Option Investor
Index Wrap

Profits beyond jobs data\?

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The major indices added to Friday's gains, where despite a further rise in Treasury yields, with the benchmark 10-year YIELD ($TNX.X) rising 8 basis points to 4.22%, investors have shrugged off some near-term concern that eventual Fed tightening might stall what looks to be rampant economic growth.

Market Snapshot / Internals - 04/05/04 Close

The major indices dillydallied either side of unchanged for the first half of the session, where a second-half round of buying sent the major indices to their best levels of the session with Healthcare Providers (HMO.X) 993.60 +4.55%, Disk Drives (DDX.X) 129.02 +2.13%, and Insurance ($IUX.X) 336.50 +1.57% offsetting weakness in Gold ($HUI.X) 230.60 -2.49% and Homebuilders (DJUSHB) 632.43 -1.86%.

Pivot Analysis Matrix -

If not for a market close at 04:00 PM EST, the late spat of buying may have had both the NASDAQ-100 Index (NDX.X) 1,508.37 +1.21% and S&P 100 Index (OEX.X) achieving their WEEKLY R1s by the close.

I thought biotech stocks traded well today, where this group, along with the drug sector may be one of the "overlooked" sectors among bulls, where Friday's nonfarm payroll data, while too early to say for sure, may have helped President Bush's chances for another term.

We've talked before about how geopolitical uncertainties can create uncertainty in the markets, and with Friday's nonfarm payroll figures showing growth, some market participants may be willing to up their exposure to drug and biotech stocks, should they feel President Bush being assured another term, where Democratic nominee John Kerry, has mentioned reforms, or government intervention is needed in order to keep costs under control. For some, the phrase "cost controls" is equivalent to "reduction of profits."

Biotechnology iShares (AMEX:IBB) - Daily Intervals

The Biotechnology iShares (AMEX:IBB) $81.17 +1.39% threatens to break to new highs, where I've set a retracement bracket on the IBB to really mark an important longer-term breakout, should the IBB see a trade at $82.00. The recent pullback has found a very strong bounce from the 200-day SMA, which I'm just noting tonight came at a correlative bullish support trend on the IBB's point and figure chart (conventional $1 box).

In recent sessions traders/investors may have noted that the NASDAQ-100 Bullish % ($BPNDX) reversed up from "bear confirmed" status to "bear correction status," and I'm making note that according to Dorsey/Wright and Associates, their Biomedical Bullish % ($BPBIOM) is still "bear confirmed" status, but close to reversing up to "bear correction" status. Bulls can still play the Biotech iShares long (they trade with options) with partial position on a break higher at $82, where I do think this sector has a good shot at trading $92 over the next couple of months.

Some traders/investors that are concerned with regards to higher interest rates being a negative impact, may like the biotech group as not being quite as interest rate sensitive as some other sectors might be, but where a positive catalyst may have been found from Friday's nonfarm payroll data, if the MARKET now finds some renewed bullish convictions toward a Bush presidency.

S&P 100 Index Chart - Daily Intervals

The S&P 100 Index (OEX.X) 562.86 +0.85% managed a close above its still trending lower 50-day SMA, and is the last broad major index (trailing by at least 1 day) to do so. For those that rely heavily on moving averages, this would have to be viewed as a sign of still renewed bullishness. We keep throwing up tests of resistance for the major indices and a crisscrossing downward trend and WEEKLY R1 of 564.47 is perhaps the biggest test found among the major indices.

Tonight, I wanted to review the S&P 100 Components, where I've sorted them in ascending order (from worst to best) over the past 20-days. While I'm providing comment/focus on the financial sectors, as it is the rise in Treasury yields, which has some of my attention, I wanted to look at those components that are labeled "financial," where it is perhaps the Insurance and Credit Lenders that might see some benefit from higher rates, which come from a healthier economy.

S&P 100 Components - 50 worst performers (last 20-days)

I'm note going to analyze the top 50 worst percentage performers, but wanted to quickly touch on the "financials" and see if we can't test some things mentioned in this weekend's Index Wrap. While Monday of next week would perhaps be the better benchmark against Friday's unwinding in Treasuries, which had YIELDs jumping higher, we do see 4 "financial" components (LEH, MWD, USB and MER) among the top 10 percentage losers over the past 20- days. LEH and MWD are two of the bigger bond brokers on Wall Street, USB has really become a conglomerate with fingers in many portions of the financial markets, while I would consider MER more of an equity-based investment house.

Further down the list, we might note American Express (AXP) $52.59 +0.30%. AXP not only offers a range of investment products, but also a consumer credit lending business, where most of us are familiar with the American Express Card. Hmmmm.... if rates are headed higher, then maybe credit card lending rates will increase, giving AXP some greater margin.

S&P 100 Components - 50 best performers (last 20-days)

Continuing with the same sort (20-day percentage gain), there's Hartford (HIG) $66.60 +1.35%, largely an INSURANCE company that might actually benefit from rising Treasury YIELDs.

American Intl. Group (AIG) $76.00 +2.24%, which is being added to the Dow Industrials (INDU). Hmmmm.... INSURANCE that might actually benefit from a rising Treasury YIELD.

Are bulls in "good hands?" Allstate (NYSE:ALL) $46.50 +0.84%. Not doing too bad.

Citigroup (NYSE:C) $52.23 +0.83%, not bad for a conglomerate with a finger in many parts of the financial arena.

Cigna (NYSE:CI) $67.55 +11.37%, which had been performing well, put on some bullish weight today after saying its health insurance business was performing stronger than previously expected.

Jeff Bailey

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