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        4-4-2002           High     Low     Volume Advance/Decline
DJIA  10,235.17  + 36.88 10,261.88 10157.26 1.3 bln   1652/1361
NASDAQ   1789.73 +  5.38  1800.83  1770.16  1.7 bln   1761/1649
S&P 100   566.72 +  0.69   568.69   563.40   Totals   3413/3010
S&P 500  1126.34 +  0.94  1130.45  1120.06
RUS 2000  498.37 +  1.77   498.58   494.74
DJ TRANS 2783.62 + 36.31  2781.51  2741.81
VIX        21.77 +   .13    22.45    21.77
VXN        40.22 -  0.81    42.09    40.17
TRIN         .96
CBOE Put/Call Ratio: .83

by Leigh Stevens

Well the stock anyway! Anheuser Bush (BUD) was making steady new (52- week) highs into last week -- the stock dipped today, but had a strong close, helping the Beverage sector make a new high. What does this tell us, besides the fact that the non-traveling stay-at-homes are getting more exercise tilting those buds? That sectors considered "defensive" are the ones still doing well. The food stocks are another such group. Nice to remember that someone is making money in the stocks they are holding.

Sameo, sameo -- the market is waiting for earnings and hoping for good news. Dell reassures us last night and Bristol Myers pulls the rug out today. So it goes on the Street of Dreams. Meanwhile, extreme unease continues over the Mid-East horrors it's possible impact on oil prices.

The Dow's ability to regain perceived support in the 10,200 area this morning, then holding this area on the top of every hour today, helped modify the continued negative tone. Of course, the market is oversold on a short to intermediate term basis as a result of the decline, so there is a natural reluctance to press the short side overly much. Just as the bulls are fence sitting, the bears don't have a major conviction that the market is going to fall apart - maybe Dow 10,000, not 9,000.

INDEX LEVELS TO WATCH FRIDAY -- BLUE CHIP DOW JONES INDUSTRIALS - 10,260 has been the low end of the recent hourly trading range in the Industrials (INDU), until yesterday, when the Industrials slipped under this level. Subsequent hourly highs were topping in this area -- proving once more that support levels, once broken often become resistance, as prior buyers at previous support, bail when prices come back up to that area.

The hourly chart below is of interest for what happens tomorrow, especially with the Employment Report due. By the way, the Employment report is expected to show a gain in non-farm payrolls of 50,000. Watch for the ability for the Dow to get back above resistance (R) at 10,260 and a subsequent ability to hold this level on declines.

The utility stocks have been good performers of late and someone buying the AMEX Utilities HOLDR's (AMEX:UTH), such as from when Jeff Bailey was beating the drum for them a couple of weeks ago, resulted in solid gains. By the way, the HOLDR's are just poking above the 200-day moving average. (More on them, in the Sector-trader section of Index Trader.) A chart of the interest-sensitive Utility average below, shows the trend. It has not usually been the case that commodities inflation has been a future problem if this sector is going up strongly. In fact if gold rallies more, I've been suggesting buying the XAU May puts.

Speaking of Dow 10,000, a close below this level would turn traders and investors more actively bearish and could get trades more aggressively short. I'm wondering if there is something that will trigger a "final" washout, if one develops. What I most notice is what is not there -- a high level of bearishness, such as expressed in heavy put buying. Such sentiment usually goes hand in hand with good buying opportunities. Actually, a lack of bullish or bearish conviction (or, lack of interest?) may be a factor in the low VIX level, the widely followed implied (options) volatility index.

Same weak technical action has occurred in the Dow 20 transports (TRAN). There were a number of prior lows in the 2800 area last August (before the train wreck in Sept), that subsequently became resistance as the transports topped out there several times early in the year. Thinking was that given the high at 3050 level, a pullback might hold 2800. NOT!

The Transportation average back below 2800 is being perceived as a distinct technical negative. I can get downside objectives to as low as the 2600 area now. 2646 is the 200-day moving average.

Investor remained quite cautious amid another batch of earnings warnings or on negative corporate news, including a badly received pre-announcement warning from Bristol-Myers Squibb (BMY: 32.15 -5.55 ) and other pre-announcement warnings provided by CheckPoint Software (CHKP: 22.07 -5.39) and Compuware (CPWR: 8.28 -2.82).

Bristol-Meyers told analysts late-Wednesday that its first-quarter profit would fall well short of expectations due to dwindling sales and efforts to work down inventories. This caused a hit in the other drug stocks such as Pfizer (PFE: 39.00 -1.00), Merck (MRK: 55,80 -1.49), and Johnson & Johnson (JNJ: 63.48 -0.54%). Of course, pharmaceuticals are a sector of the market that has been a place where money managers have sought safe haven.

Check Point Software fell sharply after revealing that its first- quarter results would fall short of expectations because of depressed IT spending. CHKP reduced its Q1 outlook to $0.24-$0.25 (consensus $0.29) and guided revenues to $104-$105 million (consensus $122.2 million).

Check Point was featured as a short recommendation on the Option and Premier Investor play list last month (3/14 - short at 33.28). An update to the play list suggested closing out this position on today's close. Take the money and take yourself to a nice dinner on us! Compuware stock price tanked after issuing a substantial profit shortfall warning late-Wednesday for its first quarter due to softening sales.

Continuing the tech bad news pictures, Inktomi (INKT: 3.01 -.42) fell sharply after announcing after the Wednesday close that its fiscal second-quarter revenue would substantially miss the consensus estimate. The company projected a larger loss per share, which was attributed to a continued slide in global technology spending.

Affecting another sector, Merrill Lynch lowered its ratings on several major chemical companies: DuPont (DD: 45.70 -.97), PPG Industries (PPG: 52.76 -1.13) and Lyondell Chemical (LYO:15.18 -.35) were all cut to a "neutral" from a "buy". Rohm and Haas (ROH: 39.09 -.96) was lowered to a "reduce" from a "neutral."

On Wednesday, DuPont announced it expected first-quarter earnings to exceed the high end of the current Wall Street estimate. However, Merrill said it believes chemical companies stock prices have already priced into them, an improved U.S. and global economic outlook. Their report went to say that surging energy prices and raw material costs will likely increase potential for disappointing earnings down the road.

In our Sector Trader section (within INDEX TRADER), you'll note that we're holding a short position from 45.25 in the AMEX iShares of the US Chemical Index trust; Symbol: IYD - 4/4 close: 43.60 - 1.05). By the way, the US Energy trust iShares, which we are also short, suffered a minor downside reversal today (SYM: IYE - 4/4 close: 49.63 -.67), after forming an apparent top in the 51.00 area.

May Crude futures at recent highs in the $28 area appear extended and look vulnerable to a correction. These markets are also registering overbought on the oscillators. If Bush can calm things down in the Mid- east, the sizable "risk premium" in crude oil futures should shrink.

On the political front, President Bush will send Secretary of State Colin Powell to the Middle East next week in an effort to prod the two parties to quell the violence and find a way to bring the two warring sides together. Bush commented on the deteriorating situation among the Israelis and Palestinians in a morning address.

Getting the peace process back on track would calm the oil markets and probably curb the appetite for precious metals. The rise in XAU index appears overdone to me, as highlighted in the Index Trader section where I suggested buying puts on further rallies in the precious metals. They may be precious, but gold has also been a pretty reliable short when it periodically pops up over $300.

The market saw negatives on the news that initial claims for unemployment benefits surged 64,000 to 460,000 in the week of March 30. This release was well ahead of the consensus estimate of 380,000. The increase however, was attributed to federal extension filings as it reflects a legislative change rather than an economic change. There remains the concern about the strength of the economic recovery that is in the consensus view of the economy.

Remember too that unemployment in general is a lagging measure of the economy in that it doesn't tend to peak until months after the typical economic recovery begins in terms of when GDP begins growing again.

I still consider that in terms of the S&P 500 (SPX), a further drop to the 1100-1105 area would be the most attractive level to make new stock purchases and to do some buying of May Index calls. Absent this kind of further move lower, staying with any shorts and Index puts is still riding the right side of the current trend. A decisive move above 1150 would suggest a bullish turnaround. So, I'm bullish in the 1100 area, and above 1150, but 1120-1125 area, which looks like minor support may not be the final lows. Right in the middle such as 1120-1125 is iffy for a "final" bottom, as illustrated by the last chart below.

S&P 500 (SPX):

I have found over the years, that in terms of planning entry into or out of the market based on what the averages and indexes are doing, watching a simple 21-day moving average and corresponding envelopes, (lines that are plotted 3.5 - 4.5% above and below each day's closing average), is insightful. It has been uncanny how often a decisive upside or downside penetration of the 21-day moving average has led to a further move in this direction. Until, that is, the Index reaches the outer lines, as can be seen in the examples that have the circles and highlights below on the S&P 500 (SPX) below.

I am interested in buying at the lower end of the band, especially if there is a corresponding reversal from the area of the prior lows or around the 1100-1105 area. The area for the OEX is in the 560 area, down to around 555 as a place where I would be looking for overall signs of a bottom.

Leigh Stevens
Chief Market Strategist
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