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Index Wrap

Did you feel the strength\?

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Could you feel the strength in today's trade? Did you see that bullish leadership? That's what bulls wanted to see after Monday's strong session.

If you're wondering what the heck I'm talking about, then keep reading, because I (Jeff Bailey) didn't feel much strength, nor see much bullish leadership, and this has the BULLISH side of me alert for DIVERGENCE to the mid-August rebound I was looking and monitoring for.

There was strength to be found in today's session, and if your purchasing habits find you often-times hungering for European- made goods, then you may have gotten a boost for your dollar, as the dollar surged higher in today's session, where I think it is/was the fast rate, and not necessarily the rising dollar that had stocks reversing early session gains.

It is arguable that a rising dollar could be a fundamental negative for U.S.-based corporations that export products to overseas markets when a rising U.S. dollar then makes the export more expensive for a consumer in Europe, Japan, or any other country whose currency is buying the U.S. product.

You and I can perhaps understand how a market (a global market) can get used to such an even, if the move is slow, or methodical, but when the change is sharp and abrupt, that's when markets (stock, bond, commodity) can react to that change just as quick.

Market Snapshot / Internals - 03/02/04 Close

The NYSE Composite ($NYA.X) 6,717.13 -0.73% has been a notably stronger, or leadership index relative to the also very broad NASDAQ-Composite ($COMPX) 2,039.65 -0.88%, but a simple look at the hourly time line shows that while the NYSE Composite has been closing in on it recent 52-week highs, the top-of-the-hour time lines showed little bullish leadership from 1, 2 and 3-lettered stocks of the NYSE.

The often-thought of "stodgy" components of the Dow Industrials (INDU) 10,591.48 -0.81% never saw a tick above yesterday's highs, and while a bull shouldn't demand a higher high each and every day when testing for a market rebound, I'm still testing things pretty harshly for bullish leadership, and I didn't see much from the EXTERNALS in today's session.

The advance/decline lines were nothing for a little bull to be writing home about, and the deterioration seen throughout the day was rather slow at the NYSE, where the NASDAQ showed a slightly faster pace of decline, as if the selling was orderly and rather methodical.

I'm not going to show the same table I did in last night's Index Trader Wrap of the NH/NL indications, but will quickly not their ratios as of today's close, and those interested can compare them to the table from last night's wrap.

The NYSE DAILY NH/NL ratio was 98.7% (yesterday 98.9%) the 5-day ratio is 98.1% (yesterday 96.6%) and the 10-day ratio is 96.5% (yesterday 96.5%).

The NASDAQ Comp. DAILY NH/NL ratio was 95.5% (yesterday 97.9%) the 5-day ratio is 95.5% (yesterday 92.9%) and the 10-day ratio is 92.8% (yesterday 92.8%).

If I closed my eyes and imagined myself on a roller coaster ride over the past 6 or seven sessions, I'd have to say I've come out of a trough, feel a sense of weightlessness, and seem to be bracing myself for a move lower. But always prepared for another quick lift higher, that would otherwise catch me by surprise.

I feel like I'm on the Disney Land roller coaster ride, which I think is called "Space Mountain" where I'm on the roller coaster, that whips around in complete darkness. The worst thing you can do is try and anticipate what the next few seconds has in store, and instead, hold on tight and try and enjoy the ride until its time to get off.

As it relates to investing or trading, be alert that we're probably going to see some wild gyrations in the coming sessions, and be disciplined with your stops and targets.

Pivot Analysis Matrix -

Note: AFTER I marked some of the correlative support resistance levels in the Pivot Matrix, I'm just now seeing that I forgot to color the Daily closes red for the Dow Indu, dia, SPX, spy, OEX, NDX, qqq, SOX.X and BIX.X.

As further note, only the North American Telecom Index (XTC.X) 651.22 +0.46%, Oil Service Index (OSX.X) 110.63 +0.3%, Biotechnology Index (BTK.X) 546.06 +0.3% and Health Provider Index (RXH.X) 373.08 +0.03% showed equity-based sector gains in my U.S. Market Watch today.

I don't want to hang on day after day and try to make believe that today's trade wasn't DIVERGENT from the mid-August rebound, where during that time, it WAS a day after day type of rise once the COMPX broke back above its 21-day SMA. As such, I'm going to draw a line at tomorrow's DAILY S1 as a defined level where I would certainly have to come to grips with the fact, that if these markets are going to show mid-August SIMILARITY, then the DAILY S1s would be the likely near-term support level.

The Semiconductor Index (SOX.X) 510.24 -0.55% traded its WEEKLY R1 of 513.47 with a session high of 521.75, after a major broker upgraded shares of Micron Technology (NYSE:MU) $15.83 +3.12% and Texas Instruments (NYSE:TXN) $31.28 +0.83%. While the SOX.X reversed a negative morning trade yesterday to finish higher 2% higher after some weaker industry data set a negative tone early, today's trade was just the opposite, where chips started out strong, but the bounce faded as the session wore on.

U.S. Dollar Index (dx00y) - Daily Intervals

One critique of using history as a guide is that some traders/investors believe strongly that "things change," and there are always different dynamics taking place between current day, and "what was." I can't argue with that line of thinking, but having traded markets over the years, you NEVER know for certain what was at play, unless you make various observations, and test against the past.

Maybe the dollar has found its bottom, and maybe it spells "doom" for stocks. I made some notes on the above U.S. Dollar Index (dx00y) chart from June 15, 2003 (a Sunday) to August 25, 2003 at some inflection points for the Dollar Index, where I quickly took the closes of some of the major market averages. Over the course of a 2.5-month period, the general trend for the major indices was higher. Note the two green upward trends where the darker trend is more vertical, and the light green trend more gradual.

I think today's rather SHARP and BOLD break above 88.00 might have been somewhat startling to market participants, where the immediate, and perhaps wise reaction is to take a "wait and see approach" to trading stocks, bonds and commodities.

10-year Treasury YIELD ($TNX.X) Chart - Daily Intervals

Anytime we see a sharp move in a currency, we'd expect some reaction from the bond market. But let's put things in perspective. It is only tonight that I note that the 3.911% YIELD level, which the 10-year YIELD seems to like to "kiss" as support was the closing value on July 15, which you and I can perhaps now tie back with our study period we've been monitoring in recent sessions.

What was happening? I believe the bond market was reacting to the realization of a ROBUST economy beginning to unfold, which found a heavy selling from YIELD lows not seen in over 40-years!

Right now, we see a bond market that is VERY orderly, and rather calm, which at this time, seems to be "comfortable with the way things are."

The one alert I do think broader market equity bulls would be more concerned with is if YIELDS started falling during a dollar rise, which in my opinion would be more of a "defensive" signal from the markets. I will certainly have to test against equities should we start seeing a strong amount of buying that had the 10- year YIELD ($TNX.X) falling below 3.871%.

The main thing I think equity traders are monitoring right now, more than anything is SUDDEN or SHARP rates of change in either direction.

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

If looking for bullish leadership, or LACK of bullish leadership, the OEX isn't tipping its hand as to direction right now. Think about it. The OEX is comprised of LARGE CAP stocks, that represent so many parts of the U.S. economy and even the GLOBAL economy.

Since early January, it has really been a pattern of modestly lower highs, and perhaps a stronger pattern of higher lows.

While we've seen some slippage in the S&P 100 Bullish % ($BPOEX) the past week, with a net loss of about 3 stocks to point and figure sell signals, I will tell you that there are stocks that have been generating consecutive (not reversing upward) point and figure buy signals.

The OEX, being such a large-cap index, and comprised of so many different sector bellwethers, seems to suggest that the equity market isn't in any type of unison right now. In other words, there isn't enough bullish or bearish leadership at this point to really get a discernable trend.

However, the NASDAQ has shown a greater ability for weakness, and that's were bulls should be more cautious and disciplined.

Tomorrow, I think I'm going to take some "time off" in the market monitor, and really try and get some different sector charts placed in the intra-day updates. There are a lot of things going on that I want to cover, that I think we should be alert to.

Jeff Bailey

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