Option Investor
Index Wrap

I left my ego and my conscience at the door

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Several years ago I learned a hard lesson about egos and guilt. Right now I sense both of these emotions are at play. Bears want to prove they can pick a top (ego), which may indeed also be backed up by a firm belief, or conviction. At the same time, bulls feel guilty they might be the one trader in the market to buy the top, or worse, not sell it!

If you don't think it wasn't hard for me to close out a bullish trade in the NASDAQ-100 Tracker (AMEX:QQQ) $37.34 +0.67% at a prior outlined bullish target of $37.25 (which was raised from $37.00), and then trade long again at $37.41, a session high, your wrong. However, there was no guilt associated with the trade, and there was no ego involved as if to try and prove a point.

There were a couple of things I saw today, that simply shouldn't have happened, and when they did, I thought it best to get back on the bullish bandwagon, and see where this seemingly smoothly paved highway is destined.

Tonight's wrap is going to be centered on the topic of trying to avoid any type of TECHNICAL difficulty, if at all possible, with further attempt to travel along a path of least resistance.

Right now, the path of least resistance, as I see it, is with the NASDAQ-100 (NDX.X) 1,501.26 +0.31% and its Tracking Stock (AMEX:QQQ) $37.34 +0.67%.

Here's today's hourly breakdown of the major indices and market internals.

Market Snapshot / Internals - 01/06/04 Close

There's nothing overly important I could point out from today's market internals, other than some of the stretching from the A/D lines (advancers building, decliners building) from approximately 10:00 to 12:00, had the A/D line snapping back toward the bullish side by 01:00 PM EST. You're correct! NASDAQ's A/D started to snap back at the 12:00 hour, almost as if trying to take over a leadership role from the NYSE. This is different than what we've been used to seeing isn't it? Today is just one day, but something I pick up on. I'm also noting a more important development, and that is the NASDAQ NH/NL breadth has today's 355 number of new highs at the NASDAQ, the highest number since December 2nd's 411 new highs.

Certainly, this is something I (Jeff Bailey) would want to be monitoring, if I'm sticking my neck by profiling bullish trades in the NASDAQ-100 Tracking Stock (AMEX:QQQ).

To be perfectly honest, I did not in my wildest evening dreams see the QQQ trading its MONTHLY R1 of $37.36 in today's session. While it was nice to book a profit in the QQQ at $37.25, I thought bulls should get back on board the QQQ in today's trade. Here's what I found in the futures market, using my technique of fitted retracement, which I try to tie in with the NDX/QQQ.

NASDAQ e-mini March futures (nq04h) - Daily Intervals

The e-mini NASDAQ futures trade in increments of 0.25, and I was certain that our QQQ bullish exit point was almost "perfection" at $37.25. With that trade closed out, it allowed some time to do some technical analysis, on the futures chart. With the market internals trying to recover and big short interest in the various trackers, there might have been more upside.

I posted the above chart, in today's futures monitor, right when the "bear's den" as I affectionately call the futures monitor, became more active. At the time, the nq04h was still in its "zone." I show this only to let us know, there is plenty of bearish sentiment out there. Hey... you don't get record amounts of short interest in the SPY and QQQ without some bearish sentiment! The names of the bears have been changed to protect the trader. I have no problem showing my name when looking at trades.

Futures Monitor Commentary - 01/06/04

Reading from the bottom up, you can now see what eventually happened as new highs were found. Now, I haven't read all of today's future monitor, but Trader #1 looks to still have his/her trade open, as the futures contract high looks to have been 1,505.50. I should also say that the chart shown above is a chart I (Jeff Bailey) am using, to simply try and establish a bias (green arrows are bullish, pink arrows alert to weakness). Once I see a lower high and lower low, then I would use a red arrow as being alert to more BEARISH technicals.

The reason I show the above is not really to critique trading, but to simply try and display what I "sense" to be taking place right now, especially in the QQQ. Each new high at this point just builds uncertainty among bears. "I know it is overbought, extended, overvalue, manipulated... but I'm not sure where resistance is and I'd better stop out and keep losses small." And right now... this just seems to be feeding on itself in a very bullish upward trend.

OK... now I think the above chart of the NASDAQ futures looks like a chart with little resistance right now, where sellers might be found.

Let's take a quick look at the Pivot Analysis Matrix.

Pivot Analysis Matrix

First things first. If you traded the S&P futures yesterday, today's lows in the SPY and SPX, or those numbers seem strikingly familiar to you. In the es04h, 1,112 was a firm level of support yesterday afternoon that found buyer, and when 1,118 was taken out to the upside, which looked to me like a neckline of an intra-day reverse head/shoulder pattern, well.... the es04h didn't look back, and today's lows in the SPX of 1,118.44 smells of suspicious support.

The S&P Banks Index (BIX.X) has just been trading sideways in recent sessions, and this could be a key sector to monitor tomorrow. For the most part, index bulls (INDU/SPX/OEX) most likely want to see some upside, or correlative support around the 337 level.

The biggest resistance I see is in the OEX, which gathers around the 560 level. I put this chart together late last night, and simply forgot to place it in this morning's 09:00 AM EST Update.

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

I wanted to show a weekly interval chart, just so I could show where I've attacked retracement from, in conventional manner, and tie in the current MONTHLY R1 and WEEKLY R2, along with the conventional 80.9% retracement level, where market participants may be waiting to see what takes place at the 560 level. I (Jeff Bailey) do not view this as BEARISH as trend is so bullish, but does present some resistance.

OK, so I thought I'd try and find some "trouble" to convince me not to establish a new bullish position in the OEX at this point. The OEX is a market-cap weighted index right? Right. What's the largest market cap stock in the OEX right now? General Electric (NYSE:GE) $31.37 -0.66%.

General Electric (GE) - Weekly Intervals

I thought I show a WEEKLY interval chart of GE, which right now is the largest market cap stock in the OEX. Bears that are technically oriented will view this chart as a good risk/reward short, based on the pattern recognition of a POTENTIAL head/shoulder top. Bears will most likely stop out on a move above $32.00, which I (Jeff Bailey) might associate with OEX 560- 562.

GE is also a component of the Dow Industrials (INDU).

Dow Industrials (INDU) Chart - Daily Intervals

Bump... Bump... The INDU has bumped against the upper-end of our bullish regression channel again today. This is NOT a BEARISH chart in my opinion, but the INDU is finding some resistance where we might expect it too. Hey... BIG MONSTER MOVE HIGHER, but taking a rest right now. INDU is very important to market psychology, but as a bearish trader proclaimed today... "it just won't break below 10,500!" See... psychological.

NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Intervals

No General Electric (GE) in the NDX/QQQ, no banks, and while there may be some resistance I'm not aware of, other than the MONTHLY R1 f $37.36 (I tried to set my bullish trigger at $37.41 so it wouldn't get traded) the QQQ looks to be the index where there is less resistance right now.

The kicker may be prior notes that January is rather bullish for the NASDAQ, where the Stock Trader's Almanac noted that over the past 32-years, the NASDAQ has gained 4.1% in the month of January. The INDU +2.2% and SPX +2.1%.

Jeff Bailey

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