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Some slippage, with SOX weakness

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A rather positive Fed Beige Book report found the major indices recovering from early session weakness, as continued signs of economic growth, which wasn't too hot, helped waylay some fears that the Fed would be quick to raise its fed funds rate.

Still, today's trade, especially in the tech-heavy NASDAQ-100 Index (NDX.X) 1,466.09 -0.49% certainly has our mid-August historical test showing DIVERGENCE from the past, which at a minimum would suggest any recovery for technology stocks in the near-term will be more modest.

Market Snapshot / Internals - 03/03/04 Close

The major indices finished mixed, and the A/D line at both the NYSE and NASDAQ was just about even. While the 5-day NH/NL ratios at both the NYSE and NASDAQ are above the 10-day NH/NL average ratios, the NYSE 10-day average ratio slipped back to 96.4%, while the NASDAQ NH/NL 10-day ratio continues to edge lower at 92.5%. Nothing major from these indicators, but not showing much bullish leadership.

U.S. Market Watch - 03/03/04 Close

Many of the equity sectors have seen rebounds the past 5-days. In BLUE I've highlighted the NYSE Composite ($NYA.X) where we see the 20-day % Net stronger than the NASDAQ Composite ($COMPX) 20- day % net. When I look at the 5-day % net, I begin to understand that while the NYSE, or stronger broad market average has been trying to anchor itself, the 1.39% rise in the COMPX gives the impression we're seeing more of a relief bounce at this point, and not a lot of bullish leadership.

Pivot Analysis Matrix -

The S&P 500 Index (SPX.X) and its tracker SPY came close to testing their WEEKLY Pivots, but buyers were present just above those levels. This can really become a focal point of "market support", where if violated, this support strength would be further signal for weakness. Note the S&P Banks (BIX.X) has also not tested its WEEKLY/MONTHLY Pivots.

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

While we don't cover every sector in our pivot matrix, it becomes rather evident that the S&P Banks Index (BIX.X) and more regional banks, along with financials are providing stability for the SPX above its WEEKLY Pivot of 1,143.68.

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

I would be somewhat surprised if the OEX traded either side of 565-569 ahead of tomorrow's mid-quarter update from Intel (NASDAQ:INTC) $29.04 -1.89%, where I would expect a rather sideways "wait and see" type of trade from technology (outside of biotech). Trader and investors will monitor the banks/financials, as that looks to be the leadership group with greater weighting among the OEX/SPX.

Dow Industrials (INDU) Chart - Daily Intervals

I've placed two similar trends (dashed green and red) on the INDU chart as done with the OEX chart. Tonight's a good time to take a snapshot of the price weighted INDU components, as the INDU's close is right at correlative WEEKLY and MONTHLY pivots.

Imagine the INDU as if it were an inchworm, where the higher PRICED stocks are the "head" and the lower priced stocks are at the "tail," and those in the middle are the thorax. What's going on?

Dow 30 Components - Sorted by PRICE

I placed some green (strength) and red (weakness) arrows at the 5-day percentage change columns, where most of the near-term strength has come from the tail, while the head, or larger price weighted components have been doing little, as if trying to grab hold, and let the tail inch its way higher. The percentage gainers and losers in the thorax section would look to be about a dead heat. This gives me the observation that the inchworm is coiling or compressing, just as the Dow's bar chart looks.

What we can do with the above table, is use it as a benchmark in time, and should the INDU break out of its range, we'll hopefully be able to see if the HEAD leads a higher move, but more importantly, if the HEAD loses its grip, which I think would make for a sharper decline.

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

Large-cap NASDAQ (non financial) really showed outward DIVERGENCE to my mid-April benchmark test in today's trade, where after a gap lower open of $36.51, the was able to fill that gap back to the upside intra-day, but that was it. Closing breadth was negative with 27 advancers and 73 decliners. Intel's (INTC) mid- quarter update may become very important for technology stocks in the near-term if any bullishness above the downward trend is to occur in coming weeks. The $36.00 level remains a rather strong support level for the QQQQ after the big break higher in late- December, where I wouldn't think the QQQ would just collapse, but I'm not seeing much sign of leadership from the more heavily weighted components, or tech-based sectors to provide a big live above $37.50.

Jeff Bailey

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