Option Investor
Index Wrap

Stocks rally with some clarity (More of the Same)

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Aside from airlines and semiconductors, the major indices and sectors posted healthy gains as investors found some clarity from President Bush's successful run for a second term in office, where despite a very tight margin of vote, a quick resolution without a re-count also drew applause.

Of the three possible outcomes discussed in last night's Index Wrap, Bush's victory provides clarity in that market participants know what President Bush's policies are.

Should investors or traders not believe equity markets might view a Bush victory as a slight positive, you might want to review today's Market Monitor (futures and option) for a chronological real-time e-mini S&P futures (es04z) response from traders as various news agencies were predicting Bush and Kerry electoral wins.

If you'll read that commentary, I do think today's trade will make a little more sense.

When I turned off the lights last night, it was still uncertain if Bush would win the swing state of Ohio. Here's where the e- mini S&P futures were trading at my last post. The retracement brackets shown were derived from my "5-minute Retracement" technique for short-term trading, and developing of levels.

e-mini S&P 500 futures (es04z) - 5-minute intervals

My main point of following the e-mini futures last night was to solidify my belief, and perhaps that of the MARKET, that a Bush victory was perhaps "better" for the stock market than a Kerry Presidency was. It would be my analysis, based on observation, that other market participants viewed yesterday evening's unfolding election results as somewhat bullish.

Do you see my note regarding 1,133 and 1,144? That's from the Pivot Matrix and MONTHLY pivot retracement.

This morning, the S&P 500 Index (SPX.X) opened at the 1,145 level. Now, if I can "predict" a 1,144 open should President Bush be declared the winner, then I'm sure a few other market participants could do the same thing. If they were buying up futures last night, then I'd think quite a few bulls were selling them this morning.

Here's a screen capture of the e-mini S&P futures (es04z) I took this morning just before the opening bell. On review, once the 1,144.55 level (BLUE #12) was traded, do you see how price finally went two (2) levels back lower? That's probably because even late night trade, PRICE finally met what the MARKET felt fully reflected that news event on a near-term basis.

e-mini S&P futures (es04z) - 5-minute intervals (11/3/04)

So there we were. The opening bell rings, and as alluded to in this morning's 09:00 AM intra-day update, I would have been hesitant to "chase" this morning's open.

U.S. Market Watch - 11/03/04 Close

Points of highlight are the opening reading of the TRIN at 0.15. Ferocious buying at the open as the pressure of what took place overnight unwinds. A little "overbought" at the open? I think so.

I tell you what. I'm really liking the seasonal scenario for Russell 2000 Index bullishness and the 600 and 309 "Friday CLOSES" we developed. If you're long either of these indices, you're not overly worried. In fact, your probably PROFITABLE. A bull would just like to see some closing confirmation. Maybe on Friday after the nonfarm payroll numbers have been digested. Need a little more power to the engine right now.

Wow! Look at today's high yield on the 10-year ($TNX.X) at 4.160%. But then the closing yield of 4.07%. When we look at the 10-year yield ($TNX.X) in the pivot matrix, we're going to be assessing higher potential yield trade to WEEKLY R2 after a trade at WEEKLY R1 aren't we.

If selling in Treasuries, which should free up cash to rotate to stocks is going to become the power to the bullish engine, then I still think oil prices and more jobs will be the driver.

Now. Somebody mentioned today's rise in oil as a "reason" that stocks didn't just shoot higher from the opening tick.

Aha! But didn't we think we might see a bounce in oil from these levels.

Here's the point and figure chart from StockCharts.com that we looked at in the 10/27/04 Index Trader Wrap titled "Oil Happens!" While this is a continuous tracking of oil price, its pretty darned close to what the current month oil futures contract will be trading. I'm just trying to get a feel for oil, make some predictions, and continue to test these predictions based on my observation of supply/demand and "levels" that might be inflection points.

Oil - Light Crude- Continuous Contract ($WTIC) - $0.50 box

The above chart was what we were looking at on the evening of 10/27/04. .... "may lose bullish momentum to $49.50."

So let's get updated on the supply/demand chart. Again, the conventional box size futures traders will use is the $0.25 box size. But due to horizontal limitations, I show the $0.50 box size so we can bring in the important observations of what happened in the PAST, so we can know what to either look for in the future (history repeats) or DIVERGENCE (history doesn't repeat).

From an economics point of view, oil prices are probably a little too high and putting a wet blanket on economic growth.

Here's where we are at tonight's close.

Oil ($WTIC) - $0.50 box size (11/03/04)

Doh! Oil traded $49.00 this morning. Since we can only chart the "O" (supply) today that's all we get on the chart. However, December Crude Oil futures (cl04z) did trade as highs as $51.00 late in today's session. Are we all that surprised? Not from a supply/demand perspective. If we think oil is going to trade down to its current bearish vertical count of $43.25 after such hungering demand drove price up to $55.50, then we need a reality check.

But just as encouraged as I (Jeff Bailey) was back in September (red 9) when oil prices looked to be abating at the $42.50 level, I've wised up a bit, and I think we've got a good test in place. We KNOW what to look for as far as higher PRICE. We already discussed that in the 10/27/04 Index Trader Wrap.

Now, I've noted this week's WEEKLY Pivot Analysis levels for the December Crude Oil futures (cl04z) on the above chart.

in PINK horizontal lines, I used the pivot analysis algorithm, and calculated MONTHLY Pivot analysis levels for MONTHLY S1 ($48.49) and MONTHLY Pivot ($52.07). As I place them on the point and figure chart, I get a decent perspective of a near-term range.

I don't know about you, but if I were long 10,000 barrels of oil at $53.00 and just saw $49.00, I might be a willing seller back at $52.00.

DIVERGENCE from the PAST as I see it would be an oil trade at $48.50, where we see a second consecutive sell signal. I'm aware that $48.49 (say $48.50) could be a more institutional level of oil support, but if institutional size bulls don't buy it there, then further sign that oil prices are going to ease further.

Bottom line thoughts:

The election is out of the way. Good!

Two important events are coming up.

One is what I'm going to call the "I told you so trade." This will be Friday and the nonfarm payroll numbers. An upside surprise has President Bush saying "I told you so...." A downside surprise has Senator Kerry saying "I told you so."

In today's 01:00 PM ET Intra-day update, I covered the bond market and tied the most recent October 8 release of nonfarm payroll numbers (September figures) with what the bond market response was to those numbers.

When I look at tonight's closing 5-year yield ($FVX.X) of 3.325%, where this shorter-dated 5-year bond's yield finished unchanged, I'd have to say the bond MARKET isn't looking for a blowout/strong nonfarm number. We shall see as economists have raised their earlier forecast to 175,000 new jobs created.

Pivot Analysis Matrix -

First thing I looked for in tonight's Pivot Matrix was something in the DAILY Pivots around 1,133. It's "obscure." That's what I like about it. If we get any trade tomorrow at 1,133 on the SPX, check your oil (pun intended). If OIL is quiet, and the 10-year YIELD ($TNX.X) is ABOVE its correlative WEEKLY Pivot and DAILY S1, bulls that didn't "chase the open" should find a good entry point at that level.

Bears seem to be mounting a defense with correlative levels of resistance at DAILY R2 and MONTHLY R1.

Two things I can think of to get the indices above that. Jobs and lower oil!

I'm running late on the update, but I also wanted to quickly post the MONTHLY Pivot levels for the Russell 2000 Index (RUT.X), the Russell 2000 Growth Index (RUO.X) and Russell 2000 Value Index (RUJ.X).

Russell 2000 Index (549.99, 566.89, P=579.72, 596.62, 609.45)
Russell 2000 Growth (283.34, 292.39, P=298.79, 307.84, 314.24)
Russell 2000 Value (815,42, 840.14, P=860.14, 884.86, 904.86)

Jeff Bailey

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