Option Investor
Market Wrap

Sitting here in No-man's Land.

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      08-24-2004           High     Low     Volume   Adv/Dcl
DJIA    10098.63 + 25.58 10146.79 10062.13 1.34 bln 1612/1226
NASDAQ   1836.89 -  1.81  1850.29  1828.51 1.28 bln 1637/1364
S&P 100   534.98 +  0.09   537.46   533.43   Totals 3249/2590
S&P 500  1096.19 +  0.51  1100.94  1092.82
SOX       380.27 -  9.82   391.92   378.12
RUS 2000  545.01 +  1.54   548.58   542.56
DJ TRANS 3102.17 + 34.08  3103.72  3070.05
VIX        15.33 -  0.55    15.81    15.33
VXO (VIX-O)15.21 -  0.65    15.87    14.91
VXN        21.97 -  0.57    22.73    21.97
Total Volume 2,620M
Total UpVol  1,141M
Total DnVol  1,362M
Total Adv  3249
Total Dcl  2590
52wk Highs  116
52wk Lows    59
TRIN       1.47
PUT/CALL   0.79

The Dow gained 25.58 points to settle at 10098.63. The Nasdaq slid 1.81 to end the day at 1836.89 and the S&P ended pretty well flat at 1096.19.

The biggest sector percentage loser today was the AMEX Gold Bug Index (HUI) with a loss of -5.50 or 2.68%. I'm sure this will be addressed more fully in the Futures Wrap tonight. The next on the list of the top five sector losers was the Semiconductor Index (SOX) with a loss of -9.82 points or 2.51%. Rounding out the list of the top five sectors losers were the Networking Index at -2.45 points or -1.14%, the Oil Index (OIX) at -2.88 points or -0.81% and the software index (GSO) at -0.50 or -0.37% loss.

Your top five gainers were lead by the Airline index (XAL) with a jump of +1.14 or +2.43%, Transportation Index (TRAN) with a rise of +34.08 or +1.11%, both reflecting the drop in Crude Oil. Third on the list is the Banking Index (BIX) with a rise of +1.52 or 0.42%, fourth is the insurance index (IUX) with a rise of 0.75 or 0.24% and finishing off the list was the Morgan Stanley Healthcare Index (HMO) with a increase of +1.82 or 0.19%.

Today's news

Iraq resumed exporting oil today and the October Crude Oil contract traded under $45 a barrel. After posting all time highs for most of August, oil prices have fallen more than $3.50 in the past three trading sessions. The September crude contract, which set the all-time high of $49.40, expired on Friday.

Earlier this month Toys "R" Us Inc. (TOY) said it might abandon its toy business, but is now cautioning that this speculation may have been premature.

John Eyler, chief executive of TOY recently said "while this remains a possibility, our focus ... remains on running our company and taking advantage of our place in the market as the world's largest specialty toy retailer." He also said the company's toy business remains lucrative generating about $6.5 billion in sales last year and with an operating income in excess of $100 million. TOY ended the day +0.17 at 16.21.

A report from Semiconductor International Capacity Statistics states that the demand for the chips used in cellphones and digital products has boosted the world's chipmakers operating capacity to 95.4% utilization rate. This is the highest utilization percentage in nearly four years and crosses the threshold at which manufacturers start building new factories. The factory utilization rate was the sixth straight quarter of increasing output and the highest since 96.4 percent in the third quarter of 2000. When utilization rates are above 90 percent, chip makers typically begin building new factories.

Economic reports

July sales of existing homes declined from the previous month showing we have hit a soft spot in the housing market even though mortgage rates remain relatively low.

The National Association of Realtors' Existing-homes Sales failed to meet Wall Street expectations when it fell 2.9% to a seasonally adjusted annual rate of 6.72 million units last month. This is down from a downwardly revised 6.92 million unit pace in June.

NAR Chief Economist David Lereah said July's numbers were the first drop since January and the third best annualized rate of home resales ever and thinks this is a healthy pullback in the housing market and is due to rising interest rates.

Although mortgage rates rose sharply in last two months, they have settled well below 6.0% in recent weeks to an average of 5.81% last week. The average interest rate for a 30-year fixed- rate mortgage hovered around 6.0% for most of July, compared to an average of 6.29% in June and 6.27% in May.

Earnings

Despite an increase in sales from the year-earlier fiscal first quarter, H.J. Heinz Co.'s (HNZ) profit slid 9%. The maker of processed foods such as ketchup and baked beans said it earned $194.8 million, or 55 cents a share, for the first quarter ended July 28, down from $214 million, or 60 cents a share, for the year-earlier quarter. HNZ ended the day +1.03 at 37.63.

On to the charts

In my August 19th Market Wrap, I drew a bunch of red boxes where I thought we would see resistance. I would now like to revisit those resistance zones and see how well they are holding up.

Annotated Daily Chart of the NYA :

NYA is the strongest market of all the major markets so resistance holding here would not bode well for the stock market in general. So far there is no evidence that the resistance will break and NYA is in the process of making an ominous double top. But we are way too premature here because we also have little evidence this resistance will not break. I think more than a 50% retracement of the move from August 12th lows to august 23rd highs would tell us the resistance has held and we are destined for lower lows. A 50% retracement is a trade below 6318.

Although I hesitate to mention bearish patterns because I can be labeled as too bearish, the swing high on August 23rd was lower than the swing high on August 2nd making the bearish case just a tad stronger. But then on the bullish side you have a huge positive MACD divergence and those cannot be ignored.

However, the RED box on this chart is very important and one you need to watch.

Annotated Daily Chart of the RUT:

The blue line joins the March lows with the June lows but notice the August highs are lower. Then we have the August 23 high lower than the August 2nd high and I am looking at a market that needs some of mom's chicken soup because it does not look healthy.

Qcharts does not do a great job of volume on the major indexes so I use a proxy for my volume studies. The proxy I will use here is Russell 2000 Ishare IWM to show you the declining volume as the market advances.

The Red arrows show IWM advancing on declining volume, then the magenta arrows show IWM falling on advancing volume and since August 16th (blue arrows) IWM is advancing on declining volume again.

Annotated Daily Chart of the SPX:

SPX has continued to advance but is hitting its red box also. I expect SPX to make it at least to the red arrow which is the swing high made on August 2nd and then make a decision as to if it wants to move on up or retest August lows at 1060.

Volume here is quite bearish also. I have used the SPY for the volume chart.

The Red arrows show SPY advancing on declining volume. The magenta arrows show SPY falling on advancing volume and since August 16th (blue arrows) SPY is advancing on declining volume again.

Annotated Daily Chart of the DOW:

The 50 and 200 MAs are diverging more now than they were when I showed them on August 19 but they will still work as resistance because right in the middle of them is the red arrow from the August 2nd highs.

When I wrote my wrap on August 19th I didn't think MACD was showing a positive divergence but I see that it really is. It is also making a higher high while price is not and is another positive divergence.

For volume studies I used the Diamonds (DIA)

As you can see it is the same story here as in the SPY and IWM.

Annotated Daily Chart of the COMPX:

This market is not yet testing the Red Box and I still don't see anything bullish about this chart.

The 200 and 50 MA have diverged so much in this market that you cannot use them both for a resistance zone so I have used the August 2nd highs, of course, then the 50 MA and the 50% retracement from June highs to August lows for resistance.

For the volume studies I used the QQQs

Volume is the same story in this market as it is in the others.

Tomorrows Earnings and Economic Releases

Tomorrow at 8:30 ET the Department of Commerce will release data for July's Durable Goods. Consensus is for a 1.0% rise. Briefing.com gives and importance rating to the economic releases from A to F and this report got a B for importance.

Also out tomorrow, the Commerce Department will release data on new-home sales at 10:00 ET but this should not be a market mover. Economists surveyed by Dow Jones Newswires and CNBC expect a 2.3% decrease. Briefing.com gave this report a C+ for importance.

Tomorrow look for earnings from CWTR, DLTR, MEDW, MIK, NTWK, RAZF, TOL and WSM.

Outlook

As I said in my August 19 Market Wrap I will be keeping my powder dry and continue to sit here in No-Man's Land until I see the markets break some Red boxes and if not then break August 16th lows.

And remember Plan your Trade and Trade your Plan.

Jane Fox



 
 



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