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Index Wrap

Insurers breath sigh of relief

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Despite an intra-day turnaround in oil, with December Crude Oil futures (cl04z) 55.17 +1.15% closing up 63 cents ahead of tomorrow's weekly inventory data, the major indices staged an impressive rebound as one cloud of uncertainty regarding some insurers was put to rest.

The S&P Insurance Index ($IUX.X) 290.27 +5.31% as well as the HMO Index ($HMO.X) 921.87 +5.02% were partially reflated, where more than likely, sector bears rushed for cover after New York Attorney General Eliot Spitzer said he would not seek criminal prosecution of Marsh & McLennon (NYSE:MMC) $28.87 +9.27% after the company agreed to name a new CEO.

Dow component American International Group (NYSE:AIG) $60.33 +7.54, which Eliot Spitzer's office has subpoenaed, jumped $4.23 on the session, but well off its $67-level of trade found as recently as October 14, when insurers became a greater focus of the New York Attorney General.

S&P 100 Index (OEX.X) 531.69 +1.46% components, which also include AIG had health insurer Cigna (NYSE:CI) $63.50 +6.16%, property/casualty insurer Allstate (NYSE:ALL) $47.61 +1.94% and diversified insurer Hartford Financial (NYSE:HIG) $58.74 +6.5% gaining on the session. Allstate (ALL) is not a company that had been reported as a primary focus of the NY AG.

NASDAQ-100 Index (NDX.X) 1,422 +0.66% component and health insurer First Health Group (NASDAQ:FHCC) $15.92 +4.05% rose 62 cents. First Health currently in talks to be acquired by Coventry Health (NYSE:CVH) $39.60 +3.01%.

The bottom line on many of the insurance stocks that had been under heavy selling pressure in recent weeks saw relief today, where it would appear that as long as company executives show a willingness to cooperate with the NY Attorney General, then there's a good chance criminal prosecution of the COMPANY itself can be avoided.

Most investment houses tended to shy away with bullish calls of the large underwriters, as the market doesn't know what the size of fines will be.

One could begin to think that if the worst is over, then recent lows for the IUX.X (270) and HMO.X (860) should be the important determiner.

U.S. Market Watch - 10/26/04 Close

Homebuilders built on Monday's gains, surging back above their rising 50-day SMA (628). Pulte Home (NYSE:PHM) $54.52 +5.86% warned analysts that their 2004 and 2005 profit projections were to low.

Earlier this month, Pulte cut its current quarter forecast after its Las Vegas operations tanked when aggressively raised prices scared off potential buyers. That sent the stock's price tumbling from around $62 per share and had the DJUSHB retreating from the 660 level.

Market Snapshot / Internals - 10/26/04 Close

A reversal for insurers gives the NYSE a greater price lift than the NASDAQ, while the more beaten down INDU/SPX/OEX out gained the RUT.X and QQQ, which had been relative strength performers during the "insurance scandal."

I'll make note that the Market Volatility Index (VIX.X) 16.46 was relatively steady all day. Take note of this as I will quickly touch on current VIX.X readings and tie in with SPX.X 30-minute interval bar chart later.

TRIN, which sat at its DAILY S2 for the better part of the session, suggests today's trade was all about stocks and volumes were rather brisk. As of last night's close, daily volume was running an average of 1.47 billion shares per day at the NYSE and 1.69 billion per day at the NASDAQ.

NH/NL ratios try to stabilize again, but remain in a bearish leadership state. I think tomorrow's "oil trade" lies in the balance.

Pivot Matrix -

Same NSDAQ/QQQ resistance correlations tomorrow, that were present in last night's wrap. The semiconductor's digested some more "bad news" with Silicon Laboratories (NASDAQ:SLAB) $27.88 -19.04% a casualty.

I'm going to make the case that last night's Spitzer news and today's trade now has the MARKET fully compensating, or believing there will be no insurance companies going out of business under the scenario of criminal wrongdoing. At least, criminal wrongdoing that can't be settled out of court with a pretty hefty fine.

S&P 500 Index (SPX.X) - 30-minute intervals

I'm showing a 30-minute chart of the SPX.X, with QCharts' calculated WEEKLY Intervals. As the SPX.X first broke below its MONTHLY Pivot 1,115, it was the stepped up allegations of wrongdoing by Mr. Spitzer that had the SPX falling below MONTHLY Pivot, and staying there for the last two weeks.

Today, the SPX started out right at the 21-period SMA (thin pink) and with the help of 3 buy program premium alerts from 10:00 AM EDT to 10:20 AM EDT was able to gain to its WEEKLY Pivot of 1,103.

One last buy program premium at 12:10-12:15 had the SPX clearing its WEEKLY Pivot.

I went back and reviewed some notes from a Market Monitor Archive on 10/21/04 at 02:21:19 AM, when I was answering a trader's question regarding "what does it mean when you post sell program premium."

In that post I made a record 8 different sell program premiums generated during the 10/20/04 and all activity was right around the MONTHLY S1 from 1,096.73-1,101.74.

I could make the case, based on this observation, that the "insurance out of business" risk was removed today.

Now... today, the VIX.X stayed very steady. See where I point to VIX.X 16.35? Other than yesterday and today, the most recent VIX.X reading at current levels was October 14, which equates to that SPX.X relative low.

As I see it, ONE concern exists. That is OIL. With the Dow Transports (TRAN) 3,435.61 +1.64% closing at an all-time high, I have to think the OIL concern remains psychological.

One UNCERTAINTY is Tuesday's election. Will the equity MARKETS be nervous into the weekend, ahead of the election?

Answer: No, not if the SPX can hold above 1,098.

December Crude Oil Futures (cl04z) - 30-minute intervals

There are two economic reports due out tomorrow morning, September durable goods at 08:30 AM EDT(consensus +0.5% versus August's -0.3%) and September new home sales at 10:00 AM EDT (1,150K versus August's 1,184K). Then at 10:30 AM EDT is when weekly crude oil, distillate and gasoline inventories will be released. I have not yet found an information resource to give an estimate of what traders are expecting. I usually get that information when the data is released.

However, oil was lower at today's open, but with the above technicals, it was going to be hard to find any traders willing to go home short ahead of tomorrow morning's energy report and buyers snapped up oil under its WEEKLY Pivot.

In recent weeks, the PATTERN has been that if oil closes above Tuesday's close on Wednesday (tomorrow) then oil tends to trade higher into the Friday close.

For me to think equities can make a further move higher, perhaps SPX.X WEEKLY R2, then oil is going to have to see a decline back near the $52.00 level into Friday's close.

Based on today's trade, I'd at least need to see a 30-minute close below the WEEKLY Pivot, which is something oil didn't do today.

Some of last week's energy statistic headline numbers that can serve as a quick reference tomorrow.

For the week ended October 15....

Refinery inputs averaged 14.8 million barrels/day +280K bbls/day Gasoline production rose to 8.7 million barrels/day Distillate production up slightly to 3.7 million bbls/day

U.S. crude oil inventories +1.2 million barrels in week. Gasoline inventories -0.7 million barrels in week. Distillate inventories -1.9 million barrels in week.

Jeff Bailey

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