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Index Wrap

A rising sun, and strong March wind

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Positive economic data from the land of the rising sun saw Japan's Nikkei-225 ($NIKKI) 11,271 +2.07% post a 229-point gain and close at a 20-month high as a stronger-than-expected 3.4% gain in Japan's industrial production for the month of January shed further light on a recovering global economy.

Nikkei-225 ($NIKK) - Daily Intervals

The Nikkei-225 close above it October highs of 11,238.60, where not unlike the major indices here in the U.S., saw a strong rally take hold in mid-August. I've shown what appears to be a massive looking reverse head and shoulders pattern, where a conservative pattern objective from a neckline of 11,160 and head at 9,650 would equate to 12,670. After recently fulfilling a bearish vertical count of 10,300 (10,299.40), the $NIKK point and figure chart currently hints at a longer-term bullish vertical count price objective of 12,000.

Strong global market gains helped U.S. stocks weather a choppy morning session, where economic data here in the U.S. showed personal incomes in January rose 0.2%, while disposable incomes jumped by 0.8%. Personal spending remained healthy in January, rising 0.4%, and matched December's 0.4% gain.

The gains in disposable incomes fueled further optimism in retailing stocks with the S&P Retail Index ($RLX.X) 402.05 +1.2% closing at an all-time high.

Homebuilders as depicted by the Dow Jones Home Construction Index (DJUSHB) 658.08 +3.97% also closed at new all-time highs despite a 0.3% decline in January construction spending, where the bulk of declines were found in commercial sectors, while colder weather was blamed for residential spending having slowed to a stop after a robust 1.4% average monthly rate over the second half of 2003 and 11% year-over-year increase.

Economists note that construction spending is volatile given the different factors driving the 3 components: residential, business and public spending. Business spending remains in decline given a high commercial vacancy rate, though the trend growth is improving. Public spending (government) is under the weight of tightened government budgets (local and federal). Meanwhile residential spending is riding the high of the booming housing market, where many economists continue to predict the rising trend to eventually flatten.

Treasuries were little changed in today's session with the benchmark 10-year YIELD ($TNX.X) rising a fractional 0.8 basis points to 3.992%, after challenging 4-month lows of 3.912% just after today's 10:00 AM EST release of the weaker-than-expected construction spending figures were released.

Market Snapshot / Internals - 03/01/04

A strong March wind looks to have filled a bull's sail as the first trading day of the month has the very broad NYSE Composite ($NYA) 6,766.56 +1.11% set to test its recent February 17th intra-day high of 6,778.02, while the also broad NASDAQ Composite ($COMPQ) 2,057.80 +1.38% reclaimed both its falling 21-day SMA (2,049.65) and trending higher 50-day SMA (2,053.16), which was a technical test for strength similar to mid-August of last year.

NASDAQ Composite Index (COMPX) - Daily Intervals

The very broad and weaker NASDAQ Composite (COMPX) 2,057.80 +1.37% (relative to NYSE Composite) closed back above its crisscrossing 21-day SMA and 50-day SMA and signals technical strength similar to that found in mid-August. MACD and Stochastic oscillators also very identical, where next challenge for strength is COMPX above 2,072.43 and current short-term downward trend.

Last week we did a very detailed internal analysis of the COMPX and I had labeled the 08/21/03 date with "blow off." I've pointed to that date on the above chart, where just after achieving a new high, we saw what might be considered a near-term "blow off" spike higher.

I (Jeff Bailey) would be as amazed as any bull if we saw as much similarity in the coming weeks as that, but that observation might come in handy, as the recovery for stocks from last-year's lows has been stronger than many could have envisioned.

Current analysis is that the OUTSIDE of the COMPX (above bar chart) looks like it is passing the test for SIMILARITY to the mid-August timeframe we began discussing last week.

Let's quickly look at the internals, which I think also look very similar, and find today's NH/NL 5-day ratio showing some resumption of shorter-term bullish leadership starting to confirm the recent rebound.

NASDAQ Internals -

The actual bullish % indications (column's C and G) continue to suggest bullish caution, but SIMILAR NH/NL indications are starting to be found today, as that found from 08/12/03-08/15/03, when the COMPX's bar chart showed strength above the 50-day SMA and 21-day SMA.

I don't usually focus on the 5-day and 10-day NH/NL ratios like I've been doing the past week, but it can be an important indication for renewed bullishness and resumption of bullish leadership when the slower moving bullish % are showing internals weakening.

Here's a quick look at some of the major indices with their new WEEKLY (blue) and MONTHLY (red) pivot analysis retracement overlaid.

NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Intervals

I wouldn't say the NDX/QQQ was a picture of strength during today's session, as early weakness among semiconductors did find the QQQ falling back below its WEEKLY Pivot (36.57) after gapping above it earlier this morning. I'm currently viewing the NDX/QQQ as the WEAKEST of the major indices, where we might look for a trading range to begin developing between $36.35-$37.61 in the QQQ.

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

The SPX made a strong move higher today, where all sectors except the Health Provider Index (RXH.X) 372.95 -1.58% and Biotechnology Index (BTK.X) 545.86 -0.07% showed gains at today's close. The weakness in both of these sectors was largely attributed to two stocks, as Universal Health (NYSE:UHS) $44.80 -16.78% and MedImmune (NASDAQ:MEDI) $24.10 -6.18% warned on forward earnings.

Dow Industrials (INDU) Chart - Daily Intervals

The INDU worked its way above overlapping near-term resistance of 10,666 in our WEEKLY/MONTHLY pivot retracement brackets, and breaking free of 10,600 should give lift to market psychology. Breadth among the 30 components was positive at 28:2, with losses in KO $49.62 -0.68% and JNJ $53.76 -0.27% offset by a strong 2.48% gain in Alcoa (NYSE:AA) $38.40 +2.48%, where many base metal stocks found strong gains in today's trade.

Pivot Analysis Matrix

Aside from the NDX/QQQ and SOX, many of the correlative DAILY R1 and WEEKLY R2 resistance correlations found would be at or near new highs. While bears may not be technically pressed to cover short positions at current levels, breaks to new highs in the INDU/SPX/OEX could see some demand build on bullish and bearish buying should another round of new highs be found.

Jeff Bailey

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