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Index Wrap

Oil remains key focus, tomorrow's no different

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The major indices finished mixed as another volatile session for oil prices found July Crude Oil futures (cl04n) $39.95 -5.62% trading sharply lower, where declines in oil helped give a late session lift to broader equities.

Semiconductors as depicted by the Semiconductor Index (SOX.X) 475.08 -2.25% were never really able to shake off early session weakness as a broker downgrade on various semiconductor equipment names as well as mixed comments from brokers following yesterday's mid-quarter update from Altera (NASDAQ:ALTR) $22.12 -3.10%, where ALTR said orders were tracking at the high end of its Q2 guidance, but not enough to have the company raising quarterly guidance, weighed on the tech-heavy NASDAQ for the bulk of the session.

While the CBOE Internet Index (INX.X) 193.10 +0.73% exerted itself as today's tech-sector winner, it was the AMEX Airline Index (XAL.X) 54.87 +4.27% taking today's top spot among sector winner, where gains among the commercial airliners on lower oil prices also had the Dow Transportation Average (TRAN) 3,001.85 +1.29% once again trying to reclaim the 3,000 level by its close.

An additional technical note on the INX.X that I made in today's Market Monitor is that when I turned on the QChart's WEEKLY Pivot levels, the INX.X WEEKLY R1 was calculated at 192.44. Today's trade certainly gives some thought to continued Internet bullishness, but I did sense some hesitancy from buyers, or lack of aggressiveness, which most likely comes from a lagging SOX.X trade today.

U.S. Market Watch - 06/02/04 Close

The Dow Jones Home Construction Index (DJUSHB) 586.29 -0.56%, which I have currently residing below a "zone of resistance" from 601.75-607.25 and its trending lower 50-day SMA traded relatively tough after the Mortgage Bankers Association (MBA) said its statistics showed its Mortgage Applications Index fell 1.2% last week to 624.6, its lowest reading since the week ending January 7 (599.9), while the refinance portion fell 6.6% on a week-to-week basis to 1,583.6, its lowest level in 2-years. However, the more important to home sales showed the Purchases Index rising 2.2% to 459.8 for the week ending May 28. The MBA said the average contract interest rate for a 30-year fixed-rate mortgage decreased to 6.24% from 6.26% from one week earlier. The current 30-year fixed-rate mortgage figures matched those found for the week ending August 28, 2003 when the DJUSHB closed at 447.

I've highlighted the July Crude Oil futures (cl04n) $39.85, where tomorrow's (Thursday's) trade is already underway, with crude futures down 11-cents.

In today's 03:15 PM EDT intra-day update I posted a chart of this oil futures chart.

Tomorrow, at approximately 10:30 AM EDT, we'll get the weekly DOE and API crude oil inventories report. The weekly statistics on crude oil, gasoline and distillate inventories are usually released each Wednesday, but due to Monday's Memorial Day holiday, these statistics were delayed until tomorrow.

For now, I'd be alert to near-term support on this contract at $39.69. I'd be willing to bet a couple bucks that while comments from Saudi and OPEC officials regarding conviction toward lower oil prices is grabbing headlines, tomorrow's weekly U.S. inventory data is going to bring some volatility.

We've noted before that the DOE and API data will often-times show very different figures and there is no "official" consensus estimate.

Last week (Wednesday), the July Crude Oil futures (cl04n) rose from $41.00 to $41.50 as the DOE/API inventory was released, then fell quickly to $40.50 in the span of 10-minutes, then jumped back higher to its session high of $41.65 by 11:40 AM EDT, to then finish the session at $40.68.

As a benchmark to last week's inventory figures the API said oil inventories rose by 764,000 barrels, while the DOE said inventories remained unchanged.

OPEC officials begin their meeting in Beirut, Lebanon tomorrow, where there were some rumors circulating that today's more "determined" talk of lower oil prices has some thinking OPEC will raise its daily production quota by 2.5 million barrels per day, from the previously speculated increase of 2.0 million barrels per day. The oil cartel's aggregate quota currently stands at 23.5 million barrels, excluding Iraq.

Market Snapshot / Internals - 06/02/04 Close

Summer trade volumes persist and despite some intra-day fluctuations, the often-times more volatile QQQ's last 4-session closes have been $36.42, $36.55, $36.50 and now $36.42. And as the volatile QQQ looks to be digesting some past gains, the slower-moving Dow Industrials (INDU) 10,262.97 +0.59% played some catching up on positive component breadth of 24 to 6, with Procter & Gamble (NYSE:PG) $108.81 +0.19%, Boeing (NYSE:BA) $46.74 +1.87% and Johnson & Johnson (NYSE:JNJ) $56.20 +0.77% recording new 52-week highs in today's session.

Pivot Matrix -

At time, the QQQ looks like it is ready to explode to the upside as a sudden bid comes from nowhere (today near DAILY S1 of $36.22), where it would appear gains are capped by the Semiconductor Index (SOX.X). Early tomorrow, and ahead of tomorrow afternoon's Intel (NASDAQ:INTC) $28.04 -1.02% mid- quarter update, tentative resistance is found at the SOX's DAILY Pivot and WEEKLY Pivot, where I would have to say the MONTHLY Pivot/DAILY S1 become an important near-term support level into INTC's update. I've also marked the correlative WEEKLY S1 and DAILY S2, and while I don't think that is a trade that is in play tomorrow, I'd make note of it as it may be a downside risk level for Friday's open, should INTC give a lackluster mid-quarter update.

Hmmm.... just adding this, but was looking for an old OEX chart and was reviewing the 05/19/04 Index Trader Wrap and intra-day notes of the SOX.X that day. On 05/19/04, a sell program premium was witnessed, which drove the SOX.X below its then "zone of resistance" from MONTHLY Pivot of 467.81 and WEEKLY 19.1% retracement of 470.02. That observation along with current MONTHLY pivot 470.78 and tomorrow's DAILY S1 470.18, could well be an important intermediate-term level of support right now.

I didn't monitor any buy/sell program premium alerts today, but will make an effort on tomorrow and Friday to have them set, with these SOX.X notes at the ready.

With no real apparent correlations for the NDX/QQQ, traders will most likely be best served to use the SOX.X action and support correlations as a downside range, while WEEKLY R1 correlations for the INDU/DIA and SPX/SPY and OEX become apparent.

Again, I think oil price swings will probably dictate market sentiment.

S&P 100 Index Chart - Daily Intervals

While oil prices are a focus, let's not forget that on Friday, May's nonfarm payroll figures (consensus +225,000) will be released prior to the bell. Similar MACD/Stochastics continue to present themselves as found in early April (I can't find the SPX/OEX chart from a prior update where I think I noted this development) but based on early April trade, we might look for further OEX gains to the 555-556 area (QQQ/NDX are at their downward trends), where with time, I do think there's a put option trade setup in the making (get some further SOX.X along with BIX.X and 10-year YIELD observations). If SOX.X unravels lower on lack of catalyst from Intel mid-quarter, then OEX 551 is most likely going to be a key level.

The reason I mention Friday's nonfarm payroll release is that the last two nonfarm payroll reports found sharp selling in Treasuries, where YIELD moved sharply higher in the 10-year. While I (Jeff Bailey) think the bond market has fully accounted for 2, if not 3, 25-basis point rate hikes by the Fed, we should have a close eye on the 10-year YIELD, and any response from the S&P Banks Index (BIX.X).

NASDAQ-100 Tracker (QQQ) - 60-minute intervals

Here's a 60-minute chart of the QQQ, where at the top I've posted today's top 4 percentage gainers/losers, where I think we should see some of the impact the semiconductor stocks that comprise the QQQ/NDX may be having on things near-term. Only KLAC and AMAT are components of the SOX.X, but the tendency is that "like stocks" tend to move somewhat in unison.

At tonight's close, I've got to be tying the QQQ WEEKLY Pivot ($36.02) as being the SOX.X MONTHLY Pivot (470.78), where the QQQ is finding its current strength outside of semiconductor. This current strength is most likely dependent on the SOX.X holding support near 470.

Now, Intel (INTC) doesn't give its mid-quarter update until AFTER the close tomorrow. It has been my experience that what takes place in after-hours isn't always indicative of the next day's trade, and right now I've got to be thinking that with the SOX.X slipping below its WEEKLY Pivot today, that the SOX.X is going to try and settle out near 470 tomorrow, where the chance of a "knee jerk" lower trade being reversed higher would come from this....

On Friday, the SOX.X opens at or just below MONTHLY Pivot, QQQ dips back under its WEEKLY Pivot, but momentum bulls leverage off the QQQ $35.75 area, and SOX.X WEEKLY S1 (465.59), to then get a "surprise" rebound forming on Friday, which may then extend to QQQ $37.00 early next week.

Jeff Bailey

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