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Bear trap in the retailers!

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The S&P Retail Index (RLX.X) 391.61 +0.91% found strength above both its 50-day and 200-day SMA's as bullish sentiment improved with October Crude Oil futures (cl04v) falling below $44, as all sectors except the Dow Jones Home Construction Index (DJUSHB) 610.07 -1.01% found gains.

U.S. Market Watch - 08/25/04 Close

Up until 12:00 PM EDT, it was looking like it was going to be another tightly contested session of fractional gains and losses like we witnessed on Monday and Tuesday, but when October Crude Oil futures (cl04v) cracked below yesterday's low between 12:00 and 12:05 PM EDT, buyers turned on the computers in impressive fashion.

S&P Retail Index (RLX.X) - Daily Intervals

While not a percentage gainer, I think the S&P Retail Index (RLX.X) made one of the more important moves in today's session as it found some follow through buying after yesterday's close above both its 50-day SMA and 200-day SMA. Support should be firming at the 21-day SMA where both bulls and bears will most likely be eager to buy pullbacks.

The RLX.X has come a long way since its August 6 relative low, and some charts I'll show for the NYSE Composite ($NYA.X) 6,431.79 +0.77% and Morgan Stanley Cyclical Index (CYC.X) 680.29 +0.87% with similar conventional retracement shown above provide an additional measure for technical strength.

S&P Retail Index (RLX.X) - 5-point box size

The conventional 5-point box scale that most institutions will view has the S&P Retail Index (RLX.X) showing the "bear trap" pattern with Tuesday's trade at $390. The "trap" looks to be classic as it came right as the RLX.X was about to test its bullish support trend. Buyers seemed eager as the RLX.X traded a session low of 360.04 on August 6, not 360.00.

Its notable that the RLX.X hit it recent all-time highs in late June (red 6 is June, red 7 July), when the October Crude Oil futures (cl04v) had just undercut the $36 level before the most recent surge to $48.

NYSE Composite ($NYA.X) - Daily Intervals

As the RLX.X moves above its correlative 50-day SMA and 200-day SMA, the very broad NYSE Composite ($NYA.X) 6,431.79 +0.77% shows similar technicals, where it challenges its 38.2% conventional retracement from the March highs and May lows.

Similar MACD setup to that found on May 26, when the NYSE was challenging the 38.2% retracement. Bulls may have the upper-hand as bullish leadership is actually stronger today than that found at the May 26 close.

My tabulations would have shown the NYSE 5-day NH/NL ratio at 53.2% and 10-day NH/NL ratio at 35.8% at the close of May 26 trade, where that day's NH/NL breadth was 68:25.

Market Snapshot / Internals - 08/25/04 Close

At the 12:00 snapshot the major indices were mixed and TRIN/VIX indications were not in synchronization for what looked to be a third-straight session. Suddenly, crude oil broke below yesterday's low, TRIN moved below 1.00 as well as today's DAILY Pivot and bulls took control.

Volumes picked up a bit, which bulls will find comforting as it expresses some interest, but the still rather anemic volume levels will traders questioning the recent rise in stocks.

Morgan Stanley Cyclical Index (CYC.X) - Daily Intervals

The deep cyclical found in the Morgan Stanley Cyclical Index (CYC.X) don't get a lot of coverage as they are "boring," but can reflect the underlying strength/weakness of an economy. I'm just noticing tonight that the CYC.X shows a "nasty-looking" potential reverse head and shoulders pattern developing, where the downward trend from the all-time highs to the late-April rally high would represent a descending neckline.

Shoot, I meant to type in the WEEKLY Pivot levels as I did for the RLX.X. QCharts'-derived weekly pivot levels starting at WEEKLY S2 are as follows. 640, 659, P=669, 688, 698.

Pivot Analysis Matrix - 08/25/04

Some pretty wide ranges for correlative support, but the major indices look destined for a trade at WEEKLY R1s. If we were looking for volume to pick up, that would be a level where I'd expect some interest.

The S&P Banks Index (BIX.X) 359.11 +0.31% is first to trade its MONTHLY R2, which in my opinion is no small feat.

Jeff Bailey

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