Option Investor
Index Wrap

Balances, prices and budgets

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With no economic data released in today's session and earnings season winding down, today's trade was more of a chance for traders to square things up before tomorrow economic reports, which will give some insight into the US' March trade balance, as well as import (ex-oil) and export (ex-agriculture) prices.

Later in the afternoon, at 02:00 PM EDT, the Treasury will release figures for its April budget, which is expected to show a $15.5 billion surplus, that's right, surplus, for the first month this year.

All data might play into a recent bearish scenario we discussed in the May 6th Index Trader Wrap.

The U.S. trade data will be monitored to see what, if any impact the stronger dollar has had on things, while the import/export prices data can give some insight as to any inflation.

The Treasury budget figures will become increasingly important, where the recent strength in nonfarm payrolls should have some positive impact on tax receipts, to try and offset the swelling deficit, partially caused by the war effort in Iraq, not to mention President Bush's tax cuts, which the Bush administration felt might help fuel the U.S. economic recovery.

Market Snapshot / Internals - 05/11/04 Close

Considering today's major index gains, there sure wasn't much bullish leadership at the new high category at either the NYSE or NASDAQ compared to yesterday. However, the number of new lows abated, and if anything, would suggest bears were locking in some gains.

Pivot Analysis Matrix

The QQQ closed right on its WEEKLY Pivot, where during today's session found its session high of $35.38 just as the Semiconductor Index (SOX.X), which has been showing some strength in its WEEKLY Pivot Matrix found willing sellers at its WEEKLY R1.

Now, before technology bulls, or broader market bulls get overly excited about what has taken place today, let's understand where the major indices now trade in the MONTHLY Pivots.

For the first time this month, the SOX.X get a trade at its MONTHLY Pivot. That's not bad, but in the scope of what we've been seeing of late, we've seen the banks as depicted by the BIX.X show strength in the matrix for about two weeks, then quickly turn tail and run to the downside.

Of late, the trade has been to rotate capital briefly to a group of stocks (semiconductor, technology, banks, oil service, transports, small cap, etc.) then distribute to a new relative low, while then rotating to another sector for a couple of weeks, before it gets distributed to a new relative low.

We can see from the MONTHLY Pivot Matrix that the INDU has traded its MONTHLY S2, the SPX/OEX its MONTHLY S1, while the NDX/QQQ have now completed trade this month at their MONTHLY Pivots.

Tomorrow, I think we'd better keep a very close eye on the Dow Industrials, and SPX/OEX lows from yesterday. I think tomorrow's March trade deficit numbers are going to be a focal point early, and could set the tone for tomorrow's session.

S&P 100 Index Chart - Daily Intervals

The S&P 100 (OEX.X) is comprised of large caps, and here's a pretty good starting point for a good sampling of multi- nationals, where a large portion of revenue/earnings come from overseas customers. On an intra-day basis, a nasty little buy program was set up just as the OEX and SPX dipped to session lows and below their MONTHLY S1, but above their WEEKLY S1.

Should the OEX slip much below its WEEKLY S1, be alert to the possibility of a decline back toward WEEKLY S2 and MONTHLY S2. As I look at the OEX chart, in past relative bottoms, the OEX seems to like to consolidate for at least two sessions following a "spike" drop before getting bounce that can last 5 sessions or so. Today's would be a day one of any consolidation.

Dow Industrials (INDU) Chart - Daily Intervals

Dow breadth was positive at 19 to 11, but as I look at the INDU's chart, I'm a bit surprised it managed to gain a modest 29 points, where resistance came at our WEEKLY 80.9% retracement, and served more like a formidable level of resistance that the WEEKLY S1.

Early tomorrow morning, before the opening bell, the Commerce Department will report March's U.S. trade deficit, where economists expect the trade deficit to rise to $43.0 billion, up from February's $42.1 billion. In February, exports totaled $92.4 billion, while imports continued to rise at $134.4 billion.

One would think that with the recent strength in the Dollar against most major foreign currencies (euro and yen are the main two) that most market participants would expect a widening trade deficit. HOW MUCH of a deficit is probably the key.

Now, that's the NEGATIVE, or downside. If the Deficit were to narrow and SURPRISE the market, then the Dow could bid strong on thought that these multi-nationals continue to see strong trade demand, despite the strengthening dollar.

Still, its the rather weak trade in today's session that suggests there may be some concern with regard to the strong dollar, where combined with some jitters over Fed tightening, could pressure earnings for many of the Dow components, which are supposed to reflect key economic sectors for the U.S. economy.

NASDAQ-100 Tracker (QQQ) - Daily Intervals

My mindset at tonight's close is that I'm more eager to protect some swing trade bullish gains from a trade I profiled in the underlying QQQ yesterday at $34.75, based solely on the SOX.X strength in the pivot, as I sure would have liked to see the SOX.X give a QQQ bull a little more strength above its WEEKLY S1 to the close.

Cisco's earnings were upbeat, but there was some negative mention of gross margins dropping off, where in tech-land, when gross margins slip, even just a little, it suggests pricing pressures brought on by the competition.

Cisco (CSCO) $22.25 +2.91% was all over the map in after-hours where the headline numbers found a decline to $21.60, then a rebound back to has high as $22.32, steady at $22.11, before then falling to a last tick in after-hours at $21.75, where not too unlike the QQQ, CSCO rests right near its WEEKLY Pivot of $21.58.

I also profiled a short-term swing trade long in CISCO May $22.50 calls for $0.50 per contract earlier today when CSCO was trading $21.90, with thought we might get a trade near $23.00 tomorrow and CSCO's WEEKLY R2 of $22.85. Early tomorrow morning, I'll be looking to see what kind of action, if any we see near CSCO's WEEKLY R1 of $22.31, which really marked its session high of $22.32.

Jeff Bailey

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