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Handsome morning gains turned into fractional losses by the close, where initial bullishness following the transfer of sovereignty to the interim Iraq government faded by the close.

Dow component General Motors (NYSE:GM) $46.51 -2.39%, which has been an important player in the Dow Industrials (INDU) 10,357 -0.14% rebound from the mid-May lows, became a fulcrum stock for the Dow and other major indices turning over gain, after the world's largest automaker said June sales were disappointing.

Stiffening the potential for a rebound session tomorrow was this afternoon's news out of Washington Mutual (NYSE:WM) that it was cutting its 2004 earnings forecast, citing the impact of higher, longer-term rates on its home lending business.

Market Snapshot / Internals - 06/28/04

Up until 03:00 PM EDT, the NASDAQ's NH/NL breadth was strong enough that it looked like its 10-day NH/NL average ratio was going to achieve the needed 64% reading to get turned back up into a column of X. However, by the close, today's NASDAQ 10-day NH/NL ratio came up shy of 64%. The TRIN built higher throughout the session, as did the Market Volatility Index (VIX.X). Suspicious considering this morning's gap higher for the major indices.

Volumes were brisk at the NASDAQ, but well off Friday's impressive 1.81 billion shares.

Pivot Analysis Matrix -

Some "funky" and most likely inaccurate trade reports at Friday's close saw some meaningfully lower closing values reported for both the S&P 100 Index (OEX.X) and S&P Banks Index (BIX.X), which I believe to be in error. As such, I've taken trade ticks from the 04:00 close on Friday, and not those final values reported by just about every data vendor I have viewed.

When reviewing Friday evening's Index Trader Wrap by Leigh Stevens (to see what his TradeStation OEX close showed) I noticed Leigh highlighted the Dow Industrials (INDU) 10,357.09 -0.14% looking vulnerable to the 10,300.00 level, which now sets between tomorrow's DAILY S1 and WEEKLY S1.

Dow Industrials (INDU) - Daily Intervals

Despite this morning's positive catalyst and news out of Iraq, only the NASDAQ-100 Index (NDX.X) 1,493.07 -0.35% was able to breach Friday's highs. While Dow 10,400 was a point of resistance in recent weeks, the INDU has been finding some selling between 10,475-10,500. With July expiration just three weeks away, and a 3-day weekend coming up (market's closed on Monday in observance of U.S. Independence Day), I'm looking at closing out previously profiled DIA July $100 puts near the 10,200 level, hopefully on a rising Market Volatility (VIX.X) 16.07 +5.79% spike near 18.00.

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

When I get "bad ticks" or missing bars in a daily bar chart, I will chart on a 720-minute interval (equivalent to 1 day's trade), where it would certainly appear there was a bad tick at Friday's close. Thursday evening I was looking for some further follow through in the OEX, up into that bigger yellow "blob" and then a reversal back lower. Didn't get it, and today's inability to reclaim the MONTHLY R1 suggests sellers at 556. I'm not certain that the OEX could fall to its MONTHLY Pivot by Wednesday's close, but a weak opening could see a test of the WEEKLY S2 by Wednesday's close. After Wednesday, we will recalculate the MONTHLY pivot levels.

Banks may be under some early selling pressure tomorrow morning after Washington Mutual (NYSE:WM) $41.31 +0.31% fell to $36.84 after warning fiscal 2004 results would be below Wall Street's expectations due to slowing in its mortgage lending business. WM is NOT a component of the BIX.X, but is a component of the KBW Bank Index (BKX.X).

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

If there's one thing that catches my eye tonight, it's this week's WEEKLY S2. Still sticking in my mind is the May 25 Index Trader Wrap "A trimming of the hedge?" where I thought there might have been a rather large hedge removed from the SPX, which had the VIX.X spiking 11.7% that day. Note how this week's WEEKLY S2 now marks that 1,113.08 level, which is pretty darned close to the 05/25/04 close (as if a computer tuned things up), but how the WEEKLY S2 also marks that little retest where bulls defended, or bears were more than eager to cover. SPX 1,125 is still July's "Max Pain" level. Darned those puts options are expensive looking at the July 1,125 put (SPTSE) at $10.30 x $11.50.

Hmmm.... 1,125 less that $10.30 bid is equivalent to 1,114.70 (again.... close to 1,113.08). I think the SPX.X is headed to its WEEKLY S2, resistance now 1,140.

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

The QQQ had two additional opportunities to make a bolder move higher after trading $37.52 early, and feel a little spent near- term. Slightly troubling for bulls is the number of new highs in the broader NASDAQ off of Friday's 168. Once the Semiconductor Index (SOX.X) 470.47 -1.76% turned red, and Microsoft (NASDAQ:MSFT) $28.28 -1.01% reversed to unchanged, the QQQ lost its defenders at $37.30.

Jeff Bailey

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