Option Investor
Index Wrap

Grabbing at straws

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The U.S. government's tax instructions may seem perplexing to some and while I'm not a tax code expert, perhaps you too might feel like you have a better grasp of the current tax code, than what has been taking place of late, where trader's whims shift on an hourly basis, if not every 24-hours.

Investors were grabbing at straws again today, this time piling into drug and energy stocks, while trading out of technology, in what begins to look like one of those trades where money rotates quickly and with some rate of urgency, as if trying to dodge a silver bullet called Fed tightening.

Market Snapshot / Internals - 04/15/04 Close

The Disk Drive Index (DDX.X) 123.48 -3.33% and Semiconductor Index (SOX.X) 488.76 -2.85% led the decline for the tech-heavy NASDAQ, where the SOX's decline and close back below 500 was striking in the face of a batch of better than expected earnings reports from the likes of Advanced Micro Devices (NYSE:AMD) $16.22 -5.25%, Cypress Semiconductor (NYSE:CY) $17.75 -12.77%, Farichiled Semiconductor (NYSE:FCS) $23.60 -6.94% and Lam Research (NSDAQ:LRCX) $25.33 -5.55%.

SOX component Teradyne (NYSE:TER) $23.45 -5.74% didn't say anything, but when Banc of America said TER was one of its least- favorite names in the semiconductors, bulls seemed as eager to sell TER as tax-filers would be to claim their pets as dependents if they thought they could get away with it.

Teradyne (TER) is scheduled to release its quarterly results on Tuesday (04/20/04), where consensus looks for the company to have earned $0.15 per share versus year-ago quarter's loss of $0.26 per share.

The Dow Industrials (INDU) 10,397.46 +0.18% carved out a 20-point gain, where drug components Johnson & Johnson (NYSE:JNJ) 54.52 +3.65%, Merck (NYSE:MRK) $46.98 +3.38% and recently added Pfizer (NYSE:PFE) $37.34 +4.27% offset losses in Intel (NASDAQ:INTC) $26.66 -2.59% and Citigroup (NYSE:C) $49.92 -2.02%.

Pivot Matrix -

I decided to go back to the squaring of correlative support/resistance levels in the matrix as it is a bit easier to get a snapshot glance of potential support/resistance levels. The bulk of trade centers around the MONTHLY Pivots, where only the Dow Industrials and S&P 100 Index hold above their WEEKLY S2.

After faltering to a session low of 330, the S&P Banks Index (BIX.X) 332.84 -0.28% regained some composure in the final 90- minutes of trade to finish down fractionally. BIX.X breadth was negative at 16:5, with National City (NYSE:NCC) $33.50 +1.20% the lone 1% or more gainer, while Bank of New York (NYSE:BK) $30.70 -1.91%, Union Planters (NYSE:UPC) $27.62 -1.7%, Fifth Third Bancorp (NASDAQ:FITB) $53.47 -1.63% and several other components remained under pressure.

Market Monitor - After the close earnings

As I went through some of tonight's after-hours trade for those company's that posted their quarterly earnings, it was up, down, up, down, up, down results. IBM (NYSE:IBM) $93.97 fell to $91.35, Avid Tech. (NASDAQ:AVID) $45.56 -1.66% rose to $46.88 as did Cree, Inc. (NASDAQ:CREE) $21.60 -0.73%, which jumped $1 to $22.60. Lexr Media (NASDAQ:LEXR) $15.45 -9.38%, which had gained just over 30% in the past month, plunged to $12.20, while Sun Microsystems (NASDAQ:SUNW) $4.43 -2.85% edged lower to $4.32.

Pharmaceutical HOLDRs (AMEX:PPH) - Weekly Intervals

Drug stocks were today's sector winner and a look at the Pharmaceutical HOLDRs (AMEX:PPH) $81.11 +3.36% with volume turned on shows that today's 2.3 million shares would be more than double this week's current volume total, which to me suggests there was some conviction among buyers in this group. The biggest risk I currently see for this group is this year's election. If you know Senator Kerry is going to win, then avoid. Another 4-years of President Bush would be viewed as more favorable.

After some massive gains in the HMO Index (HMO.X) 929.95 -3.55%, many traders said there was noticeable rotation out of HMO's on profit taking, but still staying in a more defensive healthcare group and drugs.

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

Several index option traders that have taken some heat in SPX put options sent e-mail today if it would be best to close out those options at current levels. My general answer, based on thought they were not April puts, would be to do nothing at this point. Oscillators are of little help at this point as MACD begins to roll and a break below 1,120 could have momentum building to the downside, where based on this week's trade, the weekly pivot would move lower, and who knows for sure, but a "summer doldrums" range from 1,088 to 1,150 could develop.

I will admit that with money moving to one sector one day, then another the next, it does seem like the indices become somewhat of a "zero sum" game right now.

Dow Industrials (INDU) Chart - Daily Intervals

IBM is the second-largest price-weighted component in the INDU, and while IBM's earnings were largely inline with consensus estimates, cautious comments did find some weakness in after- hours trade. Tech components were generally weak, but it was the drug components, which made some rather impressive one-day moves that helped hold the INDU above the 10,350 level by the close.

NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals

After being stopped out of two separate shorts in the QQQ near $37.11 with a downside target for the QQQ to fill its gap, I've developed distaste for the QQQ.

As I've looked at many of the QQQ components, for the most part, I see little conviction among bulls or bears (buyers/seller) where I can really develop a solid feel for where support/resistance will be firm. However, at current levels, this is where I do think a trader moves to the sidelines.

Jeff Bailey

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