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Index Wrap

Lack of confidence and conviction

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Today's economic data from the Conference Board showed consumer confidence fell in February, with a lack of more robust job growth weighing on consumer's thoughts toward not only the present day situation, but also the future.

The S&P Retail Index (RLX.X) 390.53 -0.01% finished flat despite weekly chain-store sales falling in the latest week after two straight strong weekly gains. The index fell 0.2% in the week ending February 21. However, it strengthened to an 8.1% year- over-year increase, compared with a 7.5% year-over-year increase the prior week.

Dow component Home Depot (NYSE:HD) $35.99 +1.72% rose $0.61 after reporting fiscal Q4 earnings that rose above year-earlier levels and exceeded Wall Street's expectations, while Federated Department Stores (NYSE:FD) $50.95 +1.19% closed at a new 3-year high, but off its best levels of $51.95 after raising its February 2004 same-store sales growth estimates, while also reporting fiscal Q4 earnings that beat analysts consensus estimates.

Market volumes were heavy in today's session with the NYSE turning just over 1.5 billion shares, while NASDAQ saw 2.04 billion shares change hands.

While today's trade was choppy among the major indices, there seemed to be little conviction among traders, where by the close, most indices finished in the middle of the day's range.

Sector standouts were few. A weaker dollar did have spot gold lifting back above the $400.00 level, which then had the AMEX Gold Bugs Index ($HUI.X) 224.33 +3.33% taking today's top spot among sector winners. The Oil Service Index ($OSX.X) 106.09 +1.84% retraced last weeks losses ahead of tomorrow's weekly U.S. oil inventory report, where expectations are for decreases in reserves with colder weather creating strong heating oil demand in the northeast, while refiners also begin stockpiling oil in order to meet peak summer driving demand.

Bloomberg reported that refiners have fallen behind on rebuilding gasoline stocks, as greater focus has been given to meeting the demand for heating oil.

Market Snapshot / Internals - 02/24/04 Close

Today's A/D line at the NYSE seesawed back and forth to finish breakeven, and while the NASDAQ Composite (COMPX) 2,005.44 managed to close above the 2,000 level after a second-consecutive day of probing this support level, decliners still outnumbered advancers by a 3 to 2 margin by the close.

The smaller-cap Russell 2000 Index ($RUT.X) 571.87 +0.29% showed a greater amount of bullish resiliency in today's session, but was unable to reclaim its rising 50-day SMA by the close.

Russell 2000 Index ($RUT.X) - Daily Intervals

Unlike the larger-cap NASDAQ-100 Index (NDX.X) which has been piercing below its February 4th and 5th relative lows, the smaller caps of the Russell 2000 Index ($RUT.X) which comprise smaller cap stocks listed at both the NYSE and NASDAQ have did find buyers just above the February 4th low. Since August, the RUT.X has found bullish bounces within 3 or 4-day's time once the 50-day SMA has been tested, and may well be an index to be an index that index traders should be monitoring closely the next couple of days for SIMILARITY or DIVERGENCE to the past.

Pivot Matrix -

I've marked some of today's lows in PINK (INDU, OEX, BIX.X) as well as the BIX.X's high where the INDU intra-day low came just above its MONTHLY Pivot. The OEX's intra-day low came just above its WEEKLY S1, where in the WEEKLY Pivot is the only WEEKLY S1 we haven't seen traded as it would relate to a major equity index.

While we can't expect the financials to hold a market up by themselves as profit taking would likely build should losses begin to mount in other sectors of the market, the BIX.X has neared its WEEKY S2, where we could begin to tie some importance to the BIX.X's WEEKLY S2 and OEX's WEEKLY S1. Should the BIX.X break below its WEEKLY S2, then next support level lower is the MONTHLY Pivot, where roughly 3.5 points to the downside is a meaningful move for what tends to be a slower moving sector.

Some work I did in last night's Market Monitor after finishing the Monday evening Index Trader Wrap has be looking at the DAILY S1s as somewhat of a moving line in the sand over the course of the next several sessions, where I would only look for strength above the DAILY S1s, but if traded, would certainly need to see buyers offer intra-day support back at the DAILY Pivots.

I have come to this analysis from the following, which dates back to some observations of trade in August of 2003, where current market technicals look almost IDENTICAL to that found in July and August of 2003.

NASDAQ Composite (COMPX) Chart - Daily Intervals

In Monday's 03:15 PM EST update I wanted to try and see if there was any bearish divergence between the recent market internals like the bullish % or NH/NL 10-day average ratio's, but could not find any bearish divergence where the internals wouldn't have confirmed the recent highs. I went back through the data and found current market internals, which do show weakening, were VERY similar, but currently a little stronger, than the time period found in the lower left corner of the above chart. Note some of the similarities with trend, as well as the moving averages.

It is obvious now that a move above the 50-day SMA was perhaps the signal for strength, where that strength was confirmed further with a COMPX advance above the 21-day SMA, where that advance was confirmed with a shoter-term downward trend, where than advance was confirmed by a new 52-week high.

Oscillators today are also very similar to oscillator found back in July/August.

As always.... History is no guarantee of the future, but provides and EXCELLENT test for the future, where we would monitor for SIMILARITY or DIVERGENCE.

I went one step further when I reviewed how the NASDAQ-100 Index (NDX.X) traded on August 11, which in hindsight would have been the first day of the rebound. It was that day that the NDX traded its DAILY R1 early in the session, then came back to just undercut its DAILY Pivot by 1-point, to then close that session back above its DAILY S1. In a way, that up, down, up seemed to be a coiling type action, which provided the springboard for the rebound.

This may be the action we want to be monitoring for in the near- term.

Hopefully you can see that a trader didn't need to "jump all over" the trade immediately.

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

Today's volume in the QQQ was heavy once again, and in my opinion, this can no longer be related to Friday's QQQ February expiration. The QQQ was very squirrelly today and while the QQQ had been a tough intra-day trade for me in recent weeks, there was little sense to today's intra-day swings.

After a big move up on Monday, Qualcomm (NASDAQ:QCOM) $61.08 -2.16% gave back some of Monday's gains, while MSFT +1.01%, INTC +0.68%, CSCO +1.31% and AMAT +0.14% showed some of the more heavily weighted stocks finding some gains.

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

The OEX closed below the lower end of my hand-drawn channel, which is some divergence to the past where the OEX was able to reclaim that trend by a close. This may put greater emphasis on the 560 level near-term where the WEEKLY S1 and MONTHLY pivot reside.

Dow Industrials (INDU) Chart - Daily Intervals

The INDU popped to a session high at 10:30 AM EST, but once it fell back below 10,600 and the 38.2% MONTHLY retracement (red retracement) intra-day resistance was found.

I can't say that an unfavorable ruling against tobacco makers, which did see Altria (NYSE:MO) $56.17 -0.81% fall rather quickly from $56.50 to a session low of $55.71, comprise a late-afternoon spat of selling in the INDU, but it certainly didn't help. Still, buyers seemed to be lined up and ready to buy just above the INDU's MONTHLY Pivot.

While MO has little to do with the NASDAQ Composite or NDX/QQQ, their declines as the INDU made a session low was evident, and may well suggest that investor confidence is fragile, where the INDU can play a BIG role in investor psychology.

Jeff Bailey

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