Option Investor
Index Wrap

Totally computerized

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Traders and investors may have been inundated with a plateful of economic data today, but I think little can be read into today's trade, as I honestly believe today's session was largely controlled by computers.

The reason I think this, is that today's trade was almost a mirror image of what we discussed just prior to reviewing the pivot matrix where we thought a bull might look for a short-term bullish trade back near the WEEKLY R1s and a strong close back near the WEEKLY R2s.

Today's trade did see the NASDAQ-100 Index (NDX.X) 1,420 +0.61% and its Tracking Stock (AMEX:QQQ) $34.34 +0.45% as well as the Dow Industrials (INDU) 9,779.57 +0.16% and Dow Diamonds (AMEX:DIA) $97.90 +0.22% see trade just below their WEEKLY R1's today, and while these were the major indices in our pivot matrix that did see a trade at their WEEKLY R1s, the broader S&P 500 Index (SPX.X) 1,058.45 +0.43% closed at its session high, which was good enough for its first trade this week at its WEEKLY R2, while its tracker, S&P Depository Receipt (AMEX:SPY) $106.37 +0.35% traded its WEEKLY R2 for a second consecutive session.

While some of this may be shrugged off as coincidental and have the aroma of pure turkey, maybe today's late morning sell program at 10:45 AM EST, and tomorrow's DAILY Pivots make the case that a large sell program at 10:45 AM EST was designed to hedge some portfolio's ahead of the Thanksgiving weekend, where the sell program came almost smack-dab between the WEEKLY R1 and R2, so senior traders could get an early start on a long weekend, but still allow the junior traders to not mess anything up, and have a bullish tone take hold into the latter half of today's session.

I'll admit that I was very skeptical when a fellow trader first told me that markets tend to trade more bullish into a weekend, where a trader looks for bullishness to appear at the lunchtime hour, ahead of a vacation-lengthened weekend.

The thought is that the toughest decision a trader/investor has to make, is when to SELL a stock. While it is also difficult to pull the trigger and buy a stock, the real work begins when the position is initiated, where the hardest decision to eventually hit the sell button comes later.

At the institutional level, it is often the senior trader that gets first dibs on leaving early, and it is most often the senior trader that makes a sell decision, while the junior trader is usually left at his/her terminal to simply make markets or take care of the buy side customers.

As such, a long weekend where the senior trader wants to get out of the office early, often executes some sell orders before the lunchtime hour, and just before heading out the door to lunch (and not returning until after his/her extended weekend) leaves the junior trader with nothing more to do than fulfill the needs of the buy side. If things get too bullish, then often times, the computers are set up to do any selling while the senior trader spends a little more quality time with family and friends.

Here's a quick look at the pivot matrix for Friday (remember, markets are closed tomorrow) and I'll try and think like a computer to ascertain what a trader might look for on Friday, for those of us determined to not have a 4 or 4.5-day weekend!

Pivot Analysis Matrix -

In PINK I made quick note of today's HIGH and LOW trades in the SPX/SPY and NDX/QQQ, which respectively traded the WEEKLY R2 and WEEKLY S1. Why is this? I can only think that these are the two major indices, for which buy/sell programs are set on and more likely influenced by institutional computer trading.

Unfortunately, my Qcharts don't have a premium symbol for the NDX buy/sell levels, but according to HL Camp & Company, only one data vendor in the world has an accurate premium alert for the NDX. Still, we will see later on what took place at 10:45 in the QQQ.

In the DAILY pivot matrix for FRIDAY, I make note of the DAILY Pivots. I'll show you in a moment where these two levels were almost EXACTLY where today's 10:45 EST sell program had influence on today's trade. What was significant about 10:45 AM? Good question as the last bit of economic data released in the morning was 10:00 AM. Nope... I don't think this sell program was in relation to the economic data, but simply a hedge put on before the Thanksgiving weekend, just in case of a terrorist event.

This hedge, then gives downside protection to.... the MONTHLY Pivot/DAILY S2 correlative support in the more volatile NDX and WEEKLY R1/DAILY S2 in the less volatile SPX.

In the pivot matrix, you may note how the Dow Industrials (INDU) is perhaps lagging in the WEEKLY Matrix relative to the other indices. Do you see how the INDU closed 9,779.57, while its WEEKLY R2 is 9,840 and correlative resistance is found at DAILY R2? On Friday, should the other major indices break above their NOW CLOSE WEEKLY R2, I think that INDU 9,845 may well be a level where we find upside resistance.

Barring any terrorist activity on Thursday, I still view the WEEKLY R1 as support.

Remember that after Friday's close, we will have new MONTHLY levels and new WEEKLY levels. I also want to stress as I did last night, that I'm not turning the Index Trader Wrap into a day-trade wrap, but ahead of the Thanksgiving holiday, which is most likely a 4.5 day weekend, I'm just not in the mindset that current trade is anything more than short-term computer-related trading, as most of the "big money" went on vacation at around 12:00 PM EST today.

Let's look at the NASDAQ-100 Tracking stock (AMEX:QQQ) $35.34 +0.45% on 10-minute intervals, where as it would relate to last night's Index Trader Wrap, I set up a bullish day trade in OI Market Monitor for the QQQ as it was pulling back toward its WEEKLY R1 of $38.89. The trade was initially set up as "long at $34.90, stop $34.70, target $35.35." I'm using 10-minute intervals only to be able to draw in Monday and Tuesday's trade. The little retracement levels you see are from the 5-minute retracement technique (blue is upper, red is lower) and the pink was a stacked lower just in case the QQQ "overdid it" to the downside should it trade WEEKLY R1.

For you trend traders, I too was using trend in the QQQ for my trade setup, but also pulling in the pivot matrix observations.

NASDAQ-100 Index Tracking Stock (AMEX:QQQ) - 10-minute intervals

The main point I'm trying to get across right now is that I really don't think yesterday or today's trade, let alone Friday's is any type of REAL response form the market as it relates to the economy.

There were 2 sell program premium alerts given at 10:06 and 10:16, and I do think these were a negative response to the October Help Wanted Index (37 vs. forecast 38) and October new home sales (1.015M vs. forecast of 1.138M), but had less impact as it was probably offset by the November Chicago PMI (64.1 vs. 56.5 forecast) and buyers were stemming a more notable decline from those programs.

I can only think "hedge" when trying to explain the 10:45 AM EST sell program at 10:45 AM EST, which had the QQQ trading at about $35.22.

Now lets look at the S&P 500 Index (SPX.X), but on the 5-minute bar scale. Here however, I'm going to not only quickly show the SPX action on the 10:45 AM EST sell program, but try and tie in the SPX DAILY R2 with the correlative INDU WEEKLY R2 and DAILY R2 of 9,845. My mindset here is that the SPX is trying to lead in the WEEKLY Matrix, but to get higher, its needs further strength from the NDX/QQQ and the INDU. We can perhaps see the challenge of a short-term downward trend in play on the QQQ in the above chart, we can see the WEEKLY R2 resistance on the SPX. For a bullish follow through session on Friday, a LOT depends on the INDU.

S&P 500 Index (SPX.X) Chart - 5-minute intervals

One could say that not all "buy/sell program premium alerts are created equal" or generate a notable market move. But the 10:45 sell program found a more notable decline that the two prior sell programs. My suspicion that the sell program was a hedge is further noted as I'm so suspicious as to just how Friday's DAILY Pivot seems to mark where the 10:45 AM EST sell program was generated. One piece of analysis here is that EARLY support on Friday is 1,055.06, and we can see how WEEKLY R2 plays as resistance.

We've seen the indices get bullish above a WEEKLY R2, but my thinking based on the pivot matrix and lagging of the INDU in its WEEKLY pivot matrix, is derived from the correlative INDU resistance at Friday's DAILY R2 and current WEEKLY R2.

If the SPX is going to have a shot at its DAILY R2 on Friday, then I think the DAILY Pivot in the SPX needs to hold support, and the INDU needs to get its tail in gear.

Dow Industrials (INDU) Chart - 5-minute intervals

A break above the 9,796 level and Tuesday's high should have the INDU making a gravitational move toward its correlative WEEKLY R2 and DAILY R2 and that would just about do it for what tends to be a bullish week. I would have to think the INDU needs to hold its DAILY Pivot early to have a shot at WEEKLY R2.

Jeff Bailey

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