Option Investor
Index Wrap

Some spring in today's bounce

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Stocks jumped in today's session, where broad stock and sector gains sent the major averages to their highs of the week, in what certainly appears to be the beginning of the long-awaited oversold bounce.

Market Snapshot / Internals - 3/25/04 Close

Both the NYSE and NASDAQ got in unison today, where the NASDAQ showed acceleration from yesterday's gains, while 1, 2 and 3- lettered stocks at the NYSE decided to participate.

Pivot Matrix -

Both the SOX.X and NDX/QQQ traded their WEEKLY R1s in today's trade, and now take on a near-term "leadership" role, where the leadership comes from the most trodden. I will have to admit that the QQQ's rise to $35.46 was beyond my session expectations when profiling a bullish swing trade at $34.77 and 2-week target of $35.50. This of course, AFTER I had been stopped out for a loss in an overnight bearish trade, where I thought a high likelihood the QQQ would dip back to today's (Thursday's) Daily R1, bears would lock in a slight gain, and then look for strength back higher.

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

The percentage gain for the QQQ was impressive, and while volume was brisk, I would have thought volume levels heavier than they were. It could well be that the move to $35 was so quick, that traders turned to individual stocks. I will also have to admit that I was surprised to see Cisco Systems (NASDAQ:CSCO) $23.58 +4.01% reach a bullish day trade target profiled in the Market Monitor as quick as it did.

I can't say for certain, but I think some of the rather impressive session gains, on what I would NOT consider heavy volume, had bulls and bears with the mindset that this was the beginning of an overdue bounce.

NASDAQ-100 Heatmap -

Breadth among the NASDAQ-100 components was very positive. Only Biogen Idec (NASDAQ:BIIB) $54.63 wasn't able to post a gain, but did close right at its 21-day SMA. I haven't reviewed all 100 stocks, but anti-virus software maker Symantec (NASDAQ:SYMC) $45.26 +5.20% exhibited leadership with a new 52-week high.

Dow Industrials Chart - Daily Intervals

The QQQ showed greater strength in early morning trade, while the Dow Industrials (INDU) seemed more hesitant below 10,120, which would have been Tuesday's intra-day high. A quick review at that time showed General Electric (NYSE:GE) $29.70 +1.78% quickly giving back fractional opening gains, but when GE cleared the $29.35 level to trade a session high, despite its more minimal PRICE weighting in the INDU, it may have been GE's ability to show some intra-day strength that then had in the INDU making a bold move higher, which held to the close.

INDU traders might just want to keep an eye on GE, where I see the potential for a rebound back up to its beginning to round flat 200-day SMA of $30.26, where an eyeball glance of GE at $30.26, might tie to the INDU clashing with its 21-day SMA.

Dow Industrials Components - Sorted by PRICE

Wednesday's trade had Dow component Intl. Paper (NYSE:IP) $40.95 +2.47% generating a reversing lower point and figure sell signal and had the Dow Industrials Bullish % ($BPINDU) turning "bear confirmed." I would also want to keep an eye on IP after this sell signal as it comes right at IP's rising 200-day SMA on the bar chart. One fundamental negative in recent weeks has been higher energy prices, which is a large component of pulp paper manufacturers, which can be a negative, if those costs can't be passed onto the consumer. Still, IP didn't get "garage sale" selling today, and was actually one of the better percentage gainers.

I squared in RED some of the INDU's recent MONTHLY decliners, and while many NASDAQ stocks seemed to get some pretty good bounces from recent multi-week lows, only Eastman Kodak (NYSE:EK) and perhaps Du Pont (NYSE:DD) saw some "oversold" bounces relative to their percentage declines the past 4-weeks.

While the INDU has taken a hit from its highs, it hasn't been nearly as bad as the NASDAQ's.

S&P 500 Index Chart - Daily Intervals

If there was ONE THING an OPTIONS trader, that hasn't bought a put on the SPX at this point liked in today's trade, was that the Market Volatility Index (VIX.X) 17.88 -9.75% dropped sharply, and with it.... put option premiums. With the S&P 500 Bullish % ($BPSPX) falling further to "bear confirmed" with a net loss of 3 stocks to point and figure sell signals, I would be looking to buy a PARTIAL position (at least one) OUT THE MONEY June 1,100 Put (SPTRT) should the SPX get a bounce back near 1,125.

Jeff Bailey

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