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Index Wrap


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The pattern whereby the indices were unable to make headway against a declining level of resistance usually has a bearish outcome and this outcome was seen today. As I said yesterday, the market was vulnerable to any perceived negatives out there. Today's market action activates my downside targets.


The "shocks" I mention today were today seen as financial turmoil at Nortel and concern about an economic slowdown in China - this and the fact that fighting heated up in Iraq all took its toll. Now, when the market wants a reason to sell off, it has to sometimes invent bad news - since when and why does a desire for more moderate growth in China by that countries leadership, have such an impact on our Market?!

The S&P 500 (SPX) lost nearly 16 points to close at 1122.4 today, down nearly 1.5%. The Dow 30 Average (INDU) closed just above its intraday low and down 135.56 points to 10,342.6. The Nasdaq Composite (COMP) dropped nearly 43 points, about 2%, to finish at 1,989.5.

Canadian telecom giant Nortel Networks (NT) said yesterday that it had fired its CEO and that it would delay its 2004 reports and restate the last three years of its financials. This hit the stock hard in pre-market trading.

War tensions hit investor confidence early also as fighting in Iraq heated up. The VIX volatility took a t jump as what looked like put buying came in as a hedge against stock positions. By early afternoon the VIX was had jumped nearly 7% and down volume swamped up volume by 5 to 1.

Gold took a beating also and drove the XAU gold and silver stocks index to a new low for the year. XAU was down more than 6%. The drop in commodities prices was laid at the doorstep of China - word was out that not only would the Chinese economic authorities try to slow down its booming economy but new rules in its banking system could impact demand there for borrowing and economic expansion.

Dow stock Alcoa (AA) got hit hard and was down 4% by the close. A Dow stock story today related to Disney (DIS) as it dropped 1% after Comcast (CMCSK) our biggest cable company, indicated that it was dropping its $60 billion bid for DIS "since it's clear that there is no interest on the part of Disney's management and board in putting Comcast and Disney together."

Tech stocks were hit with the Internet index was down nearly 3%, and networking and software sectors off nearly 2.5%. Nothing much was spared in fact - biotech stocks, big winners this week got hit and profit taking was on in its leading stocks - the biotech index (BTK) was down 3.5%. Financials were also weak with broker- dealers leading the way.

Besides the China news, as mentioned the tech wreck was attributed the overnight news from Nortel, as it closed down 28% (to $4.05) on trading that was nearing 300 million shares by the close.

In the bond market, the 10-year T-note closed down 16/32 at 96 9/32 to yield 4.47%. Demand was the weakest in several months for the $26 billion in 2-year Treasury notes sold Wednesday. The dollar was up 0.6 percent vs. the euro at $1.1840.


S&P 500 Index (SPX) - Daily chart:
Action today resolved the trend short-term I think as prices now seem headed to test the lower (up) trendline. Look for support at 1105.

SPX is now trading below its 21-day moving average which is bearish. The key level is 1100 - if broken, I don't see a big decline unless there is daily close under 1090.

S&P 100 Index (OEX) - Daily chart:

Near resistance is 558 in the S&P 100 (OEX). A close over 558 is required to get the chart looking more bullish again - don't hold your breath! Key near support implied by the up trendline comes in at 542. The chart picture is now more bearish in that the pattern of lower and lower rally highs is again "confirmed".

It's possible that OEX is headed to a retest of its 200-day moving average around 533 currently and is also an area where I would take a long call position - but that's a ways ahead if at all.

S&P 100 Index (OEX) - Hourly chart:

I would just note again here the pattern that is fairly common where the previously broken trendline acts in an opposing fashion - here, it is that what was support (the up trendline), when broken, later "became" an area of rising resistance.

Key lows are the prior hourly bottom around 545.5. Next support under this area looks to be at 541-540.

Dow Industrials (INDU) Daily:
10,300 is key near support, then in the area of the trendline at 10,150.

Nasdaq 100 (NDX) Index - Daily:
1450 to 1440 is near support. The move to below the 21-day moving average is bearish and suggests an eventual decline to the low-1400 area, at my lower trading envelope line.

Nasdaq 100 tracking Stock (AMEX:QQQ)- Hourly:
I said last night that I would rather be short the Q's then long, as the risk to reward looked better - lower stops on short stock positions to 36.90. I continue to see downside potential back to the 35 area if not to the 34.50-34 zone.

The symmetrical triangle pattern is starting to get broken to the downside and suggests more weakness in the days ahead UNLESS QQQ pretty immediately regains 36.25, then 36.75. Overhead resistance is at 36.75 to 37.25.

Good Trading Success!

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