jumped nearly a full point and had the dollar showing strength in today's trade. The dollar was up 0.7% against the yen at 109.43, while the euro fell 1.1% percent at $1.1772. Last week, the dollar touched an all-time low in euro trading.

Tomorrow, investors will get a revised look at third-quarter gross domestic product, with economists' forecasting the economy to have grown at a more robust 7.6% annual rate of growth, after a preliminary reading showed the economy grew at a 7.2% rate.

Consumers received some positive news out of lawmakers today.

Legislation that would add prescription drug coverage to the Medicare program overcame two procedural hurdles in the Senate today, and moved closer to a final vote that's expected to result in the biggest expansion of the popular entitlement program in its 38-year history.

An effort led by Senator Edward Kennedy, D-Mass., to filibuster the bill fell short. The Senate voted 70-29 to limit debate, easily exceeding the 60-vote supermajority needed to end a filibuster. Senator Kennedy, who backed an earlier Senate version of a prescription drug bill, said the final version of the bill produced by House-Senate negotiators goes well beyond creating a drug benefit, providing billions to drug companies and HMOs while instituting competition provisions that could undermine the entire Medicare program.

Investors responded by pushing the HMO Index (HMO.X) 808.16 +2.54% to an all-time high, while the Morgan Stanley Health Provider Index (RXH.X) 355.91 +1.53% and Pharmaceutical Index (DRG.X) 321.79 +1.3% found gains in today's rather bullish session.

Senate Majority Leader Bill Frist, R-Tenn., predicted the drug bill would eventually pass with an "overwhelming bipartisan majority," and criticized Kennedy and other Democrats for using parliamentary maneuvers to delay a vote.

As lawmakers scurried to push through legislation for a Medicare drug bill ahead of the Thanksgiving holiday here in the U.S., consumers received an early holiday gift in phone-number "portability," while some telecom service providers and their investors viewed the Federal Communications Commission's finalized portability rules as a possible lump of coal.

The portability law, which lets customers keep their existing phone numbers when switching service, will likely boost carriers' expenses and limit revenue growth for years to come, industry analysts say. Wireless stocks have suffered as a result, falling as much as a third since the Federal Communications Commission finalized portability rules on October 7, 2003.

Rudy Baca, a wireless analyst at market researcher Precursor and a former FCC official said, "There aren't going to be any big winners from this. It's all about cost."

The immediate effect of the law, which takes effect today, is expected to intensify already-stiff competition in the wireless and traditional phone markets.

The North American Telecom Index (XTC.X) 533.72 +0.69% edged higher by 3.6 points, while the broader Combined Telecom Index (IXTCX) 171.53 +2.71%, which contains a greater number of wireless service providers rose more than 4 points. The Networking Index (NWX.X) 248.46 +3.13% showed a larger percentage gain as it would related to some telecom-equipment stocks benefiting from the number portability law.

The wireless business of Verizon (NYSE:VZ) $32.50 +0.93% and Nextel Communications (NASDAQ:NXTL) $24.09 +4.69% are least likely to be hurt by portability, industry analysts say.

Verizon (VZ) is the No. 1 U.S. wireless carrier, and has the nation's largest network and a technology viewed as superior to most of its rivals. Still, Nextel (NXTL) is seen as having a loyal customer base for its key features, such as its walkie- talkie-like service.

Investors have shown a greater willingness to shun shares of Sprint PCS (NYSE:PCS) $4.61 +5.97%, and AT&T Wireless (NYSE:AWE) $7.31 +4.42%, which are down a respective 26% and 17% since their October 7, 2003 close.

After trading their WEEKLY S2s in our pivot matrix last week, the major indices jumped higher today and trade up through their WEEKLY Pivots and WEEKLY R1s. While today's move above the WEEKLY Pivot was rapid at the opening bell, this week's trade begins to look similar to that found the last week of October (10/27-10/31) after the major indices had traded their lower WEEKLY S1s the week prior.

Here is a quick review of prior WEEKLY pivot analysis retracement and how the major indices traded AFTER a trade at WEEKLY S2 support was found.

WEEKLY Pivot Matrix - 10/20/03-11/14/03 periods

We've made similar WEEKLY pivot matrix observations as it relates to "where" the major indices traded in a prior week, and what levels were traded, and not traded in following weeks.

For the week of 10/20-10/24 the major indices traded at and below their WEEEKLY S2s and then rebounded the following week of 10/27- 31, seeing trade at or above their WEEKLY R1s, but came shy of their WEEKLY R2s. ONLY the BIX.X, which is a sector within our matrix traded its WEEKLY R2 for the week of 10/27-10/31 (take note of this for current week). The above would be a study period for the last time, since last week (11/17-11/21), that the major indices traded their WEEKLY S2 and where me might look for the major indices to trade somewhere in-between their WEEKLY R1- R2 this week, which after today's trade is not a stretch to the imagination.

One thing I'm going to observe from the above, is that from 11/03-11/07, I'm going to note how the major indices highs for that week (represented in the bottom WEEKLY Matrix and High/Low/Weekly Close) had the High coming very close to the WEEKLY R2s of "For 10/27-10/31 WEEKLY." We might also note that there was little change in the major indices closing values from 10/31 (maybe similar to the upcoming 11/28/03 close?) and 11/07.

What these observations have me thinking is that THIS WEEK may not a good point for BEARS to be looking for bearish entries, unless they are fully assessing current upside risk to a trade somewhere between WEEKLY R1 and WEEKLY R2, with some potential bullish carryover into next week. While there is no guarantee that past history will repeat itself this week, we can check this week's new pivot matrix levels to make further determination if a historical tendency for the markets to trade bullish into the Thanksgiving holiday, may indeed be represented in the pivot matrix analysis.

While it may seem "late" at this point, bulls might look for bullish entry points back near the WEEKLY pivot.

Here's a look at the pivot matrix for Tuesday, and this WEEK's new pivot levels.

Pivot Matrix Analysis -

The GDP data for Q3 is due out before the markets open for trading, and I see some correlative near-term support at the DAILY Pivot and WEEKLY R1 for the SPX, with similar correlation showing up in the QQQ.

Resistance should be present early at the DAILY R1 and WEEKLY R2 correlative points highlighted.

Then at 10:00 AM EST, November consumer confidence (forecast is 85.0 versus prior 81.1) and October existing home sales (forecast is 6.53 million) versus prior 6.69 million units are scheduled for release.

About the only more formidable or correlative level of support that I see in the matrix would be in the DIA at its MONTHLY Pivot and WEEKLY Pivot, where today's trade saw the DIA gap higher, and low session trade was right at its WEEKLY Pivot.

In Thursday evening Index Trader Wrap, we thought Thursday's trade may have been due to option expiration, and while I was out of the office on Friday and was not observing Friday's trade, I do think today's strength in the Dollar Index ($dx00y) may have had some short-term bears running for cover, that may have been looking for some further dollar weakness from last Wednesday, that may have been shorting on Thursday and Friday based on an interpretation that some of the intra-day weakness seen in the latter 2-days of last week's trade was more than option related trade.

Here's a look at the major indices within our pivot matrix where strong moves back above the WEEKLY Pivots and WEEKLY R1's were seen today. One of the key drivers in my opinion was the rebound in the dollar, which pressed some shorts into covering, in what tends to be a bullish week for stocks.

S&P 500 Index Chart - Daily Intervals

Today's trade saw a net loss of 1 stock to a point and figure sell signal in the broader S&P 500 Bullish % ($BPSPX). Still "bull confirmed" status at 78.60%.

S&P 100 Index Chart - Daily Intervals

Today's trade saw not net change in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" status at 78%.

Dow Industrials Chart - Daily Intervals

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

NASDAQ-100 Index Tracking Stock (QQQ) - Daily intervals

Today's trade saw no net change in the NASDAQ-100 Bullish % ($BPNDX). Status remains "bear confirmed" at 68%.

Jeff Bailey

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