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Index Wrap

Volume returns!

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Investors looked to have returned from their holiday breaks as volume levels at both the NYSE and NASDAQ rose to their best levels since December 19, 2003; the Friday before the week of Christmas.

For the past two weeks, bears kindly reminded bulls that the light volume gains for the major indices were less meaningful on light volume.

While today's volume on the NYSE was nearly identical to that found on December 19, 2003, its today's 2.3 billion shares on the NASDAQ Composite (COMPX) 2,047.36 +2.02% and heaviest volume since June 6, 2002 (2.79 billion) that gets a trader/investor's attention as renewed interest for 4 and 5-lettered stock symbols returned.

Market Snapshot / Internals - 01/05/04

Advancers outnumbered decliners for a 2:1 margin at both the NYSE and NASDAQ. For the NYSE, it was the ninth-consecutive session of positive A/D breadth. Bullish leadership at the NH/NL indicators looks health, where today's 336 new highs at the NASDAQ is the best seen since 411 stocks achieved new 52-week high on December 2, 2003.

On Friday, our NASDAQ NH/NL 10-day ratio reversed back up to "bear correction" status, which hints that some bullish leadership is returning to the broader NASDAQ Composite, and is strikingly similar to Friday's trade, which had the narrow NASDAQ-100 Bullish % ($BPNDX) reversing back up to "bear correction"

As a bullish % follower, I (Jeff Bailey) can only scratch my head in wonderment, yet realization, of just how resilient and strong the various equity indices have been.

NASDAQ Composite Index (COMPX) - Weekly Intervals

2.33 billion shares based on NOVEMBER construction spending? That's "old news" when considering the month of January has begun. While November's 1.2% jump was much stronger than economists' forecast for a gain of 0.5%, I think there's a lot of complacent bears paying the piper on this type of volume.

Pivot Analysis Matrix -

The recently lagging (in the pivot matrix) NASDAQ-100 Index (NDX.X) 1,496.58 +2.25% traded strong into today's close and is the first major index in our WEEKLY Pivot matrix to trade its WEEKLY R2.

I'll note here that there is correlative resistance in the matrix showing up tomorrow at MONTHLY R1 1,503.82 and DAILY R1 of 1,504.04, which may tie into a nice round 1,500.00 of psychological resistance.

Near-term, I think those traders that took my NASDAQ-100 Tracking Stock (AMEX:QQQ) $37.09 +2% bullish trade from last week, begin to make a tie at NASDAQ Composite 2,050.00 (round number) and NASDAQ-100 Index (NDX.X) 1,500.00, as the QQQ approaches my revised higher bullish target of $37.25.

Please note that today's QQQ high was $37.15, which is just under our newly calculated WEEKLY R2 of $37.16.

What I would want to do tomorrow, when still targeting QQQ $37.25, is raise a protective stop up under the DAILY Pivot of $36.93.

I do think there is a HIGH POTENTIAL for a large short-squeeze to take place in the QQQ, where I'd be monitoring tomorrow's Nikkei- 225 ($NIKK) 10,825 trade.

Nikkei-225 ($NIKK) - 50-point box

The $NIKK was a major global index that was showing a major technical breakdown at 10,100, but now looks to be recovering after testing its bullish support trend. The renewed strength in the $NIKK comes as the tech-heavy NASDAQ-100 Index (NDX.X) breaks above its November relative highs, where some U.S. technology analysts warned that technology stocks in the U.S. could be tied to Japan's Nikkei-225 weakness.

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

I'd look to take profits on the QQQ with a trade at my bullish target of $37.25 if achieved tomorrow, but also look to protect some near-term gains and work off losses in a previously profiled February $36 put, from a couple of weeks ago. BEARS should be jittery with short interest at 12-month highs, and QQQ price also at new highs.

The upward trending "red" line is what some technicians might see as "bullish resistance" for a bullish wedge. I think fellow analysts Jonathan Levinson has shown such a trend on various charts in his Friday Index Trader Wraps.

I continue to see traders trying to pick tops in the indices and short them, but what seems to be happening is these shorts get stopped out, and no bullish trade can be taken, as the top is so near. It is so tempting to short what looks like a bubble, but if the bubble turns out to be a humongous helium balloon, its the bear that keeps getting burned.

Dow Industrials (INDU) Chart - Daily Intervals

On Friday, I made note in the Market Monitor that the INDU, at its session highs, was testing the upper end of its bullish regression channel we had just added to the above chart. The INDU did see selling from that level to a session low of 10,384. With the INDU back to test this bullish resistance again today, I would simply snug a protective stop under bullish trades just below 10,370. A break much above 10,560 would be deemed bullish in my book, where WEEKLY R2 of 10,625 is in play.

Jeff Bailey

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