Option Investor
Index Wrap

Bulls lacked aggression

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While shares of Taser International (NASDAQ:TASR) $59.60 +19.91% surged as high as $67.75, bulls seemed less eager to bid stocks higher in today's trade, with the NASDAQ Composite (COMPX) 2,073.61 -0.76% giving back about 3/4 of yesterday's gains, while the stronger Dow Industrials ($INDU) 10,694.07 -0.4% gave back almost 1/2 of yesterday's advance.

In my opinion, TASR's advance over the last two days from the $43.00 level, can be largely attributed to some very unkind bulls that have little stock to sell some very short bears, where when it looks like things might have calmed down for TASR's bullishness, it erupts like a volcano.

However, there was little sign of aggressive buyers in the tech- heavy NASDAQ-100 Index (NDX.X) 1,501.34 -0.84%, and while Rambus (NASDAQ:RMBS) $24.35 -17.75 is not a component of the Semiconductor Index (SOX.X) 518.78 -1.52%, Noveluss Systems' (NASDAQ:NVLS) $34.12 +0.03%, and only SOX component to post a gain by today's close, didn't have the look of aggressive buyers being present either.

Market Snapshot / Internals - 02/12/04 Close

Market internals at the A/D line just never were able to get positive in today's trade, but bullish leadership was present at both the NYSE and NASDAQ NH/NL daily ratios.

We can see from the hourly price changes for the major indices, that today's trade could be characterized as a "slow bleed" lower, and volume was rather consistent. It has me feeling, based on observation, that buyers just weren't very aggressive on the heels of yesterday's gains.

While the QQQ did see some early session gains, and had be thinking that the "beta trade" might have been in play, it simply didn't pan out, and all be darned if the QQQ didn't close at $37.25, where little help was found from the Semiconductor Index (SOX.X) 518.78 -1.52%, which traded a session high of 530.48 after today's 10:00 release of December business inventories, which rose 0.3% and matched economists' forecast.

Pivot Analysis Matrix

I profiled a day trade in the QQQ today at $37.42 (just below its monthly pivot, but above some intra-day resistance) when it looked as if the QQQ might make a recovery from its then session lows of $37.31, as the Semiconductor Index (SOX.X) had been sitting on today's (Thursday's) DAILY S1, and had started to rise from that level.

Evidently I had an old downside alert set on ImClone Systems (NASDAQ:IMCL) at $33.99 and it was about 12-minutes after QQQ bullish entry that this downside alert went off, the QQQ reversed from $37.45, fell to $37.30 (stopped me out at $37.31), then IMCL was halted for news pending, the QQQ bounced back to a high of $37.48 when it was learned that IMCL received FDA approval for its Erbitux drug, thing's calmed down, and the QQQ closed out at its lows of the day.

That was today's "excitement" if we want to call it that, and through it all, buyers didn't show much sign of aggressiveness in today's trade.

Semiconductor Index (SOX.X) Chart - 5-point box

I wanted to take a quick look at the Semiconductor Index (SOX.X) on a 5-point box size point and figure chart, with MONTHLY levels overlaid. I make note that Dorsey Wright & Associates' Semiconductor Bullish % (BPSEMI) recent turned back into "bear confirmed" status from "bear correction" status. It was in early December (red C) that this sector bullish % first turned "bear confirmed" status, and while the recent rebound from 495 (just above MONTHLY S1) has been welcomed by bulls, the above supply demand chart does give focus that the 490 level is an important near-term level of support.

I would have to describe the SOX as a sector to be viewing as rather "defensive" right now, where this rebound is most likely going to find sellers, where only aggressive buying, or bulls with some serious conviction, are going to be able to drive the sector higher.

This is a statement of the obvious, that only aggressive buyers, or bulls with conviction that higher prices still exist would be buyers, but current levels of trade is where we might also expect some technical selling.

Here's a bar chart I've done some rather basic work on, with retracement as well as a regression channel from the March lows. I knew I showed a chart of the SOX in a prior Index Trader wrap, and now I'm focused! It was on 01/27/04, in that wrap that we looked at the SPX chart. Boom! The light goes on for tomorrow as it relates to that wrap


tomorrows DAILY S1, and the following chart. Remember... SOX 514!

Semiconductor Index (SOX.X) Chart - Daily Intervals

I give great attention to the SOX in tonight's wrap, as it is a key technology sector, with some very good levels away from the major indices for us to monitor and not until tonight does my attention get drawn to 514, which becomes a level that has shown up in the past.

While I'm not a big fan of MACD, I think it serves a very good test with 514 in mind and the SOX back within its BULLISH regression channel. Remember, MACD is an oscillator that works better when TREND is observed. Some of the best shorts, or declines I've seen is when MACD falls below zero like it has in the SOX, then rolls over from there, where PRICE ACTION can impact the MACD Oscillator. If looking at the SOX chart, that rollover might occur with a break below 514. See how the MACD histogram bars have now recovered back to zero?

I feel the next couple of sessions could be important for the SOX, the QQQ, and perhaps the other major indices.

Now... some of the hesitancy I feel in the markets today, or lack of aggressive buying, might also be represented in the above SOX chart.

As a technician, the bullish side of me would want to WAIT until the potential right shoulder of a head/should top pattern was broken to the upside before acting more bullish. I would ONLY be a buyer of the SOX if I (Jeff Bailey) knew for sure that there was some type of great bullish catalyst about to be presented in coming days or weeks. As such, the bullish side of me would be HESITANT to buy the SOX right here.

Now, I'd become more bearish the SOX, if I saw weakness below 514, but I'd be willing to bet, there are quite a few bears shorting the SOX right now, as their risk to the upside can be protected with a stop just above the 535 level.

I think I would also carry this "I would only be more bullish," or "I would only be more bearish" type of thinking with the other major indices, but using the SOX as a good sector to be monitoring very closely near-term.

Try to put yourself in the shoes of a BULL and a BEAR in the SOX right now. I get the feeling that traders are going to want to at least get another test of the 514 level, to see what type of buying (bullish buying and short covering from bears that might feel they've been trapped below). Almost like placing your hand on the burner of the stove, to see just how hot is really is.

C'mon... you've done it before! Even thought the stove burner wasn't red, you placed your hand on it to see if it was turned on or not.

Laughing.... I tried to iron out a wet spot on my dress shirt one time, with my shirt still on. I knew the iron was hot, but good gravy I didn't know it was that hot!

The same think to the upside may have taken place this morning at SOX 530, where the temperature of buyers and sellers was taken. Obviously that level is hot for resistance right now, and sellers may be formidable.

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

To say that the SOX could single-handedly pull the broader SPX lower would be a mistake, but other than profit taking, there would have been NOTHING technically, like found in the SOX, to really explain today's selling. I would try and associate SOX 514 with SPX 1,148.00 to use round numbers.

While SOX 514 appears to me an important level of support, the SPX MONTHLY support level, after the SPX slipped back below its MONTHLY R1, would be back lower at 1,142.40.

My thinking here is if the SPX is headed to 1,142.40, then the SOX isn't going to have held 415.

NASDAQ-100 Index (NDX.X) Chart - Daily Intervals

I'm showing the NDX, not the QQQ tonight only because the NDX is trading much cleaner, or accurate if you will, relative to the pivot levels. While the QQQ traded 7-cents above its WEEKLY R1 today, the NDX didn't challenge didn't trade its WEEKLY R1, and would have provided a cleaner trade.

I've made some SOX and NDX observations, as it relates to SOX 415, but also not MACD on the NDX, and understand implications of SOX trade near-term.

Jeff Bailey

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