Option Investor
Index Wrap

Keep one eye on oil and 20-minutes of similarity

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Stocks traded higher on Wednesdays with the NASDAQ-100 Index (NDX.X) 1,571.12 +1.45% chiming in with a new 52-week high, while its Tracking Stock (AMEX:QQQ) $39.11 +1.33% followed suit on brisk volume of 125.4 million shares, and would have most likely closed at or near its session high of $39.32, if bulls hadn't slipped on a late spat of buying in oil.

Pattern traders will want to keep an eye on oil tomorrow. Some of the things I saw today look EXACTLY like they did last week, and more than likely, traders are going to look for SIMILARITY (bullish for stocks) or DIVERGENCE (bearish for stocks) in tomorrow's early morning trade.

If you've been playing close attention to my recent weekly observations of how oil trades toward the Wednesday close, and more importantly, how it finishes into Friday's close, then tonight's Index Trader Wrap will make perfect sense.

Tonight I'm going to quickly look at a 10-minute interval chart of December Crude, show you just how similar (to within 10- minutes!) today's trade was to that found on Wednesday of last week. That sets up the observation for SIMILARITY or DIVERGENCE!

December Crude Oil futures (cl04z) - 10-minute intervals

I don't believe I have a photographic memory, but I knew I had seen this afternoon's action in the not-to-recent past. Last Wednesday to be exact. I checked the time as well, and last Wednesday, we would have seen a late afternoon "pop" higher in December Crude, which started at 01:50 PM EST. That after a LOWER trade earlier in the morning. Since that time, stocks, which did fall to their close have rallied strong. With the knowledge that the $WTIC point and figure charts ($0.25 box size) is so near its bullish support trend, equity traders need to understand that the oil commodity is near an important level of longer-term upward trend!

Now look at today's action. Oil dips jumps to WEEKLY S1 on today's EIA inventory report, then falls to a session low and WEEKLY S2, then jerks back higher to WEEKLY S1 by 11:15. All is calm until a further bid comes into the "black gold" at the beginning of our 10-minute bar starting at 01:30 PM EST.

While PRICE is not exactly the same for oil today, as it was at Wednesday's close last week, traders still have a wary eye on oil prices. As oil popped above the $46.50 level today, several sell program premiums "came out of nowhere" to have the major indices retreating from their best levels of the session.

One thing we'll note in tonight's Pivot Matrix is that at last Wednesday's close (11/10/04), the major indices closed very close to THIS WEEK'S weekly S1.

Using the 10-minute interval chart of December Crude also brings in the observation of how SIMILAR its 200-period SMA is today, to that found on Wednesday of last week.

I (Jeff Bailey) would use this observation more for BULLS that are contemplating taking some profits that I would a BEAR to step in aggressively with equity shorting with overhead supply of stock now limited.

Market Snapshot/Internals - 11/17/04 Close

A 33-point decline in the Dow Industrials (INDU) isn't that big of a deal (between 01:00 and 2:00), but by 02:30 the INDU had fallen to 10,520. You and I can probably figure that any buyers that have been observing, not trading or buying, just observing this weeks trade are now rather hesitant to be buyers, certain they'll not buy top after not doing so last week, or the week before. Today's pop in oil late in the session was further reason for hesitant bulls to step back, or for some profitable bulls to take some profits.

We see some abatement in advancing issues by the 03:00 hour, which suggests to me that there were some stocks that were trading with a decent 1% gain or better, that an hour later were dripping red by 03:00 PM EST.

Here's a quick look at tomorrow's Pivot analysis Matrix.

Pivot Matrix -

Only the DIA, SPX.X and SPY were not able to trade their WEEKLY R1s. Meanwhile, the SOX.X launched further higher and CLOSED above its WEEKLY R2 after trading its MONTHLY R2.

Tonight's extended session was a choppy one. Applied Materials (AMAT) $17.34 +3.46% initially jumped as high as $17.90 after the headline quarterly earnings handily beat expectations. When the conference call got underway, AMAT then fell to as low as $16.42 to see a last tick at $16.79 after the company warned that an expected 35% drop in new orders for the current quarter (now underway) has the company expecting revenue to drop 20-23%, which implies Q1 revenue between $1.69-$1.76 billion, with earnings coming in at approximately $0.15 to $0.16 per share. The revenue figure was well below consensus of $2.147 billion.

The stock did see a narrowing trade when management said it was pretty confident on its backlog, citing no significant cancellations, and is looking for a strong 2005, given customer cautiousness and guidance going into Q1.

AMAT executives would not give guidance beyond Q1 2005.

The NASDAQ-100 Tracker (AMEX:QQQ) last ticked at $38.98, while the Semiconductor HOLDRs (AMEX:SMH) $34.30 +2.29% saw last trade in the extended session at $33.90, which would be 10-cents below its WEEKLY R2, but 8-cents above today's low of $33.81 for perspective.

Dow Industrials (INDU) Chart - 10-minute interval

I make some notes that both the INDU and oil have been waffling this week. One might begin to associate the INDU WEEKLY R1 with this week's December Crude WEEKLY S2. I still think oil price isn't just "economic" its very "psychological" to traders and investors.

Bulls could have "thrown in the towel" I guess and let the INDU close below last week's close. But they didn't, and they didn't last Wednesday either! Note: QCharts will display last week's close in dashed PINK (if I have that feature turned on).

S&P 100 Index (OEX.X) Chart - 10-minute intervals

On Thursday of last week, the OEX finally maintained a bid ABOVE its prior week close by 11:30 AM EST. That could be a test for tomorrow. Hey! Tomorrow's DAILY Pivot is roughly equivalent to last weeks close. That would be a good test for equity strength/weakness.

NASDAQ-100 Tracker (QQQ) Chart - 10-minute interval

With volume turned on, I placed my cursor at the beginning of the 01:30 PM EST bar. Not suspicious volume, but not many bidders as the QQQ began a decline. The biggest volume spike of the afternoon didn't come until 02:00-02:10.

U.S. Market Watch - 11/17/04 Close

Today's bond market action was truly perplexing, even for pure bond traders. There was talk that a EuroZone hedge fund was covering a large bund/10-year spread (was buying U.S. 10-year, driving price higher, yield lower) and when pit traders smelled blood, they felt obligated to help inflict further pain. One trader was heard saying .... "this bond market just won't let you sell it," as bond bears have been speculating that any dollar intervention could bring selling into Treasuries.

Jeff Bailey

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