Two Markets Under One Roof
The S&P Market began on a quiet note but tech fireworks in Nasdaq came shortly after. Two markets under one trading roof, sort of. There was a definite pause to blue chip buying of the past two days, as the market waited for further news on the business and economic front. It was touch and go as to whether key technical support in the S&P 500 (SPX) and S&P 100 (OEX) Indexes at 1080 and 545, respectively, would be broken - they were not. Nor was 100 in DJX. Meanwhile, the Nasdaq indices were down from the opening, falling to and beyond recent intraday lows.
While the overall volume level was less than the two preceding up days, much of what there was of volume, was declining volume. On the Nasdaq downside volume ran 6 times that of advancing volume. On the NYSE it was about 50/50. Because of the lopsided volume measures, there were also high readings, indicating heavy selling pressures (above 1.50), in the Arms Index or TRIN (for TRading INdex) on the NYSE. Nasdaq was the winner in HIGH Arms Index reading, advancing to a closing level of an extreme 5.65. The Nasdaq Arms Index was well above 3.50 most of the afternoon.
GENERAL NEWS and INFLUENCES -
ECONOMIC FRONT -
The four-week unemployment first-time filings average, which smoothes out the week-to-week numbers, fell to 435,750, from 454,250. The number of workers continuing to collect unemployment benefits rose to 3.77 million, up from 3.69 million.
Semiconductor stocks rallied early, falling after that -- the early influence was from the Semiconductor Industry Association (SIA) reported that worldwide sales of computer chips rose 7.2 percent in March from February levels. SIA reported that this was the highest monthly sequential increase since April 1986. The SIA also assessed that the growth in sales indicates that inventory build-up has been worked through and that product demand is now beginning to pick up.
STOCK/COMPANY EVENTS -
Xerox (XRX) fell sharply after Moody's cut its credit ratings late-Wed. on concerns over "free cash flow generation in its core non-finance business, relative to its debt burden". Xerox responded by saying this cut was not consistent with their progress and sales momentum.
The brokerage group saw some upside action after Salomon Smith Barney upgraded Lehman Brothers (LEH) and Merrill Lynch (MER) to "buy" ratings from "outperform" and changed Goldman Sachs (GS) to a "buy" from a "neutral." Showing that the Street still "listens to its own" - these stocks rallied today and with them the Securities Broker Dealer Index ($XBD.X).
Procter & Gamble (PG) continued to rocket higher, as did Philip Morris (MO) -- consumer stocks like PG, MO and KO (Coca Cola) have been in great favor. So much money out of tech, so much into the consumer - we can still count on their spending, goes the thinking, can't we?
TRADING STRATEGY -
In the Nasdaq, continued selling in the biggest stocks in those indices, continues to pull it lower. The Nasdaq indices are again near lows at the bottom of their hourly downtrend channels. From these lower levels, these indices may again rebound, but selling pressure may continue so great that it continues to knock down minor rallies, as even slightly higher price levels attract abundant selling, which sinks the index again.
The close was positive in the big cap S&P and Dow Indices. There were a few dips under key support levels, but SPX, OEX and DXJ were still positive technically at the close. They are also in minor oversold territory in terms of the hourly stochastics. Calls bought in the S&P, OEX and DJX could be kept, anticipating a further move higher.
However, tech weakness in the big cap Nasdaq stocks, especially in the semiconductors, kept the Nasdaq Composite and the 100 (NDX) and QQQ under pressure, with all falling to a new low close for the week. Those with puts can maintain a buoyant feeling in this down market. Swim with the tide, up or down.
There were two small rallies for call players in Nasdaq indexes this week, but nothing more extended like in the S&P. For Nasdaq index traders with any long calls remaining, bought near price channel lows as identified here, exit on any rebound that generates overbought stochastic readings in the next couple of (trading) days.
The underlying strategy for longer-term trend traders remains unchanged. Keep some puts in play and use rally failures at the resistance levels in Nasdaq to add to positions. The 1106-1110 area in S&P 500 continues to look like the high end of the near- term trading range, with a slimmer outside potential to the 1145- 1150 area.
KEY SUPPORT/RESISTANCE AREAS & TRADING IDEAS FOR THEM:
S&P 500(SPX) Daily/Hourly:
Key near support - 1080; exit calls on its break; main support 1055
Dow Industrial Average (INDU); (also, DJX) Daily/Hourly:
Nasdaq Composite Index (COMP) Daily/Hourly:
Nasdaq 100 ($NDX.X):
QQQ - Nasdaq 100 Tracking stock daily/Hourly:
QQQ - Nasdaq 100 tracking stock: