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Market Wrap

Poof! Instant Rally!

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        04-10-2002        High      Low     Volume Advance/Decline
DJIA    10381.73 +173.06 10394.67 10210.40 1443 mln   2261/ 887	
NASDAQ   1767.07 + 24.50  1772.00  1733.69 1762 mln   2116/1411
S&P 100   565.35 +  6.52   566.22   558.50   totals   4377/2298
S&P 500  1130.47 + 12.67  1131.76  1117.80           
RUS 2000  511.30 +  8.29   511.30   503.01
DJ TRANS 2843.44 + 75.48  2843.64  2765.60
VIX        20.20 -  0.85    21.92    20.20
Put/Call Ratio      0.80

Poof! Instant Rally!
By Buzz Lynn
Click here to email Buzz

Fundamentally, what passes for an excuse to rally is beyond me, especially after IBM's warning and the suspicion that CSCO might warn too. Plus, there was no economic news today. Nor will there be until Oh and did anybody notice that EMC fell below $10 today and that AT&T is proposing a 1:5 reverse stock split? That was once a maneuver of desperate Internet companies in late 2000.

Perhaps in T's case at a current $14.50 per share, a value per share of $72.50 will make it look respectable to widows, nuns, orphans, and fund managers again. Fund managers are not going to get too deep into a position at the current price. While the desired outcome of an enhanced image to the investing public may be achieved in the headlines, in reality, this just rearranges the deck chairs on the Titanic.

Sure interest rates are low, the market has stabilized, and housing prices are skyrocketing. America has bounced back in spirit from the 9/11 tragedy. What's wrong with that? Nothing except that to know this requires that we look behind the headlines to see that banks are having a hard time underwriting business loans despite cheap rates, P/E ratios and dividends are still out of whack thanks to a Fed that chants an "inflate or die" mantra, and that Americans are hocking anything to load up on housing debt because "values" continue to skyrocket. Why? Again, the Fed has replaced a NASDAQ bubble with a housing bubble.

Oh well, sweep it aside. Let's speculate! The good news for us traders is that we now have a 500-point trading range on the Dow from roughly 10,150 - 10,650. Same with the NASDAQ between 1700 and 2000. Same for the SPX between 1080 and 1180. With that knowledge coupled to a technical chart, we can trade it. So let's skip my ramblings for today, shorten the Wrap, and go straight to the technicals where the story will be told there.

I know yesterday was a down day for the market, but we could have taken some bullish entries at support near the close as the stochastics cycled into and turned up from oversold. That's in keeping with the daily emergence from oversold of the major indexes Monday that led me to believe the markets might be on the rise for now. Let's take a peek.

Dow Industrials chart - INDU (weekly/daily/60)

We see the range. While the bear dominates the weekly chart stochastics, the bull is back on the daily chart as shown by the upturn from oversold. 60-min is also bullish but toppy. If you play this bullish, keep your eyes on 10,450 for resistance and let the 60-min stochastic cycle down before taking an entry.

NASDAQ chart - COMPX (weekly/daily/60)

What a pig, even with lipstick! This thing can't get out of its own way and continues to post lower daily highs. While the daily stochastics may be turning up from oversold, recent history has shown that it doesn't last long. This is definitely the weakest of the three major indexes and is suitable for puts on cycles of the 60-min stochastic to overbought. With tech stocks about to hit the earnings confessional, overhead resistance should remain.

S&P 500 chart - SPX (weekly/daily/60)

The SPX is somewhere in between. The bulls took back impressive control of the daily stochastic but are now bumping their heads on resistance just above 1130. Also, while the SPX managed to close back above its 50-dma of 1127, the 200-dma at 1137 may be more formidable. Still, the stochastic reversal favors the bulls. The 60-min chart also favors the bulls, but there is resistance here at 1130-1132 while the stochastics near overbought. My opinion is that it's better to let the 60-min cycle down before taking a bullish position here.

VIX? Fahgeddabouddit. 20.20 is a bunch of confidence in direction, which makes me nervous. Complacency begets explosions in all walks of life including the markets. But premiums are fore the most part cheap compared to relative norms.

Volumes picked up a bit today to 1.44 mln on the NYSE and 1.95 bln on the NASDAQ - pretty respectable. There was a steady flow of program buy orders today but nothing huge. Couple that with shorts that probably want to cover from 1150 last week and that might help explain today's solid bullish action. Note that program trades and short-covering are not the stuff sustained rallies are made of. This is probably no exception.

Nonetheless, the daily trend still suggests "up", thus any pullbacks to support could make reasonable swing trade opportunities. Just don't bet the ranch that this is FINALLY the resumption of the old bull market. This is a bear market with a tradable bullish correction.

This is also a short Wrap tonight because there isn't a whole bunch to talk about. Tomorrow we get initial claims, but we always get initial claims on Thursday - no great shakes. Unless there is something there that rocks our world, import/export data won't matter much either.

See you at the bell!


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