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Index Wrap

Gold below $400 + Oil at $36 = Fed raising 25 bp

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The major indices recouped yesterday's losses and looked rather content to trade either side of their MONTHLY R1s, where an $8.60 shellacking in December Gold futures (gc04z) $395.40 -2.12% and August Crude oil futures (cl04q) $35.62 -1.71% should have the Fed content to raise its target for Fed funds by 25 basis points to 1.25%.

December Gold Futures (gc04z) - Daily Intervals

If gold says anything back below $400, its that the market feels the Fed is doing a good job with its monetary policy as a recent look above $400 sees a rather sharp reversal in today's session, where more than likely, dollar strength ahead of tomorrow's conclusion to the two-day FOMC meeting comes in anticipation of a long-awaited rate hike.

If the Fed holds true to its more recent FOMC meetings, where a gradual increasing of rates has been eluded to, then a 25-basis point rate hike looks in order.

I'm showing the December Gold futures tonight, as it gives us an interest rate sensitive commodity, away from equities to keep and eye on. In my opinion, a more "disappointing" reaction from gold, which could spill into equities would be a further and sharp decline in gold below the 388 level, where the gold market may then be saying.... "no, no, no.... too tight too soon!"

It wasn't until the FOMC started changing its tune toward potential Fed tightening, when nonfarm payrolls began ramping, that gold fell sharply from the $431 level, to recent lows of $378.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals

In today's Market Monitor, I posted this chart of the AMEX Gold Bugs Index ($HUI.X) 185.36 -2.49%. In March, when gold (the commodity) was challenging its December highs, the $HUI.X was well below its December highs and trading the 240 level. It has been my observation for sometime that gold stocks tend to be a "leading indicator" for the commodity itself, and while I'd keep a close eye on GOLD $388, more importantly may be $HUI.X 183.

Now I want to take a quick look at a chart, which for a couple of weeks now has been looking somewhat similar to the Gold Bugs ($HUI.X). Strong, but similar. It's bullish % indications have also bee similar, and Dorsey/Wright and Associates sector bullish % also rather similar.

Semiconductor Index (SOX.X) - Daily Intervals

I'm showing the same chart of the SOX.X we put together back in the February 29 Ask the Analyst column "It's head and shoulders above them all." I've also overlaid the June MONTHLY S1, and this week's WEEKLY R1. I tell you what, if the MARKET is trading this chart, then SOX.X looks set to trade WEEKLY R1 soon.

I think we know that the $HUI.X is the weakest of sectors, and it certainly looks like it wants to test upward trend, similar to the SOX.X recent test and successful holding of its MONTHLY S1 and upward trend.

Note the SOX.X WEEKLY Pivot of 469.53 being very similar to the head/shoulder top 61.8% retracement. To me, this gives the SOX.X a BULLISH look above 468.

Things may get "wild" and a bit confusing with the Fed about to raise rates for the first time in 3-years, and I want us to have a couple "definitive" levels of support to monitor.

WEEKLY/MONTHLY SOX.X notes: I would currently show a "zone of resistance" in the SOX.X WEEKLY/MONTHLY from 487 (weekly 19.1%) to 489 (weekly R1) and a "zone of support" from 469 (weekly pivot) to 471 (monthly pivot).

In this weekend's Ask the Analyst" column, we looked at Dorsey/Wright and Associate's equity sector bell curve. I noted that the $HUI.X had eased up from the 0-14% level. The Semiconductor Bullish % (BPESEMI) had turned up from the 16%-20%, and today it saw a net gain of 1.47%, getting another "X" on its bullish % chart to 30%, with a current reading of 30.88%.

Analysis: Based on the SOX.X pattern of higher lows, I would have to think SOX.X finds gains to WEEKLY R1 pretty soon. This would then begin a pattern of higher lows and equal highs. From a supply/demand perspective, this leans toward the bullish side of things.

Market Snapshot / Internals - 06/29/04 Close

Speaking of some bullish improvement in bullish % indications, today's trade and prior 10-day's trade has the NASDAQ NH/NL 10- day average ratio reversing up, as a needed reading of 64% has been achieved. While the NASDAQ NH/NL breadth looks to play catch up with the NYSE, the NYSE now looks to be taking a breather with daily percentage changes leveling out.

Pivot Analysis Matrix -

The S&P 100 Index (OEX.X) 552.51 +0.36% is the only major index below its WEEKLY Pivot, and tomorrow, a test for early strength comes at correlative WEEKLY Pivot/DAILY R1.

The INDU, DIA, SPX were sloppy at either side of their WEEKLY Pivots, which are very correlative with tomorrow's DAILY Pivots. Almost acting as a center line, or point of equilibrium into tomorrow's FOMC meeting.

Since we were "sloppy" at these levels today, a shorter-term trader might want to watch and see if they find significance in tomorrow's intra-day session as support or resistance, to see if they can sense any type of "determination" from institutional computers into tomorrow afternoon's FOMC announcement.

S&P 500 Index Chart - 60-minute intervals

I overlaid Keene Little's upward trend as well as labeled points "A" and "C" from Thursday evening's Index Trader wrap, where that trend taken from the early June lows would tie in with our Pivot Matrix WEEKLY 61.8% retracement level, but also tomorrow's DAILY S2. OK... significant support. Let's also associate that with SOX.X 468.

How about some resistance? I count 1, 2, 3, 4 overlapping levels tomorrow at SPX 1,040. Overlapping WEEKLY/MONTLY retracement (1 and 2) throw in the MONTHLY R1 (that's 3) and for good measure, the DAILY R2.

What I'd look for as it relates to STRENGTH tomorrow.

Understand perhaps that GOLD the COMMODITY got a little ahead of itself (relative to the HUI.X), so AFTER the FOMC announcement, I'd keep an eye on GOLD the COMMODITY. For BROADER MARKET EQUITY STRENGTH, watch for the $HUI.X (equity gold) to bid, watch for BROADER EQUITIES to bid, but for GOLD COMMODITY to stay relatively unchanged!

Jeff Bailey

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