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Index Wrap

Semiconductors stalled, with brokers in spotlight

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The major indices finished near their lows of the session with the NASDAQ-100 Tracker (AMEX:QQQ) $36.15 -0.80% giving back fractional gains held throughout the session, where despite positive comments from brokers on Intel (NASDAQ:INTC) $27.52 -0.43% and Motorola (NYSE:MOT) $17.54 +1.15%, the Semiconductor Index (SOX.X) 450.77 -0.50% closed back below its upward trend for a third-consecutive session, putting technology traders on edge.

While we give some focus to the SOX.X, it would well be the brokers as depicted by the Broker/Dealer Index (XBD.X) 122.87 -0.50% and earnings tomorrow morning from Morgan Stanley (NYSE:MWD) $51.25 -0.77% that sets an important tone. Not only for tomorrow's session, but perhaps the remainder of the month as investors brace for the turnover of Iraq to its new government at the end of the month.

Market Snapshot / Internals - 06/21/04 Close

Both the NYSE and NASDAQ A/D line mirrored each other by the close with decliners edging out advancers by a narrow margin. Volume at both the NYSE and NASDAQ was light, where only a little burst of selling toward the close had NYSE volume breaching the 1 billion share mark, its lightest trading volume since most traders took an early vacation on May 28 ahead of the Memorial Day weekend.

There was nothing too memorable about today's session, other than the NYSE NH/NL 5-day ratio crossing above its 10-day average ratio, where this action does suggest some shorter-term bullish breadth returning to the NYSE.

If there is one "event" on the horizon to have new highs continuing to build on the NYSE, I think it may have to be tomorrow morning's earnings from Morgan Stanley (MWD), where despite the stock's 17% decline from in early March highs, analysts look for a "blowout" quarter, where investment banking revenues are to offset lighter stock/bond trading volumes. Current consensus is for MWD to have earned $1.05 in the latest quarter.

NYSE and NASDAQ NH/NL Breadth -

The NYSE NH/NL 5 and 10-day ratios look to have hit an inflection point low on Thursday. With today's trade in the books, the 5- day ratio moves above its 10-day ratio. NASDAQ's NH/NL indications, which showed weakness first remain weak, but an inflection low reading for the 5-day SMA, which remains below its 10-day average ratio (still in column of O too), may be suggesting a relative low in the making.

If so, I think current levels of trade for the SOX.X (for a third-straight session) become rather important.

Pivot Analysis Matrix -

In PINK I've marked today's highs and lows for the SOX.X, where Monday's correlative DAILY R1 (459.59) and new WEEKLY Pivot (459.07) while pierced to the upside for 20-minutes in this morning's session, found similar resistance selling as Friday. The SOX.X then drifted lower to the close, spending the remaining 30-minutes either side of its MONTHLY S1, with the SOX.X still the only equity index in our MONTHLY Pivot Matrix to trade its MONTHLY S1 in June.

Semiconductor Index (SOX.X) - Daily Intervals

A quick look at Dorsey/Wright and Associates' Semiconductor Bullish % (BPSEMI) shows this sector bullish % still reading "bull alert" status at 23.53%, where a lower reading of 20% would have this sector reversing back lower to "bull correction" status, and 16% reading then back in "bear confirmed" status.

While internals are "oversold" on a longer-term basis and trying to improve, internals are also weak and fragile.

While the 21-day SMA is hidden by a marked yellow zone of resistance from 469-471, both the 21-day and 50-day SMA setup, along with stochastics looks strikingly similar to that found just prior to the SOX.X trading 433 on May 3rd.

NASDAQ-100 Tracker (AMEX:QQQ) Chart - Daily Intervals

While the QQQ looks to get pulled lower by weakness among semiconductors, it is perhaps the resiliency among the larger cap NASDAQ stocks that has held the SOX.X together the past three sessions.

While there's not a broker or bank in the bunch, a negative reaction to the financials, or MWD's quarterly earnings could have the QQQ quickly trading its WEEKLY S2 tomorrow. The trade I'll be looking for is any type of near-term pop from a positive MWD oversold bounce, where should the QQQ pop close to $36.72, check the SOX.X. If the SOX.X is still under its WEEKLY Pivot, then I'd be looking short/put the QQQ with a downside target of MONTHLY Pivot and $34.75.

A volume at price study on the QQQ (60-minute chart) spanning January 1 to current shows $36.50-$35.25 as being rather VOID of any volume interest. With volume almost nonexistent in today's session (relatively speaking) that zone from WEEKLY S2 to MONTHLY Pivot would be a first line of defense for bulls.

S&P 500 Index (SPX.X) Chart - Daily Intervals

The S&P Banks Index (BIX.X) 348.35 -0.22% traded in a 2.5-point range today, and despite several bank merger announcements today, the BIX.X was rather quiet, and most likely takes any near-term lead from the brokers. The impact on the S&P 500 Index (SPX.X) 1,130.30, where 1,141 resistance looks to be forming, will most likely be driven from the financials in tomorrow's session.

Since we have some levels to at least monitor in the pivot matrix for the BIX.X, lets take a quick look at the Broker/Dealer Index (XBD.X), which looks about as vulnerable as the SOX.X does at this point.

Securities/Broker Dealer Index (XBD.X) - Daily Intervals

I've placed a "cheater's trend" on the XBD.X similar to that shown on the SPX. A "cheater's trend" is a trend I call a "cheater's trend" because I'm drawing a trend from a recent relative low (or high sometimes) that may be in play, but is relatively untested longer-term.

As we begin to look at the SOX.X trend, and perhaps the above trends in play on the XBD.X, there's some important tests of upward trending support currently in play.

Mirror, mirror on the wall. Who's been the strongest of them all?

Don't forget, American Express (NYSE:AXP) $51.50 -0.88%, JP Morgan (NYSE:JPM) $37.00 -0.61% and Citigroup (NYSE:C) $47.18 -0.67%, three Dow components, have a strong financial flavor.

Dow Industrials (INDU) Chart - Daily Intervals

AXP, C and JPM all look technically stronger relative to MWD and the Broker/Dealer Index (XBD.X) as it relates to their 21-day, 50-day and 200-day SMAs. So does the Dow Industrials (INDU). In my opinion, any real technical weakness for the INDU at this point is a break back below 10,250.

Jeff Bailey

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