Option Investor
Index Wrap

Subtle change

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It's a good thing that both the NYSE and NASDAQ decided to quote and trade stocks in increments of a penny a couple of years ago, as the major indices and most stock traded in a very tight range despite a seemingly nonstop bombardment of economic data.

Sectors that gained more than 1% had the Oil Service Index (OSX.X) 104.57 +2.7% leading the list of sector winners after Deutsche upgraded select names in the sector (BJS, CAM, ESV, MVK, NBR, RDC, SLB and WHQ) to "buy" from "hold."

Other sector up more than 1% had the Oil Index (OIX.X) 351.40 +1.43% being lead by Dow component Exxon/Mobil (NYSE:XOM) $44.73 +1.47%, which closed at a new 52-week high, the Biotechnology Index (BTK.X) 501.49 +1.44% being spurred higher after non-index component Cyberonics (NASDAQ:CYBX) $34.81 +76.97% surged on FDA approval of its VNS system to treat drug refractory chronic depression.

Making a new 52-week high was the Defense Index (DFX.X) 215.44 +1.14% with Dow component Boeing (NYSE:BA) $49.90 +1.31% closing at a new 52-week high, while Raytheon (NYSE:RTN) $34.87 +1.04%, a stock I highlighted on June 9 in the 11:00 AM EDT intra-day update powered itself to a new closing high.

Only the Dow Jones Home Construction Index (DJUSHB) 563.28 -1.03% sunk more than 1% where a decline in May housing starts combined with the Mortgage Bankers Association saying that the average rate for a 30-year fixed rate mortgage rose to 6.34% last week, weighed on the sector. The MBA also said that its seasonally adjusted Mortgage Applications Index rose 5.6% to 600.6 for the week ended June 11, its first gain in 5-weeks.

Market Snapshot / Internals - 06/14/04 Close

Market internals finished rather strong where we did see some expansion of new highs at both the NYSE and NASDAQ, but at today's close the NASDAQ Composite's 10-day NH/NL Average Ratio slipped back into "bear alert" status as it slips lower from above 70% to below as we'd chart a 3-box (6%) reversal at 66%.

NASDAQ Composite 52-week NH/NL Chart - 2% box

After "rocketing" up from a recent low reading of 24%, today's 3- box reversal for the NASDAQ's 10-day NH/NL ratio isn't a "sell the market" type of reversal, but does suggest some meaningful loss of bullish leadership among 4 and 5-lettered stock symbols has taken place. We'll take a look at the NASDAQ Composite's ($COMPX) 1,998.23 +0.13% point and figure chart on an unconventional 10-point box scale to try and put things in perspective. Remember the blue 1-9 mark entries near the beginning of months January-September, while letters A-C are for October-December.

NASDAQ Composite ($COMPX) - 10-point box

I wanted to look at a 10-point box, as it would show two decent tie points where the COMPX would have generated triple top buy signals (green circles) while the NASDAQ 10-day NH/NL ratio was in a column of "X". While the first sign of any meaningful technical weakness on the COMPX chart would come at 1,960, I would currently begin tying in the current reversal lower in the NH/NL 10-day, with the COMPX at 2,020.

I've noted an area of PAST supply/demand trade, where after reversing from a much more overbought level on the NH/NL chart, the COMPX did move lower to trade right back to 1,990, where it had given the prior triple top. Should similar trade be found again with the current NH/NL reversal, my eye is drawn to a potential downside target of 1,940, where the COMPX recently gave the triple-top buy signal.

Now, let's look at our bar chart of the COMPX, where in past updates, we looked at a weekly interval, but lets zoom in a bit and take a look at things. In past updates, we looked at the COMPX with a HUGE retracement from the all-time highs to the October 2002 lows and I've left the only visible 19.1% retracement (COMPX has retraced more that 19.1% of that total decline), but I'm going to add another conventional retracement to slice things up a bit.

NASDAQ Composite (COMPX) Chart - Daily Intervals

The recent reversal in the NASDAQ NH/NL indications have us alert to potential weakness, and the closer look at our COMPX chart shows downward trend once again having some impact, or technical merit after the COMPX briefly pierced above this trend last week. While we're alert to some internal weakness, or loss of bullish leadership, its rather obvious that the 200-day SMA has been a level of support.

I've marked the recent two inflection points of 2,023.53 (that's 2,020 on the PNF chart) and 1,963.48 (that's the recent column of "O" on the point and figure chart at 1,970). In essence, its really going to have to take a violation of the rising 21-day SMA 1,963.49, or 1,960.00 for the EXTERNALS of the COMPX to give price confirmation of what the internals are hinting at.

Pivot Analysis Matrix -

Today's tight range for the major indices leaves an even tighter range for tomorrow's DAILY Pivot matrix. It would really appear that the market is "narrowing in" on the WEEKLY Pivots for the major indices as this week's Triple Witch nears an end.

I've been hit with three power outages tonight and it has been a battle to get what I've gotten written at this point as power has been sporadic at best, and I want to get what I've gotten written to my HTML department in case I lose power for good (lighting storms in South Denver).

The Semiconductor Index (SOX.X) 469.29 -0.42% continues to draw some attention that it just isn't getting the job done from the bullish side right now. It's difficult to say that there's "something wrong," as its trade may be highly influenced by option expiration.

While a day like today, a rather quiet day of trade for the major indices may lull traders into complacency, don't be complacent and be alert for a sharp and sudden move. As hard as I've tried to look for any option-related trade activity to hint of any unraveling (bullish or bearish) I'm not able to see anything at this point, and if we're going to see a greater amount of volatility than what we've seen the past couple of days, it will most likely come very quick, with little notice.

Jeff Bailey

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