THE BOTTOM LINE -
Meanwhile the Nasdaq Composite (COMP) and 100 (NDX) are drifting sideways, buoyed by a rebounding (and very oversold) chip sector/ Semiconductor Index (SOX - close: 370.9 +18.9) after reaching my objective in the 350 area and with snapback/rebound potential to 400. The overall Nasdaq pattern could be read as building a minor top or consolidating for a next rally.
What's a poor trader to do given this mixed picture? Don't risk much until the trend resolves itself! No heavy positions seem warranted except, if you crave action, for smaller short-term trades.
FRIDAY'S TRADING ACTIVITY -
Tech stocks finished higher on an improved outlook from Nokia and a better than expected report from National Semiconductor, while a big 1-week decline in jobless claims lent support to the NYSE market.
THE NUMBERS -
The S&P 500 (SPX) gained 2.1 points to 1,118.38. The Dow Industrials (INDU) was down however and off 24 points to 10,289.10.
The Nasdaq Composite Index (COMP) rallied a substantial 19 points (+1%) to 1,869.65.
REPORTS, ECONOMIC & STOCK NEWS -
The Labor Department reported that the number of workers filing for state unemployment benefits plunged by 44,000, to 319,000 in the week ending Sept. 4th. and offered the biggest decline in initial claims since December 2001.
The drop however seemed mostly attributable to the impact of storms that have hit Florida in the past month and to adjusting for seasonal factors.
Also reported was that prices paid for imports into the United States jumped 1.7% in August, due to a surge in petroleum by 9.6% and the biggest increase in 20 months.
The Commerce Department also came out with an estimate that inventories at U.S. wholesale dealers increased a seasonally adjusted 1.3% in July
Tech stocks rallied after National Semi (NSM) Q1 net income of 31 cents per share on sales of $548 million, beating expectations for earnings of 26 cents a share and sales of $545 million. The company said however that Q2 sales might fall 8-10 percent from Q1 levels. NSM rallied 12%.
An improved third-quarter outlook from Nokia (NOK) was from strong volume growth in mobile phones. The cell-phone maker said it sees earnings per share from 11 cents (euro) to 13 cents euro, up from an earlier outlook.
OTHER MARKETS -
There was a surge in oil prices back above $44 a barrel but it did not appear to be a major negative for stock investors, at least today - stay tuned for tomorrow!
The benchmark 10-year note closed lower on the jobless claims data and a weaker than expected government auction. The 10-year ended down 10/32 to 100 12/32.
The dollar was up 0.4% against the Yen and was also up slightly against the Euro, which closed at $1.2188.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
1120 and a bit above has continued to be a resistance area, but it looks like the S&P 500 (SPX) could still attempt a rebound into the more significance technical resistance at the top end of its downtrend channel around 1130. At that juncture we'll see if there might be a retest of that prior high back in June. Doubtful in my mind for a breakout, certainly not above the prior top, at least without more backing and filling.
There may be a rally to around 1130, another pullback of 15 points and then another rally before SPX comes down more substantially - selling pressure recently hasn't increased enough yet to create a larger pullback.
I hope to play the bigger ranges, like buying calls in the 1100 area, or perhaps back to 1080 and buying puts on a challenge to the prior tops in the 1140-1145 area. I keep reminding myself that waiting will bring higher potential trading opportunities and right in here I am just "meat" for the floor traders who can sell to me and make money on little scalping type trades every day.
My "sentiment" indicator is maybe heading back down toward a 1 or more day bullish reading. It's somewhat unusual for this indicator to be falling when stocks are still holding up and with SPX looking like it could rally again. In fact the decline in this indicator is a minor bullish aspect, along with the still bullish chart pattern.
S&P 100 Index (OEX) - Hourly chart:
The S&P 100 (OEX) is still locked in a tight range but the action looks more like consolidation then building a top. This is so as long as the dips hold above 540-541. Give the benefit of the doubt to the trend and the short to intermediate trend reminds up. The sideways move also has the effect of "throwing off" the short-term overbought condition. 546 is near resistance, then comes in at 549-550, at the low end of a significant June top.
I would caution against buying a "breakout" move above 546 as it may be short-lived and the premiums will be jacked up sooner than you can say sooner. Any such rally to follow may be short lived as I think the 550 area will prove to offer tough resistance. Better to buy puts with OEX around 550 and risk to a close of 3 points higher (553).
I'm also assessing the possible attempt to take OEX to around 550 for September expiration. The index is holding up pretty well and bullish sentiment is not rising - the kind of situation that can set up a short squeeze and work against Sept puts held at lower strikes.
Dow 30 (INDU) - Daily chart:
Keeping the downtrend channel highlighted is interesting as the Dow 30 Industrials (INDU) looks stuck at the down trendline -
I last suggested that a move to around 10,350, without much upside follow through, as offering a put play. I'm still keying off a close at 10,350 as being significant, with a close above this level as at least suggesting that the prior highs in the 10,450 area could be re-tested. The weakest technical picture is presented if INDU can't break out at all above its current down trendline. Failure to take out a prior high is also showing an overall bear trend, dating back to the peak made in February.
Near support is at 10,200, with next lower support at around 9950.
The Stochastic on the daily Dow chart above is hanging up at an overbought extreme - it could hang in up in this area for a while like the June top. Eventually their will be at least a sideways move to bring this back down again, if not another downswing.
Nasdaq Composite (COMP) Index - Daily:
1873 is the prior closing high to the recent rally and the level to watch in the Nasdaq Composite (COMP) - then, above this close, the prior closing high at 1892 as resistance.
A good jump in the up volume from today suggests some renewed upside momentum, perhaps to the 1892-1900 area where I would want to own puts, such as in the Nas 100 options, say for October which tends to have a lot of cross currents and potential downdrafts.
Nasdaq 100 (NDX) Index - Daily:
No change here - 1410 looks to be key technical resistance, then 1430. It feels like NDX might, on the strength of a rebounding SOX index get to perhaps a midpoint 1420 where I suggest exiting any calls and going into puts.
1360 is key support. I think the outlook is higher, up toward resistance before support is tested.
Nasdaq 100 tracking Stock (QQQ) Daily:
QQQ remains bearish in its pattern if it can't get above 35. A close over 35 would set up a move to possibly 36 where I would short the stock.
33.7 - 34 is near support. As with NDX, if they can't take em down, they will likely take em up first.
The On Balance Indicator (OBV) is still trending slightly higher and volume with it and provides a slightly bullish clue for another rally attempt.
Good Trading Success!