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Index Wrap

Indices gain on Industrial revolution

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The Dow Industrials (INDU) 9,965.27 +1.04% posted an impressive 102-point gain in today's session with Boeing (NYSE:BA) $39.12 +2.94%, General Motors (NYSE:GM) and International Paper (NYSE:IP) $40.23 +2.26% leading the Dow's gains, as investors looked optimistic ahead of tomorrow's Federal Reserve meeting by pushed the Dow Industrials closer to the psychological 10,000 10,000 level.

Within the Dow, advancers bested decliners 24 to 6. Chip giant Intel (NASDAQ:INTC) $31.64 -1.43% and McDonalds (NYSE:MCD) $25.62 -1.42% were the only blue chips closing down more than 1%.

Technology stocks, which struggled throughout the better part of today's session rebounded late with the tech-heavy NASDAQ-100 Index (NDX.X) 1,418.05 +0.79% gaining 11 points after testing round number support of 1,400.00 at the midpoint of today's session after a Gartner/Soundview survey forecasted a more modest 1.6% growth in capital spending on information technology next year. A statement released along with the survey said, "Controlled spending and a strict focus on return on investment will remain the rule in 2004. For the largest companies, the budget outlook for 2004 appears to be flat to down." The NASDAQ- 100 Tracker (AMEX:QQQ) $35.23 carved out a 19-point gain to finish just off its session high of $35.33 after slipping to a session low of $34.78 with just over 90-minutes left in today's trade.

The broader S&P 500 Index (SPX.X) 1,069.30 +0.73% gained 7.8 points by the close, with a bond market closing burst taking place just after today's bond market close, which saw Treasuries closing near their lows of the day as the benchmark 10-year YIELD ($TNX.X) rose 6.3 basis points to 4.278%. From the opening bell to the 03:00 PM EST mark, the broader S&P 500 Index (SPX.X) traded in a very tight 4-point range of 1,060.93-1,064.98, with a late burst of buying at the 03:00 PM EST mark sending the SPX back higher to its close. The narrower S&P 100 Index (OEX.X) 527.67 +0.79% gained 4-points.

Here's a quick look at today's hourly market internals

On a very broad scale, we can see that the NYSE internals were much stronger if compared to the NASDAQ, which if anything hints of a slightly greater sell bias towards 4-lettered stocks on the NASDAQ. Still, when the bond market closed at 03:00 PM EST, stocks got a late session boost, with NASDAQ breadth turning positive by the close. The Dow Industrials paced the way higher, with each hour of trade building gains and perhaps keeping investor psychology from turning overly negative at the broader NASDAQ.

For those traders holding my bearish swing trade short in the NASDAQ-100 Tracking Stock (AMEX:QQQ) $35.23 +0.55% from Friday's bearish entry of $35.05, where in today's 11:00 AM EST update I updated this trade and made some adjustments to current stop $34.45 and target of $34.67 (just above QQQ WEEKLY R1), the above internals suggest weakness exists, but my main point of concern right now with this trade, is the positive market psychology that comes from the Dow Industrials, and SPX/OEX.

We have seen in the past how the major indices will tend to feed off each other, and at times, have seen the QQQ trade weak, to only then be snapped back higher when bullish leadership is shown from the INDU/SPX/OEX. I think this was apparent in today's trade, and while we might expect psychological resistance at the Dow 10,000 level, a bearish trader in the QQQ would be well advised to not necessarily count on Dow 10,000 resistance serving as a brick wall of resistance, and trade the volatile QQQ with a disciplined stop as outlined, or a stop you deem appropriate.

Today's action comes against the backdrop of tomorrow's meeting of the Federal Reserve. While a rate cut isn't expected, investors will be paying close attention to the language of the Fed's statement, looking for any change in the "considerable period" language pertaining to keeping interest rates at their historically low levels.

With gold breaching the $400 level earlier this month and February Gold futures (gc04g) $407.50 +0.5%, which edged up $0.20, holding above the $400.00 level, economists and Fed watchers have started to debate on what kind of talk investors should be expecting from the Fed.

The "no change in Fed tone" economists, say that despite the rise in gold and other metals prices, which often has the market signaling inflation is just around the corner, has gold prices higher mainly due to the dollar's weakness, which has been exacerbated by the growing deficit, which in the early part of an economic recovery, combined with record levels of productivity, should have the Fed holding it current stance for low rates for a considerable period of time.

The "prepare for tightening" economists, citing gold and metals prices, along with the still weakening dollar, are calling for some Fed talk toward near-term tightening (maybe as soon as spring 2004), which would help firm the falling dollar, where the dollar's decline has become a growing concern not only for equities, but the U.S. Treasury market as the U.S. Dollar Index (dx00y) 88.69 -0.5% hit multi-year lows again today.

Pivot Analysis Matrix -

When I updated the pivot matrix and posted it in Friday evening's Market Monitor, I thought there was a chance that we would see a morning bounce higher, but then see a continuation lower into the WEEKLY S1s.

It has been awhile (I can't remember when) that we've seen such a difference in how the major indices are trading relative to their WEEKLY Pivots.

The SPX/SPY/OEX are butting up against their WEEKLY R1s, and I really did not think that for a trade back lower to WEEKLY R1s this week, that we would see as much strength from the SPX/OEX above their WEEKLY Pivots, as we did today. I've marked today's highs in the SPX/SPY/OEX as an observation of how close the SPX/OEX is to their correlative WEEKLY/MONTHLY R1 levels of resistance, and if these are taken out to the upside, as the Dow Industrials have done, then upside to WEEKLY R1s is in play.

For the QQQ, I've marked tomorrow's DAILY R1, which at $35.45, would mark my slightly lowered bearish swing trade stop, where I simply derived that stopping point as what I felt I would allow as a stopping point with some cushion above the QQQ's WEEKLY R1 of $35.79.

If not obvious form the following charts of the major indices, the Dow Industrials continue to be a leading index, the SPX/OEX tend to be following, and right now, the NDX/QQQ is the laggard. But it is the current leadership/strength present in the INDU/SPX/OEX which should have the QQQ bear, or QQQ trader alert to a potential snapback rally, should the QQQ's suddenly decide to catch up.

Let's start with the weaker NASDAQ-100 Tracking stock (AMEX:QQQ) $35.23 +0.55%,

NASDAQ-100 Index Tracker (QQQ) - Daily Intervals

While the INDU closed above its WEEKLY R1, and the SPX/OEX close right at their WEEKLY R1s, the QQQ closed just below its WEEKLY Pivot. With Stochastics approaching "oversold," I'm very eager to close out a bearish trade in the QQQ should I see trade at $34.67, where target was derived from the WEEKLY 80.9% retracement. I really did think we would see greater follow through to the downside in today's trade, in a more cautious market environment ahead of tomorrow's FOMC meeting, but truly feel the strength in the INDU/SPX/OEX has the market viewing things different, and perhaps not as cautious as I thought.

Of the three prior QQQ tests of its rising 50-day SMA, two tests have been rather firm, while the last test saw some downside violation of the 50-day SMA before the ramp higher.

While I think market bears are thinking we will see selling from Dow 10,000, I'm going to play it very safe in my QQQ bearish trade, and while giving some room above the QQQ's weekly pivot, will stay firm with a stop at $34.45, as a above the WEEKLY Pivot, I think the Q's have rally potential back to their highs.

S&P 100 Index (OEX.X) Chart - Daily Intervals

The OEX passed a rather important test in today's trade. I thought Friday's break below 524 would certainly have the OEX seeing follow through to the downside, but OEX didn't give up an inch in today's trade. While I'm looking for resistance below the correlative WEEKLY/MONTHLY R1s, where I would expect some institutional computer selling, a break above the 528.70 level has OEX rally potential to 532. I view the 520 level as becoming more formidable support with each passing day.

S&P 500 Index (SPX.X) Chart - Daily Intervals

I've marked 1,071 as resistance on the SPX, but I would have to say with the SPX still pressuring 52-week highs, I'd have to view it as rather tentative. Last week we had correlative WEEKLY Pivot/MONTHLY Pivot support, but strong gains early last week and ability of SPX to hold those gains now finds WEEKLY S2 providing formidable support.

Dow Industrials (INDU) Chart - Daily Intervals

While only 30-stocks, the INDU at this point has greater impact on market psychology than anything, and the closer to 10,000 it gets, the more positive market psychology gets. Same is true for levels above 10,000.

Jeff Bailey

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