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S&P 100 and Dow better get a move on

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Stocks ended a very bullish month of November on a sour note, where despite a decline in various energy futures contracts and a Treasury trade that had the yield curve steepening, equity bulls never could muster much of a move higher, where consumer confidence readings from the Conference Board was surprisingly weak.

Stocks felt "heavy" to me today. And I can't figure out why. Did bulls exhaust themselves in November?

The major averages had their most bullish monthly performance of the year in November with the Dow Industrials (INDU) jumping 400 points, or 4.0%. The S&P 500 Index (SPX.X) gained a healthy 43.6 points, or 3.9% and hit a new 52-week high in November. Meanwhile, the SPX's narrower counterpart and the S&P 100 Index (OEX.X) gained 16.8 points, or 3.1%.

The also narrow, but tech-heavy NASDAQ-100 Index (NDX.X) surged 84.7 points, or 5.7% for the month, also managing a new 52-week high in November.

The small caps as depicted by the Russell 2000 Index (RUT.X) showed the large caps who is boss in November, with the RUT.X gaining just under 50 points, or a bubbling 8.6%.

Hey Matt! Are you still here?

In the January 18, 2004 Ask the Analyst column, Matt asked about the Stock Trader's Almanac notes regarding the importance of the first 5-days of this years trade, being a potential predictor of full-year market direction. If ALL the major indices are going to finish higher on the year, which was indicated by bullish trade for the first 5 days, then the S&P 100 and Dow Industrials better get a move on!

U.S. Market Watch - 11/30/04 Close

I should throw the NASDAQ Composite (COMPX) into the mix as a major equity index that is still below its January highs, but holding above its December 31, 2003 close of 2,003.37.

Since I discussed the rather bullish seasonal tendency for the COMPX and RUT.X, which historically begins in November, tonight's little recap of November percentage gain does put some emphasis on the larger-cap INDU and OEX components to carry their weight if the other major indices are to hold onto, or build gains into the end of the year.

Has anyone been following the 01/18/04 Ask the Analyst column, where Matt lost his mind and was thinking way outside the box? Believe it or not Matt, I've been amazed, and my thoughts are this.

If the Dow Industrials (INDU) 10,428.02 -0.45% are going to have a shot at the January highs (10,753), then 10,384 needs to hold support on the close for at least the next 2 Fridays.

That's 5-DRT thinking anyway.

Dow Industrials (INDU) Chart - 5-DRT from 01/02/04

In the 01/18/04 Ask the Analyst column, we used a weekly interval bar chart of the INDU with Matt's "5-DRT" thoughts. Here's a closer look using daily intervals. The premise of the first 5- days, is if the markets trade up the first 5-days of the year, then it should "predict" a bullish year for equities.

Let's scroll forward to past and current trade. I can't get all of this year's trade in a daily interval bar chart for the INDU, but as it stands at tonight's close, the INDU is now roughly 26 points for the year.

No bull will proclaim victory if the INDU closes up 1-point this year. But Matt's thoughts regarding the 5-DRT might prove helpful near-term. I've also overlaid the newly calculated MONTHLY Pivot analysis levels.

Dow Industrials (INDU) Chart - Daily Intervals (5-DRT)

While a higher high from the MACD oscillator is encouraging to bulls, the recent bearish MACD crossover below its Signal does suggest a near-term loss of bullish momentum.

My bottom line for support would be the newly calculated MONTHLY Pivot. The one bullish pattern of change that I take away from the 5-DRT, is that for the first time this year, the INDU has managed to close above four (4) levels after a trade at Red #5 (9,710.89). Blue #1 is a sticking point of resistance. That was the January 8 high, or 5th session high of 2004.

When reviewing our Pivot Matrix, this WEEK's WEEKLY R2 is pretty close to that level at 10,610.32.

S&P 100 Index (OEX.X) Chart - Daily Intervals

In the 11/09/04 Index Trader Wrap, I thought OEX bulls would "thrive above 545." I'm going to raise that limit to 555. Obvious overlap at the WEEKLY S2 and MONTHLY Pivot.

My "key stock" for both the INDU and OEX is 3M (NYSE:MMM) $79.59 -0.51%, and the MARKET had better wake up and smell the coffee it is to agree with my thoughts of weaker dollar and lower oil being the positive catalyst for this deep cyclical.

Prior to this morning's open, Credit Suisse initiation coverage of MMM with an "outperform" rating and bullish target of $92.

As it might relate to the above chart of the OEX, MMM would be sitting right at my old OEX "cheater's downward trend" (dashed red), roughly OEX MONTHLY S1.

Speaking of oil prices, it is that time of week again. Tomorrow, we get weekly crude oil, distillate and unleaded gas inventory numbers.

In today's Market Monitor at 12:38:37 I made comment benchmarking the Jan Crude Oil futures (cl05f) at their WEEKLY Pivot. Then at 02:00:10 I quickly showed the Jan. Heating Oil futures (ho05f) with WEEKLY pivot levels. Then at 02:05:57, the Jan Unleaded Gas futures (hu05f), which suggested to me a lower trade coming for energy, with heating oil weaker in its WEEKLY Pivot.

January Crude Oil futures (cl05f) - Daily Intervals

We've been following the Point and Figure chart of $WTIC, and 30- minute interval charts of Crude Oil futures. I continue to work with technical analysis tools and techniques I've taught traders and investors in the past. Tonight I wanted to "step back" a little and look at the daily interval chart of Crude Oil, using conventional (blue) and the "fitted 38.2%" retracement technique I've taught traders and investors.

Using this technique, I colored a "yellow zone" that results, which isn't identical to the zone first identified with the PnF chart, but we can perhaps see how futures traders are trading off these retracement.

The $46.20 level should be tied with the bullish support trend that held support on the PnF chart. That's a BIG level of technical support still and should define the longer-term upward trend still being in tact.

I placed this week's WEEKLY Pivot levels on the chart. It would look to me that this week's WEEKLY S1 and WEEKLY R1 really tie in nicely with the retracement work above, and thus become "key levels" the remainder of the week.

MACD traders! You'll pick up on some DIVERGENCE from the past, where MACD actually went below zero, now rises back toward zero. On a daily interval chart, MACD traders would most likely be selling oil against $50.52, with stops just above, looking for MACD to roll back lower from zero, and accelerating a downward move below $46.00 in coming weeks of trade.

That's a test. A continued test traders will implement with each passing day, week, and month.

Market Snapshot / Internals - 11/30/04 Close

Last fall, the NYSE NH/NL indications stayed at very bullish readings of 98% until March. While the number of new highs at both the NYSE and NASDAQ were not impressive, new lows have been very modest, giving some sign of "strength" from the bottom. This "strength" from the bottom as I'll call it can be sign of short-covering from bears that aren't willing to press their luck, but still eager to take profits in weak stocks.

Of late, VIX.X readings close to 14.00 seem to be "high premiums" that option traders seem to be selling out the money puts against, but low enough premiums to be buying calls on, with thought of another pullback seeing a higher high.

MONTHLY Pivots may be key if this pattern is to continue.

Pivot Analysis Matrix - New MONTHLY Levels

I'm running late with tonight's update, but quickly highlighted some correlative support/resistance levels in the matrix.

The BIX.X struggled all session, but clawed back to a fractional gain as the 10-year yield ($TNX.X) faded from a session high yield of 4.382%.

Jeff Bailey

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