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Index Wrap

One lone bull in a den of bears

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After a higher open it was a rather slow bleed lower for the major indices, where the session highs were found early and the lows found late.

The broad NASDAQ Composite (COMPX) 2,119.01 -1.09%, and its larger-cap brethren in the NASDAQ-100 Index (NDX.X) 1,530.42 -1.04% along with the small-cap Russell-2000 Index (RUT.X) 591.73 -0.96% lead today's declines, while the 1, 2 and 3-lettered stocks listed on the NYSE had the NYSE Composite ($NYA.X) 6,657.09 -0.01% eventually giving in to a plethora of institutional sell program alerts by the close.

One lone buy program premium alert triggered at 03:12:48 PM EST, was a lone bull, in what appeared to be a den of bears (or rich bulls cashing out), where by my count, 13 sell program premium alerts were witnessed.

Today's observation of multiple sell program alerts goes into my trader's/investor's logbook for two reasons.

One reason is the large number of sell program premium alerts, which are simply generated due to a brief arbitrage, or difference, between the S&P futures (sp04h) and the S&P 500 Index (SPX.X), or the "cash market" as it is called. The second reason, is that the sell program's seemed to have less impact on an individual basis, but their numbers as a whole made for a lower trade as the session progressed.

As I write tonight's Index Trader Wrap, I feel like we've been here before. January 8, 2003 to be exact, where tomorrow, may be shaping up to be a similar trade as found on January 9th.

It was on January 8th that swing trade bulls were holding profitable swing trade in the QQQ and things were looking great as the Q's closed at a new 52-week high of $37.97. If not for a weaker than expected non-farm payrolls report the next morning (Jan. 9th), which stopped that trade out for a smaller gain at $37.64, to only then find the QQQ jumping back higher to trade the bullish target of $38.25 previously established, on an intra- day basis. (Note $37.97 and $38.25)

Tonight, out there somewhere, if not in my own account, a few QQQ bulls hold a swing trade long in the QQQ, this time at $38.51 (stop $37.95, target $39.20), the Q's traded either side of their WEEKLY Pivot of $38.27 and MONTHLY R2 of $38.25 (does this $38.25 level look/sound familiar?).

With Microsoft (NASDAQ:MSFT) $28.01 -1.02% issuing one of its now patented "confusing quarterly earnings updates," the stock has been volatile in after-hours trade as investors try to ascertain if a decline in deferred revenues is a negative, or if a jump in current revenues is a positive. MSFT currently ticks by at $27.80.

The QQQ has been equally volatile. Jumping back to $38.35 in after-hours on MSFT's headline numbers, then turning back south to trade a low of $37.83, to begin finding suspicious after-hours trade of $37.91-$37.98.

I think it was Yogi Beara that said, "It's deja vu all over again." We'll find out in tomorrow morning's first our of trade is my thinking.

While I'm not certain a similar trade will be seen tomorrow, where a lower open sees further decline in the first hour of trade and gets quickly reversed back higher, today's plethora of sell program premium alerts, and combination of bullish and bearish comments from fundamental analysts on MSFT's earnings create an air of uncertainty, something, I'm not sure what, just doesn't feel right.

You should know that I've had a more bullish outlook on these markets right now, and while the major indices have been setting new 52-week highs, there's always a turning point where a market reaches a near-term "level" or maximum level of efficiency. I will also admit that in today's Market Monitor, each time I "smelled" a rally attempt taking hold, my sense of smell was quickly pinched off by another sell program premium alert.

Let's take a quick look at today's internals, and after we do that, I've printed out my buy/sell program premium alerts from QCharts. I usually don't track these alerts as close as I did today, and may not have not captured all the alerts as I have to reset them each time they are triggered, but it gives us a feel for what was taking place.

Market Snapshot / Internals - 01/22/04 Close

It's perplexing to this analyst how we can see so many sell program premium alerts, and see such divergence from the NYSE and NASDAQ internals. Maybe things get in unison tomorrow. It isn't a big surprise to see internals at the NYSE and NASDAQ show this type of difference, we've seen it before. But with so many sell program premium alerts, I'm suspicious of what was going on today. After all, for every seller there's a buyer. I would by no means say that today's internals were overly strong, other than an impressive showing of new highs at the NYSE.

Here's my QCharts generated list of triggered premium alerts for today's session. I looked at the SPX chart on a 1-minute interval, and selected the 1-minute close as an approximate level of trade where the program premium alert was generated.

QCharts list of triggered alerts - S&P Premium ($PREM)

I've placed a RED S by the Sell program alerts, and a GREEN B beside the one Buy program alert I received at 03:12:48 PM EST. My observation is there was a determined amount of selling just at the morning highs, which carried through to about 1,143.33, where a single buy program was generated back higher near 1,146.16, which was once again overcome by three more sell programs to the close.

I will admit. This stead sell on morning strength, then a let it rally and start selling again is very institutional-like. Institutions don't just start selling or buying in a continuous trade. They sell, let a rebound take place to a level, then start selling again.

I want to observe what might be an inflection point, or transition point between the buy program at 1,146.16 and following sell program at about 1,145.85.

Why do I (Jeff Bailey) want to watch that level closely tomorrow, or the next couple of sessions, which I will report back to you on? Because this may be the level tomorrow, should we see similar trade as to that on January 9th, where a near-term "top" is found.

Again... I think there's something fishy going on today, but I can't quite put my finger on it as to it being VERY bullish, or VERY bearish.

In your Ask the Analyst section, I used the trading of 01/09/04 in the QQQ as an example of an intra-day trade pattern, where a "trap" was seen in the QQQ.

If you would like to review that article, do so tonight, but don't focus as much on the "trap" as I would like for you to try and get a feel for how that day traded. For me, I'm currently thinking that tomorrow's morning session might be similar, and if so, the 01/11/04 Ask the Analyst column might be helpful. Here the http://www.OptionInvestor.com/ask/ask_011104_1.asp to that article.

If tomorrow morning I get stopped out of my bullish QQQ swing trade at the profiled stop of $34.95, then so be it, as it is a discipline that I must follow, especially if you are relying on my suggested levels of stops for risk management. If you are a trader that can watch things closely tomorrow morning, make some ties to the trade seen on 01/09/04 and want to give a little fudge room on the stop, then that can be done to. However, I will have to stick with my original stop profile of $34.95.

Now... things get more interesting when we look at the Pivot Matrix.

Pivot Matrix -

In PINK I've marked today's high (new 52-week high) in the DIA at $106.75, which was a penny shy of the DIA's MONTHLY R1. This is also correlative tomorrow at DAILY R1. With a bunch of sell program premium alerts today, I'm alert to resistance at that level.

The OEX's high today of 569.84, pretty close to its MONTHLY R2 of 570.44.

The QQQ daily high of $38.69. I mark this only because I had profiled a bearish swing trade in the market monitor yesterday morning in the QQQ, with a profiled stop of $38.70, which I later lowered to $38.35 as the QQQ looked too strong and I felt the QQQ was going to probably rally back near $38.70, and there was a good day trade setup for a long, which some traders may have capitalized on, to then recoup the swing trade bearish loss. The reason I mark the $38.69 high today, is this has me thinking I might have been onto something yesterday morning as a potential near-term level of resistance. BUT!!!! Keep this in the context of what took place on January 9th, when the QQQ did go on to set a new 52-week high, and trade not only $38.25, but $38.35 intra- day, before closing back where the QQQ opened that day.

Moving on. Tomorrow's DAILY Pivot in the QQQ at $38.30. This evening initial knee-jerk reaction to MSFT earnings had the QQQ jumping to $38.35, but almost as if $38.30 was already a level of resistance in play for tomorrow, quickly got pushed back lower to $37.82, where suddenly, buyers stepped in and where $37.90 has been a level of after-hours support. (See DAILY S1/WEEKLY S1 correlation).

I would fully expect market makers and specialists to be jerking things around at the open, but the DAILY S1/Weekly S1 may be an important level of early morning support.

Dow Industrials (INDU) Chart - Daily Intervals

I can't say that I'm "surprised" the INDU found some resistance where it did today. What surprises me is that on a day when we see so many sell program premium alerts, the INDU finished fractionally lower. Green arrow is for strength, pink arrow is for near-term weakness.

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

I've made some notes as to tonight's S&P futures (sp04h) settlement of 1,144.00, where after MSFT earnings, when futures were opened for trading (tomorrow's session) they opened lower at 1,1440. This does not seem to be a trade of bullish panic at this point. When we looked at today's sell program premium alerts, with observation of the 1 buy program premium alert, it does draw great attention to the WEEKLY (blue) 19.1% retracement though. What this tells me is that a bullish trader probably isn't looking long the SPX right in here, but more likely to take a chance back lower near 1,132. If a bearish trader is thinking short/put, then today's highs, if not WEEKLY R2 is near-term "resistance." How many times have we said this in recent months?

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

The bullish side of me did not think the QQQ would come back under the $38.25 level in today's session when I profiled the bullish trade from $38.51 yesterday evening. The QQQ was either side of the $38.25-$38.27 level all day, where late-morning to afternoon resistance was found at the WEEKLY 38.2% retracement of $38.51. I did mark the DAILY R1 of $38.54 (underlined pink) as a level that would be a first sign of strength in tomorrow's session.

Yesterday I made note of BIG volume in the QQQ, which I really thought might be sign of some short-covering given the slight pullback after a new high, and while the QQQ did trade just above yesterday's highs, there wasn't much follow through to the upside.

The red downward trend is a trend I forgot to take off the QQQ chart, but is a trend I place on intra-day trade from the recent highs.

Jeff Bailey

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