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Index Wrap

Halloween isn't until October 31

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As many news bulletins as I read during a day, either I missed the Energy Information Agency (EIA) telling the market that today's scheduled release of weekly oil/gasoline/distillate inventory data was going to be delayed until tomorrow morning, or the EIA decided to play "trick or treat" on October 13th, instead of the 31st.

While the one-day delay in weekly crude inventory data may not have made any difference as it relates to today's eventually lower trade for equities, when oil is holding near record highs, the rather eagerly anticipated information, or lack thereof did little to help market psychology toward stocks.

In Jim Brown's Market Wrap, he posed the question if Intel's (NASDAQ:INTC) $20.99 +3.50% and Yahoo's (NASDAQ:YHOO) $34.96 +2.13% earnings would be close enough to trigger a broader market bullish response.

Answer: Not today, and not with oil above $52, perhaps $50.

November Crude Oil futures (cl04x) - 30-minute intervals

November Crude futures were below the $52.00 level when stocks opened for trade, and the way stock futures had built gains in the overnight session, there was a feeling of bullish optimism.

I waited, and waited, then waited some more for the energy data, when the headline crossed that the EIA was delaying its release of weekly inventory data until tomorrow. As oil moved above $52, bullish optimism for equities began to fade.

But I can say it was "oil's fault."

Most metal related stocks, whether they be precious or industrial, were simply hammered lower from their opening ticks, with the look of pre-determined selling. The very broad NYSE Composite ($NYA.X) 6,556.53 -0.8% was first to turn red.

Despite oil's late session rally, the CBOE Oil Index (OIX.X) 390.12 -2.08% finish lower on the session, but recouped about 1/3 of its intra-day losses to finish down 8 points instead of 12.

Market Volatility Index (VIX.X) - 30-minute intervals

The VIX.X dropped below its WEEKLY Pivot for the first time this week at its open, but for the most part, rose higher after 10:15 AM EDT. With October expiration just a day away, you can almost feel, if not see how oil's rise created little "spikes" of in and out the money call selling capitulation.

SPX Option Chain - Sorted by Volume

Heavy trading relative to open interest was found in the SPX Nov. 1,005 and 995 puts and unless the nations oil reserves have gone dry, that type of trading look highly spec-related and can "artificially inflate" the VIX.X. In PINK, LIGHT BLUE, and DARK BLUE I've marked those October contract's open interest that the SPX closed nearest to.

The 1,125 strike looked pretty well matched, and I'd be willing to bet there wasn't a lot of call buying today. An 82% decline by the close is what some would describe as "Max Pain" for sure, while a hefty 106% gain for the 1,125 puts sweetened a bear's tooth.

SPX 1,020 is the "Max Pain" level for October, and if option expiration is going to have any dealings in tomorrow's trade, an options market maker could inflict greater pain on the put side (15,143 OI) versus the call (20,640 OI) on an SPX close back near 1,120.

The 1,115 calls are now out the money and stand the risk of going "poof" and turning into a pumpkin, or $0.00, but the higher open interest of 20,640 in the puts, now in the money would be profitable if we close here or lower tomorrow.

In summary, the SPX option market maker might have a vested interest in a higher trade tomorrow, but oil might have something to day about that.

Somewhat concerning into tomorrow's NDX.X expiration is its "Max Pain" theory value of 1,400.

NASDAQ-100 Index (NDX.X) - Daily Intervals

When the VIX.X rose back above its WEEKLY Pivot this morning, I started reviewing some option action, where I had been focusing a little more on NASDAQ-100 options of late, as the NDX.X is furthest from its October "Max Pain" of 1,400, which just so happens to be the 38.2% retracement from a conventional use of retracement.

I didn't see anything unusual in the NDX.X options I have been following, but I did see some unusual action at (see MM archive at 10:23:16 AM) where the QQQ Nov. $34 puts (QAV-WH) were trading a rather heavy 157,183 contracts versus 127,878 open interest. At the time, the QQQ was trading $35.89, the NASDAQ-100 Market Volatility Index (VXN.X) was reading 21.51 +2.77%.

Now, I've marked "QQQ $34" on the NDX.X chart, where after looking at the QQQ chart, I eyeball past QQQ trade of $34 equivalent to NDX.X 1,380.

My initial analysis of that trade was that it was probably a put premium seller, selling $34, taking in some premium of $0.40 per contract. I will admit that I would feel more comfortable in that analysis if the NDX/QQQ could show some muster above the 200-day SMA.

I'd add to that, the Morgan Stanley High Tech 35 (MSH.X) 451.31 +0.12%, not faltering at the 459 level like it did today.

By NO MEANS was Intel's (INTC) quarterly earnings a "blow out." But what tech bulls want to see is a MARKET looking 3 to 6-months down the road see Intel's comments regarding inventory builds abating become the turning point for a second leg of tech expansion.

Morgan Stanley High Tech 35 (MSH.X) - Daily Intervals

The somewhat broader NASDAQ-100 still remains stronger than the narrower BIG tech of the MSH.X, which didn't see a convincing bullish trade today, as its 50% retracement found sellers. It could be oil, it could be October expiration, but when a market becomes "truly convinced" a turn higher is in the making, buyers should overcome sellers. Despite a bullish-looking response to Intel's comments, BIG tech seems hesitant. October "Max Pain" theory for the MSH.X is calculated at 450 (5-point increments).

Dow Industrials (INDU) Chart - Daily Intervals

By nearly every measure, the INDU continues to show technical weakness relative to the majors.

IBM is BIG Tech, and I do think Smith Barney's lowering of EPS estimates came in part after IT consultant Accenture (NYSE:ACN) $23.93 -9.96% reported Q4 (Aug) earnings of $0.30 per share, which was $0.02 better than consensus of $0.28 on revenues that rose 13.5% year-over-year to $3.42 billion, excluding reimbursements (consensus of $3.48 billion). However, ACN issued guidance that was at the lower-end of ranges for Q1 (Dec), and sees GAAP EPS of $0.28-0.31 versus consensus of $0.28 on revenues of $3.5-3.7 billion, consensus $3.66 billion. For 2005, ACN sees GAAP EPS of $1.34-1.39 versus the Reuters consensus of $1.39.

In essence, while ACN sees growth for its IT services/consulting business, it doesn't appear it is as "robust" as analysts had been thinking, and Smith Barney made some adjustments to its estimates for IBM.

Pivot Matrix -

Treasuries are starting to take on that "defensive" look as the 10-year YIELD ($TNX.X) starts to gravitate back toward the 4.0% yield level. I'm just noticing that the 10-year YIELD and SPX.X have NOT been able to trade their respective WEEKLY Pivots, as if cash that could be going toward equities is finding its way back into the Treasury market.

Jeff Bailey

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