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Big test for BIG tech

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"October has killed many a bear. Buy Tech stocks in October and you'll soon wear a grin ear to ear." - Stock Trader's Almanac

The Morgan Stanley High Tech 35 Index (MSH.X) 468.31 +0.92% closed just above its longer-term 200-day SMA (468), a good test for bulls and longer-term bullish conviction as BIG tech was among today's percentage gainers in what turned out to be a broadly bullish session.

With the month of October just 4-sessions old, BIG tech as depicted the MSH.X has risen an impressive 5%, but with many technology sector bullish % still at more "oversold" levels and reversing up to "bull alert" statuses, buyers look aggressive as the MSH.X extends gains after just having reversed one-half of its December to August decline.

Morgan Stanley High Tech Index (MSH.X) - Daily Intervals

After two 12 % rallies and failures from those rallies, the MSH.X has managed to bread a pattern of rally then failure as BIG tech tests its longer-term 200-day SMA. Over the years, I've noticed that MEANINGFUL longer-term changes of direction can take place at breaks of correlative 200-day SMA and either bullish/bearish support from the point and figure charts.

Morgan Stanley High Tech (MSH.X) - 5-point box

As the MSH.X rallies to challenge its 200-day SMA, the PnF chart of the MSH.X shows demand (X) has the index challenging its bearish resistance trend.

A recent "low pole warning" from 400 to 450 is an alert that a bottom may have been found, where I make some ties to the NASDAQ- 100 Bullish % ($BPNDX) where today's action saw no net change in this bullish %, and still reads "bull alert" status at 47%.

In July (7 on a point and figure chart) the $BPNDX rose to 50% before reversing back to "bear confirmed" status and fell to 26% before reversing back up to current levels. I'll note that in late June and early July (7) the MSH.X was able to reach 490.

Morgan Stanley High Tech Components - Sorted by Industry

Cisco Systems (NASDAQ:CSCO) $19.53 +2.25% made a final hour dash higher from $19.15, while Juniper Networks (NASDAQ:JNPR) $25.89 +3.39% spiked from $25.10 in the final hour of trade when Verizon (NYSE:VZ) $41.48 +1.67% made positive comments regarding the increasing of its cap-ex budgets.

Motorola (NYSE:MOT) $18.75 -1.26% was weak after Microsoft (NASDAQ:MSFT) $28.53 +0.52% and PalmOne (NSADAQ:PLMO) $31.87 +2.37% announced a licensing agreement where PalmOne will license Microsoft's ActiveSnc technology, giving users of the Treo smartphone direct, wireless access to corporate e-mail without the need for third-party technology. New versions of the Treo, due this fall, will have the technology built in.

The MSFT/PLMO news is thought to be a threat to Motorola (MOT) who has been late to the market, but has partnered with privately held Good Technology to support MOT's forthcoming MPx phone.

Until now, Good Technology, of Santa Clara, Calif., had the market cornered. Its servers and software sit between a company's Exchange e-mail server and the Treo, and serve up corporate e- mail to the phone. Its system also automatically synchronizes a user's mobile e-mail and calendar with a desktop.

U.S. Market Watch - 10/06/04 Close

The S&P 100 Index (OEX.X) 547.89 +0.62% closes right at its 200- day SMA, not unlike the Morgan Stanley High Tech Index (MSH.X).

The broadness of gains has the NASDAQ Composite (COMPX) closing above its 200-day SMA for the first time since falling below on July 6 at 1,980.

I've marked other 200-day SMA levels in GREEN if current level of trade is ABOVE the 200-day SMA, and RED if current level of trade is BELOW the 200-day SMA.

The AMEX Composite (XAX.X) trades an all-time high (ATH) as this gold/energy/biotech-rich index accelerates further.

While the S&P Retail Index (RLX.X) 416.65 +0.63% did not trade a new all-time high today, it closed there with Wal-Mart (NYSE:WMT) $53.98 +1.06% saying the economy is getting better, but high fuel prices are still a concern.

November Crude Oil futures (cl04x) settled at an all-time contract high of $52.05, despite a second-straight week where the EIA said crude oil inventories showed gains. Meanwhile, December Crude Oil futures (cl04z) came darned close to achieving its point and figure chart bullish vertical count of $52.00.

The VIX.X, which showed a rather suspicious morning reversal after the EIA report at 10:30 AM has the SPX Dec. 1,135 calls (6,432 : 7,359), and Dec. 1,135 puts (6,404 : 7,132) running neck-and-neck for most active SPX options, where last trade was a respective $27 and $26. Current month most actives had the Oct. 1,125 put trading (5,832 : 19,322), Oct. 1,150 call trading (5,782 : 34,297) and Oct. 1,100 put (5,594 : 46,607) the 3rd, 4th and 5th-most active.

Pivot Matrix -

Shares of Dow components Merck (NYSE:MRK) $31.67 -5.26% and Intel (NASDAQ:INTC) 21.13 -0.89% were weak against Dow breadth that finished positive at 24 to 6. With the INDU still lagging not only in its bar chart, but the Pivot Matrix, near-term resistance is marked at WEEKLY R1 and DAILY R1, which the INDU did trade earlier this week.

It may be tough for the SOX.X to show strength above DAILY R1 and MONTHLY R1 correlations ahead of Intel's (NASDAQ:INTC) $21.13 -0.89% quarterly earnings report on Tuesday, but a break above SOX.X 413 and WEEKLY pivot, combined with an Intel break above its trending lower 50-day SMA ($21.52) could bring in some short covering.

Jeff Bailey

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