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Summer doldrums ends as the big board breaks out

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While today's FOMC decision on interest rates was eagerly awaited, it may have been the autumnal equinox that big board traders looked forward to most as gains for energy stocks, miners and homebuilders had the very broad and institutionally held NYSE Composite (NYA.X) 6,633.22 +1.02% rising more than 67 points and breaking above this summer's highs.

I'm certain today's break above June's relative highs for the NYSE Composite is purely coincidental, but with today being the last day of summer in the northern hemisphere, as marked by the autumnal equinox, it is a fascinating coincidence indeed.

The Federal Open Market Committee (FOMC) didn't offer up any surprises with today's decision to raise it target for fed funds to 1.75% from 1.50%, and the FOMC's brief statement read nearly verbatim to the June 30 release link, and August 10 release link .

As I read today's statement more closely, there were a couple of and words missing.

"Transitory factors," which the FOMC had used to describe incoming inflation data in June and August was stricken from today's minutes.

"Softness," which was used to describe output growth and pace of the labor market in August, was also missing from today's brief statement.

Here's a link to today's FOMC statement.

U.S. Market Watch - 09/21/04 Close

While the autumnal equinox marks the end of summer and the beginning of autumn as night and day are nearly of the same length, Treasury yields trade just the INVERSE of what normal logic would have them doing with the FOMC raising rates, while the same would be true for TRANSPORTS as energy prices are back on the rise.

October Crude Oil futures (cl04v) rose above the $47.00 level and trade $47.10 ahead of tomorrow morning's 10:30 AM EDT release of weekly inventory reports, but that didn't stop the transports as depicted by the economically sensitive Dow Transportation Average (TRAN) 3,271.22 +0.89% from closing at new 5-year highs!

The trade in Treasuries remains perplexing with NOBODY having the etched-in-stone affirmative answer to what is going on.

Low inflation, hedge fund buying or slowing economy are three scenarios for the benchmark 10-year yield ($TNX.X) hovering just above 4%, but trading at 6-month lows.

With low Treasury yields, comes lower mortgage rates. Strong earnings from Lennar (NYSE:LEN) $47.24 +2.8% as well as KB Homes (NYSE:KBH) $83.36 +9.32%, which raised fiscal 2004 and 2005 earnings estimates set the Dow Jones Home Construction Index (DJUSHB) 671.89 +4.01% surging to the top of today's sector winner's list.

Gold bugs glowed as the HUI finally broke above its 200-day SMA (209.43) after falling below this longer-term simple moving average on April 20.

While the HUI makes a move above its 200-day SMA, the Dow Industrials (INDU) continues to battle with downward trend and its 200-day SMA (10,293). Both the NASDAQ-100 Index (NDX.X) and broader NASDAQ Composite ($COMPX) remain just below their respective 200-day SMAs of 1,441 and 1,966.

Sectors I see very near their 200-day SMA's at today close have the CBOE Internet Index (INX.X) challenging its 200-day SMA for a sixth-straight session, while the Combined Telecom Index (QCharts: IXTCX) 177.68 +1.51%, which is comprised of wireless and land telecom service providers found a bounce higher from its rising 21-day SMA today, and looks set for another challenge of its 200-day SMA (181) after a failed first try on Monday of last week, September 13.

Hmmmm... the Securities Broker Dealer Index (XBD.X) 129.55 +2.55% looks technically similar to the Combined Telecom Index, where stronger than expected earnings from Goldman Sachs (NYSE:GS) $94.90 +3.51% and Lehman Brothers (NYSE:LEH) $79.75 +4.9% provided a lift in today's session.

Tomorrow morning, Morgan Stanley (NYSE:MWD) $52.38 +2.78% and Bear Stearns (NYSE:BSC) $90.09 +2.67% report quarterly results.

Market Snapshot / Internals - 09/21/04 Close

Advance/decline lines were bullish from the opening bell and built stronger to the close. Volumes were brisk, but not overly heavy and while the S&P 500 Index (SPX.X) looked ready to erupt when a buy program premium was generated at 03:00 PM EDT as the SPX lifted to a session high of 1,131.54, it would appear to me that some 4 and 5-lettered stocks created somewhat of a drag in the final hour of trade.

At 03:00 PM EDT, NASDAQ-100 heavyweight Microsoft (NASDAQ:MSFT) $27.28 was ticking above $27.50, but faded to the close. I can find no news to explain a sudden drop from $27.43 to $27.29 in the final 5-minutes of trade, where 2.6 million shares where traded, and this action looks like some type of program initiated trade to its close. MSFT's final hour decline had the QQQ moving back from its session high of $35.84 found at 03:00 PM EDT.

NYSE Composite ($NYA.X) - Daily Intervals

The NYSE Composite ($NYA.X) faced a formidable test of strength on September 2 in our 03:15 PM EDT update as it approached the conventional 50% (blue) retracement and our "cheater's trend" (dashed red). Since the conventional 61.8% retracement couldn't fully explain the June resistance just above 6,574, I slapped a PINK "fitted retracement" at a high close of 6,611, a level buyers were unable to break on a closing basis.

As the last days of summer draws to an end, so has this summer's resistance in the NYSE Composite.

You've probably been noticing the NYSE 5-day NH/NL ratio wavering of late. Today's expansion of new highs gets a little kick and with Stochastics confirming a break of a range, I think the NYSE Composite most likely moves higher into the next upper zone of resistance, which would correlate with this Spring's relative highs.

Today's trade is bullish for the NYSE as it would make for a HIGHER high compared to June's bounce highs, from a massive double bottom marked by May and August's lows near 6,211.

Dow Jones Home Construction Index (DJUSHB) - Daily Intervals

The homebuilder sector is not necessarily a sector a trader trades, but I've mentioned bullish trades in two of my "favorites" that I hold in DR Horton (NYSE:DHI) $33.75 +5.07% and Toll Brother (NYSE:TOL) $47.80 +3.55%. Other sector bulls will still trade DHI, TOL and other "like stocks" using the DJUSHB as a guide. Tomorrow morning we'll get the Mortgage Bankers Association weekly figures for purchases, refinancings, etc. I'm looking to sell 1/2 position profits regardless of the figures as the homebuilders have made a very nice move higher, but trade the upper end of the a bullish regression channel. A near-term "blow off" move could see the rally extend to 700. Bulls and bears that have traded this sector will have noticed that the DJUSHB has shown the ability to trade outside of its bullish regression channels in the past.

AMEX Gold Bugs Index ($HUI.X) - Daily Intervals

Gut feel is that we saw a lot of "gold bears" and "gold bugs/bulls" doing some aggressive buying today. All day the $HUI.X was pinned just under 211.20, but when the Dollar Index (dx00y) 88.12 -0.97% broke back under its WEEKLY S1 of 88.32, buyers pressed the $HUI.X firmly higher.

Pivot Analysis Matrix -

One can never be certain, but I feel as if Treasuries are way "overbought" and we're reading for a reversal after a very bullish move from May's YIELD highs. One trade I'd be alert to is for the 10-year yield ($TNX.X) to print under 4.0%, which for bond trader's is almost equivalent to "Dow 10,000."

I could see some Treasury bears capitulate here, drive YIELD under, or NEAR the three correlative YIELD supports (Daily S2, WEEKLY S2 and MONTHLY S1), where a REVERSAL could then take place on a snap back above DAILY Pivot and WEEKLY S1. I don't think a mortgage refinancer, or a "lock'em in" mortgage originator could go too wrong should the benchmark bond dip under 4.0%.

The QQQ printed a session low early this morning at $35.44, just two cents above the WEEKLY Pivot, which has NOT been traded at this point. The SOX.X finds buyers just above the psychological 400.00 level, but was unimpressive in today's trade. Darned, I missed marking the SOX.X correlative resistance of DAILY R1 406.80 and MONTHLY R1 of 406.58. MONTHLY R1 in the SOX.X has not been traded all month. If it does get traded, today's move in the HUI.X could be small in comparison to potential short- covering in the chips, on a break much above 407.

According to Dorsey/Wright and Associates, their Semiconductor Bullish % (BPSEMI) fell 0.63% today, but remains in "bull alert" status at 20.89%.

Jeff Bailey

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