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Index Wrap

Trader's logbook, April 21, 2004

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I was never much of a fan, or constant watcher of the Star Trek TV series, but the other night I watched one of the Star Trek movies on TV (Star Trek III: The Search for Spock), where Captain Kirk and some of his old crewmembers decided to go looking for Spock.

I didn't see the ending of the movie, but do remember Captain Kirk recollecting something Spock had said as he (Spock) was trapped in the ships engine chamber, which eventually caused his death, that served an important clue for which I'm sure Captain Kirk and crew eventually found Spock.

Again, I didn't watch the end of the movie, but having seen Spock on some recent TV commercials for Priceline.com (NASDAQ:PCLN) $25.42 +2.21%, Captain Kirk must have found him.

Trader's logbook, April 21, 2004.

Hmmmm... sounds a bit like the beginning of most Star Trek movies, where Captain Kirk is explaining the setting, what's been going on, and what the next mission will be.

In a trading session that may have been as difficult for me to follow, make sense of, and similar to the complex yet interesting Star Trek movie plots, there are some things I think we can draw from today's session, which I found, and you might also find, somewhat similar, if not almost IDENTICAL, to April, 21, 2004.

In this afternoon's Market Monitor, it hit me. While I wasn't around last week, today's plethora of buy/sell program premium alerts (6 buy and 6 sell), which were generated just after the Federal Open Market Committee announced its decision to keep interest rates unchanged, had me remembering the subtleties of the April 21, 2004 trading session, where a plethora of buy/sell program premium alerts were found.

For those that would like a quick refresher of the Index Trader Wrap, here's the link.

While we witnessed some wild volatility after the FOMC meeting, the major indices finished higher, but well off their post FOMC meeting highs. After trading as high as 10,386.32 (up 76 points from yesterday's close, and 105 points from where it was trading just second before the FOMC announcement) the "slower moving" Dow Industrials (INDU) 10,317.20 +0.03% finished up a fractional 3.2 points.

The more volatile QQQ $35.25 +0.42% didn't disappoint on the volatility side of things, and traded a session high of $35.75 (up 1.56% from its $35.20 trade just seconds before the FOMC release) to still muster a 15-cent gain on the session, but again, well off its post FOMC high.

Here's a quick look at my Premium of S&P 500 Futures ($PREM.X) chart, so you get a feel for today's buy/sell program premium alerts. If you feel any confusion at the end of today's trade, you're probably not in the minority. Again, buy/sell programs if measured on 5-minute intervals were evenly matched at 6 buy and 6 sell from 02:15 PM EDT to the close.

Premium of S&P 500 Futures ($PREM.X) - 5-minute intervals

I went back and looked at the 04/21/04 Index Trader wrap, and sure enough, it was Alan Greenspan's testimony before Congress that had some buy/sell program premiums being triggered.

Kirk to Bones: Hey Bones! (Bones was the doctor on Star Trek). Didn't the Dow Industrials close at 10,317.27 on April 21, 2004?

Hmmm.... today's close for the INDU was 10,317.20. Coincidence? Perhaps.

Now Captain Kirk begins to think. What was it that Spock was saying?

Market Snapshot / Internals - 05/04/04 Close

Here's a quick look at our market snapshot/internals. In PINK boxes I make note of the INDU closing value, and the closing value of Spot Gold. On April 21, 2004, Spot Gold closed at $390.65. I make note of this tonight, as I had made a brief comment about it in the April 21, 2004 Index Trader Wrap.

Now, I'm also going to make note that as of tonight's close, the NYSE Composite ($NYA.X) 6,531, NASDAQ Composite (COMPX) 1,950.48, S&P 500 (SPX.X) 1,119.55, S&P 100 Index (OEX.X) 547.15, Russell- 2000 Index (RUT.X) 569.64, NASDAQ-100 Tracker (QQQ) $35.25 and Semiconductor Index (SOX.X) 448.31 all trade below their 04/21/04 closing values. ONLY the INDU trades closest to its 04/21/04 close.

I will note that in percentage terms, tonight's closing values aren't all that much different, but late this afternoon, I started posting and commenting about some things I saw in this afternoon's trade, which I think tie in VERY close with April 21.

Check this out, and make two notes to yourself, and check my thinking, and see if this observation might help clear some of today's action up.

A bit of history first, which you can review in the Index Trader Wraps. On April 20, Fed Chairman Alan Greenspan testified before the Senate Banking Committee late that afternoon, and from his comments (Green-speak might be equivalent to Vulcan-ees) the equity markets trade notably lower to the close, when it may have been interpreted that Mr. Greenspan was hinting at Fed tightening.

It was on April 21 that Mr. Greenspan then testified before Congress and the Joint Economic Committee, where Mr. Greenspan delivered an upbeat message on the economy, put to rest worries of deflation, and mentioned little sign of inflation. In essence, Mr. Greenspan smoothed over some of his comments, or the MARKET's interpretation of his April 20 testimony to the House Banking Committee.

The best chart to begin putting some of these timelines together will the a 60-minute interval chart of the QQQ. Check this out. For now, FOCUS on the current WEEKLY and MONTHLY Pivots. Then think about April 20, then April 21, and now today.

NASDAQ-100 Tracking Stock (QQQ) - 60-minute interval

See the yellow horizontal "zone" which is between the WEEKLY and MONTHLY Pivot? I've tried to mark the 04/20/04 late afternoon trade in the QQQ (Greenspan testimony to Bank Committee), then the 04/21/04 session (Greenspan testimony to Economic Committee) where we noted a bunch of buy/sell program premium alerts, then a very bullish upside day on 04/22/04.

Difference: QQQ closes below $35.66 today, whereas on April 20 and even April 21, QQQ closes above.

Now, does this MEAN the QQQ stays below $35.66? Nope, but it may suggest a bearish bias from the market, if not institutional computers at this point. See how the QQQ did trade right back up to its April 20 close and pretty close to its April 21 session trade, but for WHATEVER reason (unhappy the Fed didn't raise rates today, or still not comfortable with the thought of future Fed tightening) there was some type of selling triggered at that level.

Now, a trader that wipes the above chart free of the pivot analysis retracement, and simply draws a horizontal line at the "zone" between the WEEKLY and MONTHLY Pivots would still view that as some type of resistance, where over the past month, this level (say $35.66) did serve some support (April 20 and 21), but when broken on April 29 (Thursday of last week) now provides some resistance.

I did draw what I consider to be a "cheater's upward trend" from the recent March 23 relative lows to Friday's session low, where combined with the downward trend we've had represents a wedge.

Analysis: A move much above today's highs in the QQQ gives a near-term bullish bias. Current bias somewhat bearish below $35.66, while break below trend has $34.00 in play (WEEKLY S1 at $33.90 and MONTHLY S1 at $33.83).

S&P 500 Index (SPX.X) Chart - 60-minute intervals

Here's a similar 60-minute interval chart of the SPX.X. Buyers weren't strong enough to get a close above its MONTHLY Pivot (1,121.61), and I might begin to think that the only reason the SPX reversed from its late session high of 1,127.74, is that the QQQ trading its MONTHLY Pivot, which may have been the trigger for the late session sell programs had something to do with it.

This might be an important observation/thought for us to keep in mind as it relates to these markets right now.

Until QQQ can show some strength back above MONTHLY Pivot, then SPX may try and lead higher in the pivot matrix, but gains could be capped if QQQ isn't confirming.

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

At times, the WEEKLY 38.2% retracement shown in the OEX chart has had some type of trade significance. My main observation with the OEX would be this.

Point one: With just 100 stocks, it may trade cleaner, or neater than the broader S&P 500 (100 stocks versus 500 stocks), where program trading may show a more accurate trade.

Point two: And this would be a more important point tonight, is some similar Stochastics positioning found tonight as found back on March 15. On March 15, the OEX closed at its low of the session (542.57 which is this week's 61.8% retracement) and while Stochastics turned up and continued to rise, the OEX popped the next two sessions to 551.56 (current weekly 38.2% retracement) and then reversed rather sharply back lower. At that time, MACD was below zero and still below its Signal. Similar to tonight. In my opinion, with both the 21-day SMA and 50-day SMA trending lower, I don't see a good bullish trade, or at least not a lot of bullish reward at this point.

Dow Industrials (INDU) Chart - Daily Intervals

I'm carrying over some of the Stochastics notes from the OEX chart to the INDU chart. Stochastics turned up on the INDU on 03/16 from the current MONTHLY S1, INDU rallied for nice gain on 03/17, stalled at current MONTLY Pivot/WEEKLY Pivot, then reversed rather quickly back lower. The bigger rally really came once MACD crossed above its Signal, where the steeper downward trend then reversed.

Here's an intra-day chart of the INDU that I was trying to verbally describe in this afternoon's market monitor. Then our servers went down, or something happened as just after I made comment that the INDU was pounding up against its WEEKLY Pivot like the big bad wolf blowing at the 3-little pigs' door, I couldn't post anything in the market monitor.

Dow Industrials (INDU) Chart - Daily Intervals

That notable move above the WEEKLY Pivot in the INDU came from 02:45-02:50 PM. In today's 03:15 intra-day update, I thought intra-day action began to look like a "Big battle taking place."

There's definitely some type of selling, or has been some selling taking place at the INDU's WEEKLY Pivot, and it did get broken to the upside, only to then fade into the close, where sellers won out.

In the DAILY interval chart (lower right corner) I noted that on April 21, the INDU fell early in the morning only to make a bold move back higher to the close.

Let's plant that seen in our mind for tomorrow. It doesn't matter if YOU are bullish or bearish.

What a trader may want to monitor for is SIMILARITY or DIVERGENCE.

One major DIVERGENCE a trader might monitor for is a INDU bounce higher at the open, and failure back lower.

Pivot Analysis Matrix -

The Dollar Index (dx00y) 89.81 showed the dollar taking a hit lower today, and boy it was a very volatile trade just after the FOMC meeting for the greenback too. The dollar finds selling and suggests some market participants may have actually been looking for Fed tightening today. It would also depict an interpretation from the MARKET that the FOMC statement did NOT suggest of any near-term rate hikes.

In this afternoon's Market Monitor, Jan Fox made some notes from John Murphy regarding the dollar's relationship in the markets. I'm running way behind and need to get this Wrap to traders, but will review tomorrow, as it is quite informative.

I'll look to see if there are any correlative levels of support/resistance in the DAILY matrix (compared to WEEKLY and MONTHLY), but I just ran out of time.

Jeff Bailey

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