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Index Wrap

Semiconductors weigh on tech, oil approaches $39

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Sound familiar? How about the June 17 Index wrap title.

While technology stocks were broadly lower in today's trade, it wasn't entirely due to the Semiconductor Index (SOX.X) 467.03 -3.72% giving back half of a seven session rally. Networkers as depicted by the Networking Index (NWX.X) 250.22 -4.0% didn't exactly carry their weight among technology after a brief 2-day piercing of their rising 200-day SMA.

Non-NWX.X component Emulex (NYSE:ELX) $11.46 -19.91%, which has been showing up on the NYSE new low list the past couple of weeks did its part to deflate any winds that had been filling the sector's sails of late.

Emulex's earnings warning drew comment from brokers on QLGC $26.22 -1.39%, a NASDAQ new low setter since March, McData (NASDAQ:MCDT) $4.63 -9.39%, another NASDAQ new low setter since March, which broker Baird said it would continue to be a buyer of despite ELX's warning, Brocade Communications (NASAQ:BRCD) $5.52 -7.69%, which set a new 52-week low in May.

While the "trickle down" effect from ELX was seen among networkers, so too was its impact on chipmakers that supply hubs and routers.

Baird did comment that ELX's slow quarter is most likely being attributed to EMC's (NYSE:EMC) $11.14 -2.28% move during the September quarter to a hub model switch, which is resulting in a temporary inventory workdown at EMC's distribution partners.

Not to be silent, Adams Harkness piled on with a downgrade of Brocade (BRCD) to "buy" from "strong buy" and now notes that ELX's announcement indicated weakness at two OEMs, one of which they believe to be Dow component Hewlett Packard (NYSE:HPQ) $20.58 -2.46%, which is one of BRCD's largest customers.

While traders were ridding themselves of semiconductors and networkers just below the 200-day SMA's, crude oil was rising sharply on the heels of yesterday's inventory reports that showed draws. Pumping oil's rise was rumors that the Department of Homeland Security planned to raise it terror alert level ahead of the July 4th holiday. A rumor that both Homeland Security and the White House later refuted.

Through it all, the energy sensitive Dow Transportation Average (TRAN) 3,172.01 -1.00% wouldn't budge below the 3,160 level (01/04/01 relative high 3,157.44), which the TRAN broke above in recent session.

August Crude Oil Futures (cl04q) - 25-cent box

A quick glance at Dorsey/Wright and Associates point and figure chart of August Crude Oil Futures (qcharts: cl04q) has oil rebounding sharply from Tuesday's lows of $35.75. However, oil bulls weren't quite able to get a reversing higher PnF buy signal at $39.50 to negate the current bearish vertical count of $32.00. I eyeballed a PINK horizontal level at $39.50, which I think any move in oil above that level, might trigger some profit taking in the Transports back below the 3,160 level.

Oil didn't trade $39.50 today, and the Transports didn't trade below 3,160. As close as 3,160.17 is to 3,160.

Market Snapshot / Internals - 07/01/04 Close

A/D lines were flat at the open, but the ISM Manufacturing Index of 61.1, certainly spooked traders as it was the lowest reading since October, and off of January's high reading of 63.6.

An intra-day review of the SPX had the ISM data being released at 10:00 AM EDT with the SPX at 1,139. Just prior to a sell program premium alert being generated, the SPX moved below its WEEKLY Pivot of 1,135, where the sell program premium was then generated, sending the SPX lower to 1,126.

A loan buy program premium was found at 03:41 PM EDT, which most likely correlates to Jim Brown's Market Monitor alert at 03:40:29 that there was a mixed to "buy side" bias on initial market on close orders. However, both Jim's alert as well as the buy program premium came well after the SPX had briefly (about 7- minutes) pierced below its WEEKLY S1 (1,123.75) at 01:50 PM EDT.

U.S. Market Watch - 07/01/04 Close

I always have high ambitions of showing a bunch of charts in each night's wrap, but never have enough time. I wanted to quickly revisit some notes relating to "new high" tests for some of the indices.

The CBOE Internet Index (INX.X) 194.68 -3.12% didn't quite get a new 52-week high yesterday, where the internets look like they want to reload for another go.

The S&P Retail Index (RLX.X) 399.14 -0.5% did get a new high above 413.22, but not my "round number" of 414.00. I like to place a formidable challenge to things! (grin)

The Transports (TRAN) hung tough above 3,160.

The Cyclical Index (CYX.X) 690.03 -1.45% haven't really come close to challenging the 714 level, where on June 24, the best trade was 706.41.

The Defense Index (DFX.X) 225.46 +0.55%, which was trading new 52-week highs on June 23 (221.35) did so again today.

What I want/need to do, which maybe you the trader can do, is just slap some conventional retracement on the above mentioned indices (somewhat stronger) and get a feel for things. I need to do this further, get a feel for how they're staggered, to also try and get a better sense of their impact on the SPX/OEX.

Pivot Analysis Matrix -

I think there's potential for a pretty good bounce higher into tomorrow's close, and here's what I think I see in the Pivot Matrix.

The SPY traded correlative MONTHLY S1 and WEEKLY S1 today, and just a smidge under. Now.... here we are back around SPX 1,125.

On June 17, a Thursday, "Semiconductors weigh on tech, oil approaches $39" the SPY closed at its session lows, but just off its WEEKLY S1, and finished the week (Friday) with a nice gain.

Tomorrow, the trade I do LIKE is for the QQQ/NDX where I would LIKE TO SEE the NDX make a continued move lower to that correlative WEEKLY S1 and DAILY S2. Now, for some reason, the QQQ correlation shows up at $36.44-$36.42 and MONTHLY S1/WEEKLY S1.

For a QQQ bullish trade setup on that much weakness, I would NOT WANT to see the SPY much below its DAILY S1.

Why would/might the SPY hold in at or above its DAILY S1? I would think that with Treasury yields falling in recent session, the banks, as depicted by the BIX.X might be set to firm, and bounce after a test of WEEKLY S2 today.

I also sense a GREAT deal of bearish complacency.

Let's quickly look at the OEX with new MONTHLY Pivot retracement, where we've got some overlapping support at WEEKLY S1 and MONTHLY S1. But I also want to bring back a prior "hindsight" observation of a doji in the OEX's bar chart, where the OEX rejected higher from that level. Tomorrow, the OEX's DAILY S1 is at that 545 open/close doji and me be a level where bears are just waiting to cover some shorts, or with a little volatility spike into the weekend, really pound out some put selling.

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

I'll take some time later tonight to find out what Index Trader Wrap it was when I finally noted that little "doji" from June 1st when the OEX opened and closed at 545, then broke higher from the current overlapping MONTHLY S1 and WEEKLY S2.

Today, the OEX managed to muster back some strength to close on our downward trend. Hey, that makes sense. If I'm a bear that trades trend, sees it broken, then I'm probably not trash talking and might be trying to get squared up if I've been overly bearish for the past two years.

While I usually don't find a DAILY S1 by itself as being a level for institutional buying, that little doji and rather notable move higher would suggest that that 545 level was a level of agreement (market agreed on open price and closing price), yet major disagreement, as when the up move came, it had some upmph behind it for four our five sessions.

Jeff Bailey

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