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Index Wrap

Stocks ignore oil's decline, "It was already factored in!"

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Tonight's wrap title just about sums up today's trade where despite a sharp decline in oil prices with OPEC raising production and U.S. weekly inventories of oil and gasoling showing builds, stocks started the session out weak and stayed that way, finishing today's session at their lows.

Energy prices have been a focus of late and the New York Mercantile Exchange (NYMEX) reported a record 1,203,821 New York harbor gasoline futures contracts were traded in May, a volume record which surpassed the previous monthly record of 1,105,044 futures traded in October.

The July Unleaded Gas futures (hu04n) $1.2295 -4.11% fell sharply to its rising 50-day SMA of 1.2061 intra-day, its lowest trade in just over a month.

While July Unleaded Gas futures managed to close above their intermediate-term 50-day SMA, all major indices with the exception of the NASDAQ-100 Index (NDX.X) 1445.1 -1.29% slipped back below their 50-day SMA's, which gives a technical pause to thoughts the recent rebound from the mid-May lows still has played itself out.

So what the heck is up with today's trade. Didn't the market get what it was calling for? Lower energy prices?

Perplexing for sure, and that has traders, economists, fundamental analysts and even a few pre-school attendees saying "It was factored in!"

Aha! It was factored in. The most commonly used phrase to explain the unexplainable!

U.S. Market Watch - 06/03/04 Close

Only the 5-year, 10-year and 30-year Treasuries along with the U.S. Dollar Index (dx00y) were able to muster gains in my U.S. Market Watch, and those gains were fractional at best. How bad was today's mood on Wall Street? A fractional gain in the Dollar Index sent gold stocks as depicted by the AMEX Gold Bugs ($HUI.X) 85.78 -2.32% lower after a failed rally attempt to reclaim its trending lower 50-day SMA (90.57).

Airlines as depicted by the Airline Index (XAL.X) 52.75 -3.86% gave back nearly all of Wednesday's gains despite today's decline in oil prices. The airlines sector suffered a setback as a House of Representatives hearing on the state of the airline industry, where the industry is lobbying for increased government aid due to high fuel costs and aviation security, received a cold response from the House, with lawmakers telling industry executives they should not expect Congress to provide major new aid.

Market Snapshot / Internals -

There's not much worth pointing out from today's Market Snapshot, where internals pretty much reflected today's price action. The daily abatement of new highs at both the NYSE and NASDAQ aren't all that unusual considering today's declines, and the number of new lows in today's trade don't seem too out of whack with recent reading. Not yet at least.

Pivot Matrix -

On Tuesday, the S&P 100 Index (OEX.X) tested its weekly Pivot at 541.29 and buyers defended that level and tomorrow's correlations at the 540 level (MONTHLY Pivot, WEEKLY Pivot, DAILY S2) look as if this would be a very important level of support, which if broken, most likely has the OEX vulnerable to its recent lows.

For strength, why not monitor the Semiconductor Index (SOX.X) 463.44 -2.45%, where this sector's notable weakness the last two sessions (including today) has single handedly offset any positive market sentiment toward today's sharp decline in oil prices.

After the bell, shares of Intel (NASDAQ:INTC) $27.41 -2.14% have risen to $27.80 in extended hours after the world's largest computer chip maker, sounded a positive note when it narrowed the range of its revenue forecast for the second quarter to the upper end of that range, citing better-than-expected performance in its communications business.

The Semiconductor HOLDRs (AMEX:SMH) $36.75 -2.49% edged back higher to $36.98, while the NASDAQ-100 Tracker (AMEX:QQQ) $35.98 -1.2% looks to have made its last tick at $36.00, where after- hours observations found some willing sellers around the $36.06 level, which is tomorrow's DAILY Pivot/WEEKLY Pivot correlation for tentative near-term resistance.

While after-hours trade isn't necessarily indicative of tomorrow's action, the after-hours trade in the QQQ does suggest some caution among bulls into tomorrow's nonfarm payroll numbers.

With Treasuries little moved in today's trade, where YIELD resistance was found at the 4.75% level, most of the chatter from bond traders is that there was greater focus from them on the nonfarm number that the decline in oil prices giving some near- term relief toward inflation fears.

I would still look for 4.75% 10-year yield as a rather closely watched level, where the RATE of any potential yield move higher above that level might draw a more negative reaction toward equities.

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

The e-mini S&P futures (es04m) are edging up 1.50 points at 1,116.50 on the Intel update. The OEX is perhaps the only index at this point that shows a tighter range of some near-term support/resistance levels where after Tuesday's reversal higher from a test of its WEEKLY Pivot, I'd have to consider a break back below that level as renewed sign of weakness. The big test early for strength would be the DAILY R1 and our MONTHLY 38.2% retracement.

Semiconductor Index (SOX.X) Chart - Daily Interval

I would be VERY surprised if we were to see a break of 451 and MONTHLY S1 in the SOX.X over the next two weeks. Not just because its a MONTHLY S1, but the upward trend from the October 2002 low and pullback low from February 2003, which has served support on two recent tests.

I'm still keeping an eye on Dorsey/Wright and Associates Semiconductor Bullish % (BPSEMI) which reversed up to "bull alert" status from 18% to 26% on its 2% box scale chart. Today's trade showed a 0.73% decline to 25.55%. If the SOX.X is eventually going to achieve its head/shoulder top objective of $412, then I would begin envisioning that upward trend and MONTHLY S1 would be broken, where the Semiconductor Bullish % (BPSEMI) reverses back to "bear confirmed" status at 20%, and the towel throwing from sector bulls drives the SOX.X to its h/s top object, just as the bullish % reached more historically "oversold" levels of 10%.

NASDAQ-100 Tracker (QQQ) Chart - Daily Intervals

The intraday trade on the QQQ had the look of "why bother to try" from bulls when the SOX.X sunk from the open. Research-in-Motion (NASDAQ:RIMM) $112.20 -5.69%, which has been setting consecutive 52-week highs the past 7 sessions lead today's QQQ declines. consecutive highs

Dow Industrials (INDU) Chart - Daily Intervals

On an intra-day basis, it was the INDU that put up the best bullish fight as it managed to get back into the near-term zone of resistance by noon. Having established 1/2 position in July puts for the DIA when the INDU was trading 10,000 a couple of weeks ago (India/Iraq) I'm going to look for a trade setup as outlined where should the INDU get a bounce going tomorrow to look for a failure move where back near the zone of near-term resistance, I'm going to consider weakness once again taking hold on a move back below the DAILY Pivot.

Jeff Bailey

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