Option Investor
Index Wrap

Vertigo

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If Sunday's Super Bowl and halftime celebration wasn't enough to make my head spin, then today's 6.5-hours of market gyrations has me feeling like I've been on one heck of a roller coaster ride, where a stomach churning case of vertigo is a result.

The NASDAQ Composite (COMPX) 2,063.15 -0.1% finished down 3- points and showed more intra-day mood swings than the most ardent of Carolina Panther fans, while the NYSE Composite ($NYA.X) 6,568.70 +0.26% posted a 17-point gain to eek out its first winning session in the past 5.

And just like the Super Bowl, where only the last on the clock brought an end to today's turmoil, traders had to stick around to the last second of trade to see that Airline Index ($XAL.X) 60.45 -1.88% take today's top spot among sector loser, with the Semiconductor Index (SOX.X) 506.01 -1.63% falling at close to cap a volatile tech session. The AMEX Gold Bugs Index ($HUI.X) 215.58 -0.02%, which traded lower throughout today's trade, erased a 2% deficit in the final 15-minutes of trade.

Market Snapshot / Internals - 02/02/04 Close

After a broadly positive start to the session, stocks turned lower mid-morning as manufacturing data from the Institute of Management came in slightly below economists' forecast, but turned higher by the midpoint of today's trade as investor rethought a much stronger-than-expected manufacturing reading from the regional Chicago PMI data released on Friday.

Traders seemed little moved over President Bush's forecast of a record $521 billion budget deficit in 2004 when the proposed budget was first released, but a late round of selling in Treasuries that had the benchmark 10-year YIELD rising 1.3 basis points by its close, seemed to hint that bond traders were uncomfortable with the government saying it expected a heavy borrowing period early in 2004 to fund the growing deficit.

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

The SPX whipped either side of its new WEEKLY and MONTHLY pivot levels and tended to show more significant support/resistance trade at zones derived from the WEEKLY/MONTHLY pivot retracement.

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

Recent trades I've profiled in the Market Monitor (long and short) in stocks or indices have not been profitable, and it is rather frustrating to this trader (Jeff Bailey) to see a fractional gain get stopped out, then have the stock or index come right back to the original trade entry point.

This action has me confused, or not sensing any type of good directional bias that I can pick up on. While I am not "the market," I must say the market is trying to find some type of point of equilibrium right now, as it too may be suffering from vertigo as participants digest earnings, economic data, President Bush's budget and perhaps which Democratic candidate will oppose George Bush in this fall's election.

I will say that once the SPX and OEX moved back above their WEEKLY Pivots, I would have thought buyers would have been able to hold these two indices above the pivots.

I placed a shorter-term upward trend on the OEX, and marked the recent pullback low of 557.36 to try and define a more finite level of support. This would be the equivalent of the 01/29/04 low of 1,122.38 for the SPX.

The S&P Insurance Index ($IUX.X) 319.23 +1.37% jumped to a 52- week high and looks to take over some of the financial sector leadership, while the S&P Banks Index (BIX.X) 350.44 +0.29% posted a fractional gain for the third-straight session. The lingering strength from the financials is perplexing if the market is truly worried about any type of rate hikes from the Fed, or worries about economic slowing.

Dow Industrials (INDU) Chart - Daily Intervals

The first sign of weakness for the INDU on its conventional 50- point box size point and figure chart would be a trade at 10,350, but the way the INDU has traded in recent months, it would seem that the "weakness" at 10,350 might actually find a bounce back higher to 10,600, where a move back above 10,368 could be used as a trigger for strength. Conversely, a move back above the MONTHLY R1 of 10,672 and failure back below 10,656 might allow for a bearish entry type of trade. When I look at the various Dow component point and figure charts, it is a very mixed look where recent strength finds weakness, but weaker components show sign of renewed strength. American Express (NYSE:AXP) $52.54 +1.35% traded another 52-week high on talk that it might be a takeover candidate, and has traded more like a technology stock the last two months that had been heavily shorted.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

I have hit a major cold streak in my trading of the QQQ the past two weeks and will refrain from trying to make any type of call on the Q's at this point. I've got a major case of vertigo and I can see $38.26 on Cisco earnings just as easily as I was the QQQ falling to a day trade target today of $36.72 when the Semiconductor Index (SOX.X) 506.01 -1.63% quickly reversed this morning's higher trade to then move below Friday's lows.

Pivot Analysis Matrix

The only close correlation with the pivot matrix I saw today was in the QQQ at its MONTHLY and WEEKLY Pivot of $37.43-$37.46 as resistance, and with few correlations of support, then SOX 498.04-496.37 may be important. Lots of traders and investors have been discussing the round 500 level as an important round- number level of support, which may just have to be tested tomorrow.

Other than this QQQ $37.45 level, WEEKLY S1's and DAILY S2s look to provide the near-term support. WEEKLY Pivots were traded on the upward move in today's trade, as the equity indices all closed below their WEEKLY Pivots on Friday.

Jeff Bailey

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