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Index Wrap

Hurricane or tropical storm\?

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Buyers sent stocks higher Monday with all equity-based sectors posting solid gains with airlines, biotechnology and brokers leading the broad advance.

September Oil futures (cl04u) $45.90 traded back $1.00 from contract highs of $46.90 set early Monday morning after Venezuelan President Hugo Chavez won a recall referendum.

Still, oil remained well above the $45.00 per barrel mark as traders were uneasy should those supporting the opposition take to the streets and riot.

Venezuela's electoral authorities said Mr. Chavez had scored a 58% to 42% victory in a poll marked by long delays. Two opposition members of the five-member Venezuelan Electoral Council have already claimed that a "gigantic fraud" had been committed.

Tomorrow's trade in oil could well determine if today's gains for bulls was simply a tropical storm, or the makings of a full force hurricane of bullish enthusiasm.

U.S. Market Watch - 08/16/04 Close

Two of my "sentiment" indices had the Securities Broker/Dealer Index (XBD.X) 119.40 +3.33% jumping near its WEEKLY R2 (119.60) in today's session, while the S&P Retail Index (RLX.X) 377.52 +2.82% closed above its trending lower 21-day SMA (374.95) and correlative WEEKLY R2 (374.48), where despite disappointing quarterly results, building products retailer Lowes (NYSE:LOW) $49.14 +5.33% surged on an upbeat outlook from company executives.

The "blue light special" at KMart (NASDAQ:KMRT) $76.05 +17.18% attracted buyers after the discounter reported stronger-than- expected quarterly results.

Market Snapshot / Internals - 08/16/04 Close

The major indices opened flat after pre-opening economic data had the regional New York Empire State Index showing manufacturing activity cooled notably in August. Stocks seemed to gather steam as Florida's damage from Hurricane Charles had some estimating initial damage between $5 billion and $11 billion, where some estimated the storm's path could have claims rising as high as $15 billion.

Aluminum giant and Dow component Alcoa (NYSE:AA) $30.81 +3.98% jumped more than $1.00 on speculation that aluminum prices might rise as demand for construction siding material could see a near- term surge in demand, while manufactured homebuilders jumped as aerial photos showed many manufactured homes flattened from Hurrican Charley's winds.

Pivot Analysis Matrix -

The Semiconductor Index (SOX.X) 370.30 +0.99% jumped to trade its WEEKLY Pivot within the first 90-minutes of trade, but huff and puff as it might, could not find enough buyers for the break above. Resistance is stacked at SOX.X WEEKLY Pivot and DAILY R1, and without the semiconductors, the NASDAQ-100 Index (NDX.X) 1,326.84 +1.45% and QQQ $32.89 +1.12% faded from just below their MONTHLY S1 and WEEKLY R1 correlations.

September Oil Futures (cl04u) - 30-minute intervals

In my opinion, today's broad market gains couldn't have been fueled by today's modest declines in oil, but oil prices will be closely watched as traders argue whether or not oils rise is attributed entirely to strong economic factors of demand exceeding supply, or purely created from momentum traders pressing the black gold higher.

The last three weeks has found oil bulls eagerly buying dips at the September futures (cl04u) WEEKLY Pivots, and it may take a move below this week's WEEKLY S1 and $44.31 for momentum bulls to start unraveling. If so, the recent trade of selling equities against higher oil prices could unravel in an equity bull's favor.

Relative Strength bar chart of SPX.X versus Sept. Oil

In Friday evening's Market Monitor I updated the relative strength chart of the SPX.X versus September Crude Oil futures (cl04u), where I showed this chart in the August 4 Index Trader Wrap. Tomorrow may be the BIG test for similarity of what took place on July 21 and 22nd, when oil prices continue to march higher, pummeling the SPX further lower.

Jeff Bailey

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