Quarterly earnings warnings from software makers set today's negative tone and had the GSTI Software Index (GSO.X) 141.96 -5.04% lead a broad list of sector loser.
Rising oil prices also weighed on investor's minds with August Light, Sweet Crude Oil futures (cl04q) $39.51 +2.91% jumping back near the $40.00 mark, where another attack on an Iraqi pipeline cut that country's exports by half. Earlier reports out of Russia were that that country's top oil exporter Yukos Oil may have to cut output due to its tax disputes and pending bankruptcy. Later in the afternoon, oil eased from hits session highs when reports surfaced that Yukos officials said production would not be curtailed.
U.S. Market Watch - 07/06/04 Close
Energy and financials showed some relative strength in today's session, but that's about the only positive sign a bulls could hold onto in today's session.
After surging higher on Friday, Treasuries gave back a fraction of those gains.
As is often the case after a three-day weekend, U.S. Dollar Index ($dx00y) intra-day ranges are inaccurate, and intra-day charts for today's trade unavailable. However, the U.S. Dollar Index (dx00y) 88.21 would have shown strength from Friday's closing value of 87.99.
Option volatility measures spike higher in today's trade, but after reaching 16.75 and getting pretty close to my historically low 16.78 level, the VIX.X reversed that high to finish more towards its session lows, giving some thought that put sellers were trying to take advantage of a spike in option premiums in the afternoon session.
Market Snapshot / Internals - 07/06/04 Close
Earnings warnings among technology weighed more heavily on the NASDAQ where decliners outnumbers advancers by a hefty 3 to 1 margin and new lows outnumber advancers for the first time since June 22.
The NYSE faired slightly better, but also showed weak internal figures.
Today's action has the NASDAQ's 5-day NH/NL average ratio slipping back below its 10-day NH/NL average ratio, following the NYSE's similar move from Thursday.
While the 10-day NH/NL average ratios remain in a column of X, the 5-day below 10-day suggests a near-term lack of bullish leadership and is more defensive.
GSTI Software Index (GSO.X) - Daily Intervals
Not too different from the Semiconductor Index (SOX.X) is the GSO.X's declines after testing downward trend from the January highs last week, where today's earnings warnings from Veritas Software (NASDAQ:VRTS) $17.00 -35.96% and Micromuse (NASDAQ:MUSE) $5.17 -20.09%, which traded as low as $3.97 earlier, were not amusing to bulls.
After the close, bulls bid up shares of Quest Software (NASDAQ:QSFT) $11.10 -9.08% to $12.34 said it now sees pro forma earnings per share for the quarter at the high end of previous guidance given to analysts (gain of $0.07-$0.09).
NASDAQ-100 Tracker (QQQ) - Daily Intervals
With a jump in various volatility measures, I like a naked put sell for the QQQ July $35 puts, which obligates the seller of these puts to buy the QQQ at $35, less the $0.20 per contract received.
Now, I profiled a round lot of 10 puts, which would equate to 1,000 shares of a $35 security. With a pattern of higher highs and higher lows, I thought this would bee a good risk/reward play.
While I (Jeff Bailey) may not feel overly comfortable being exercised on 1,000 shares of QQQ at $35.00, there's nothing to say a trader that is "naked" the $35.00 puts can hedge that position with an outright QQQ short on a break below today's low.
However, I think these puts expire worthless by July expiration.
S&P 500 Index (SPX.X) Chart - Daily Intervals
I keep going back to the May 25, 2004 Index Trader wrap, and I did so once again today. If you quickly review that wrap, you will the Market Volatility Index VIX.X chart and tonight's reference to the 16.78 level. Today's VIX.X low was 16.13, so the VIX.X traded back up and within that range.
In the 05/25/04 Wrap, I also showed an option chain of the SPX.X that day, which I sorted by volume. Note the volume that day in the July 1,100 puts (SPTST).
Today, both the July 1,100 (v 6,674 : OI 43,327) and July 1,110 (v 6,288 : OI 13,905) were the two most actively traded contracts. Both strikes are VERY close to WEEKLY S2 and MONTHLY S2 support levels.
Dow Industrials (INDU) Charts - Daily Intervals
Still "out the money" in the DIA July $100 puts, and time is running out. It's decision time for me, and I'm up against the options market maker. Hmmm... If I were an options market maker, I'd try and influence some buying in the July DIA $102 puts with a move lower at the open. Maybe to DIA $101.50, get some put buyer to buy some premium, then look for a MONTHLY settle back near 10,350 with the Dow/DIA stuck in a range from 10,000 to 10,500.
Pivot Analysis Matrix - 07/06/04 Close
The INDU, SPX and OEX settled out right near their WEEKLY S1s, where relative strength from the S&P Banks Index (BIX.X) 345.89 -0.36% as well as broader financials, watered down losses among technology, where both the Semiconductor Index (SOX.X) 439.14 -3.97% and tech-heavy NASDAQ-100 (NDX.X) 1,445.71 -2.39% and its Tracking Stock (AMEX:QQQ) $36.03 -2.14% extend losses for a third-straight session.
As noted when revisiting the Semiconductor Index (SOX.X) and our reverse head and shoulder chart, should SOX.X give way from MONTHLY S2, the SOX.X looks capable of fulfilling the downside pattern objective of 412, where the NDX/QQQ would most likely be pulled lower to July's MONTHLY S2s.