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Volume Returns

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      11-29-2004           High     Low     Volume   Adv/Dcl
DJIA    10475.90 - 46.33 10557.41 10417.08 1.71 bln 1294/1539
NASDAQ   2106.87 +  4.90  2117.89  2090.35 1.83 bln 1749/1293
S&P 100   560.15 -  2.50   564.60   557.73   Totals 3043/2832
S&P 500  1178.57 -  4.08  1186.94  1172.37
SOX       429.89 -  1.09   438.28   428.16
RUS 2000  634.46 +  3.30   636.00   626.84
DJ TRANS 3650.13 +  2.14  3665.65  3620.94
VIX        13.30 +  0.51    13.69    12.93
VXO (VIX-O)13.46 -  0.09    14.03    13.34
VXN        18.83 +  0.89    19.18    18.02
Total Volume 3,544M
Total UpVol  1,829M
Total DnVol  1,631M
Total Adv  3043
Total Dcl  2832
52wk Highs  535 
52wk Lows    16
TRIN       1.02
PUT/CALL   0.74

Traders returned from the holiday with pockets full, gapping the indices higher at the open and driving the Nasdaq to a new rally high in the first 15 minutes of the session. Those gains were reversed in a drop that ended just before noon, and a sharp bounce brought the indices back to lower highs.

Volume was a healthy after the anticipated holiday doldrums, with the Nasdaq beating its average of 1.68B shares on 1.84B shares for the day, while the NYSE traded a more moderate 1.37B. Declining volume led advancing by a factor of 1.45 on the NYSE, while advancing shares led declining volume 1.58:1 on the Nasdaq.

Daily Dow Chart

Dow traders were treated to a wide range today of 140 points between 10417 and 10557, with the Dow settling lower by 46 points at 10476. The move violated last week's high and low, finishing around midrange for an engulfing doji star. 10417 is fibonacci support at the failed bear flag from 3 weeks ago, and that confluence zone stretches to a low of 10360. Below that support, it should be an easier run to the 10270 level. The daily cycle downphase continues to suggest a bearish bias, but the potential for a bullish consolidation remains so long as price holds above 10360.

Daily S&P 500 Chart

The SPX also finished a wild session slightly below its opening level, losing 4.08 to close at 1178.57. As with the Dow, the day opened on a gap up, with the session highs printed within the first 15 minutes, followed by a clothesline drop to the lows and a slower rise to the midpoint for the day. For the SPX, support came at a low of 10172, which is the top of confluence support to 1168 as well as the upper rising channel support line. Below 1160, there's light support at 1160, followed by stronger support at 1143-44.

Daily Nasdaq Chart

The Nasdaq finished 4.9 points in the green at 2106.87, failing from a new rally high of 2117.78 and then bouncing from 2090. The closing print held at the top of last week's strong bounce, and the daily cycle downphase for the Nasdaq remains the least assertive of its peers. The Nasdaq's daily cycle downphase looks clearly corrective to me, and Nasdaq bears have little to talk about until price gets below 2070 at minimum, with the more important test at 2045-50 support.

Weekly TNX Chart

Treasury bonds kicked off the week on a sour note, with ten year note yields (TNX) rocketing past previous resistance at 4.26% in a strong move that closed higher by 9 bps at 4.33%. Today's gain represented a 2.12% rise for the TNX, and the first time the TNX has cleared the 22 and 50 week EMA's since the beginning of April. The weekly cycle upphase suggests an imminent test of 4.44%-4.45% below stronger resistance at the year high at 4.904%. 4.14%-4.16% and 4.26% should now act as support for any retest.

There was a surprising lack of discussion about fundamental factors or events to explain the sudden and strong drop in bonds/rise in yields this morning. Reuters attributed the selling in bonds to "speculative traders" but mercifully dropped that one early in the day. It was later reported in an unrelated AP story that China has today signed a free trade accord with a number of Southeast Asian nations to create the world's largest free trade area by 2010. The announcement emanated from the 10 nation Association of Southeast Asian Nations at the group's annual summit in Laos, and will include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The agreements seeks to end all tariffs by 2010, which would pull the economies of these 10 countries, cited by Associated Press as being worth $1 trillion, closer to China's $1.4T economy.

If the Chinese currency peg to the US dollar and the consequent massive buying in US treasuries with the proceeds of China's dollar purchases have been behind the notable resilience in the US treasury market in the past few yearrs, then any indication that China might no longer need a strong US dollar could spell severe dislocation for the USD and treasury markets. The idea is that Chinese suppliers to the US have been benefiting from China's peg to the USD, which keeps the price of Chinese goods to America stable despite the sinking US dollar. US businesses and consumers have also been benefiting, at least insofar as persistent low interest rates and easy borrowing are concerned. However, if China no longer needs to sell as much to the US, such as might occur under an Asian free-trade scenario, the currency peg and support of the treasury market would become less important. Today saw WMT decline as well, though the media attributed this to its soft Thanksgiving same-store sales (discussed below). However, I find the Asian free trade story, which explains today's weakness in the dollar, treasury bonds and WMT, to be more persuasive.

Weekly chart of Crude oil

Crude oil was firm again today, this time on news of that a gas leak requiring the evacuation of 180 workers from a North Sea platform halted production of approximately 130,000 bpd by Norway's Statoil ASA. The leak puts an additional 75,000 bpd potentially in peril as well. Norway's oil ministry said that it did not think that any oil had leaked into the water as a result of the accident. News stories also cited uncertainty ahead of the December 10 meeting of OPEC ministers in Cairo as contributing to the morning's strength in oil, which reached a high of 49.95 on the Nymex. For the day, January crude oil closed +.30 at 49.75, just off a 4-week high.

Nymex crude continues its ongoing bounce off the sub-46 low earlier this month. The shape of the weekly cycle oscillators suggests that the bounce will be corrective and fail at a lower high. If such occurs, the 44-45 level will very likely be retested on the way to a test of stronger support in the 40-42 area.

It was a quiet day for market news, with no major economic reports released. The Washington Post reported that treasury Secretary John Snow's tenure may be growing short, and that he might remain in the Cabinet for only a short time into the administration's second term. White House spokesman Scott McClellan said that the President "appreciates the job Secretary Snow is doing" to implement the President's economic agenda, but commented no further on the Washington Post's assertions.

Later this morning, it was announced that the President has nominated former CEO of Kellogg (K) Carlos Gutierrez to replace outgoing Commerce secretary Don Evans. Gutierrez' nomination awaits confirmation by the Senate.

Over the weekend, WMT announced that this year's Thanksgiving week fell short of expectations, causing it to lower its November sales forecast to a 0.7 year-on-year rise. The previous forecast had been for a 2%-4% rise. Walmart dropped over 2.5% in premarket trading on the news, with analysts saying that WMT's news suggests that the ongoing oil rally, poor job and wage growth would hurt holiday spending, especially among lower income consumers.

The WMT slam saw WMT lose 3.94% to close the day at 53.14. The S&P Retail Index (RLX) finished lower by .95% at 457.06, not helped by KRMT which lost 5.01% to finish at 102.01.

This morning also brought a dire warning from outgoing Ukrainian president Leonid Kuchma to the effect that Ukraine's financial system could collapse shortly "like a house of cards" due to the chaos that has been growing in the wake of the contested presidential election. Kuchma stated that he and his government cannot be held responsible, as the situation is beyond their ability to control. Later in the day, it was reported that Kuchma agreed to a new presidential election, yielding to pressure from domestic protesters and the international community.

A brighter point on the consumer front was a report from MasterCard of a 9.3% year-over-year increase in overall transactions, while Visa USA reported a 14.3% increase for the week.

Outback Steakhouse (OSI) reported a rise in its November same- store sales of .8% y-o-y. Sales at its Carrabba's Italian Grills rose 4%, Roys rose 7.7%, Bonefish Grills rose 1.5%, and Fleming's Prime Steakhouses saw a 15% y-o-y increase. OSI finished higher by 1.2% at 43.76, just off its high for the day at 43.86.

Homebuilding material supplier RYG announced that its special committee of independent directors, which oversees all matters arising from the ongoing investigations into the executives' roles in some of the company's 1998 land transactions, terminated the company's CEO and Senior V.P./CFO "for cause." The committee also terminated chairman Vic de Zen and requested that the three directors resign from the board. The committee alleged that the roles played by these three directors demonstrated "a breach of their responsibilities to the company..." V. James Sardo was named as the company's interim president and CEO. RYG closed higher by 4% at 8.84.

Biotech firm DNA got a lift from its joint announcement with Roche Group that the Phase III trial of its Avastin and Folfox4 chemotherapy treatment increased the survival rate for colorectal cancer patients, reducing their risk of death by 26%. The stock was halted ahead of the news and rose sharply after being released for trading, finishing the day higher by .99% at 49.20.

AAPL had a good day as well, managing a 6.03% rise on an upgrade from Merrill Lynch citing strong anticipated holiday sales of its popular iPod product. AAPL closed higher by 3.89 at 68.44.

After the bell, retailer HOTT lowered its Q4 target from the 49- 52 cent EPS range to 37-43 cents. The company attributed the adjustment to weak November same-store sales, down 8% from November 2003.

Also after the bell was a statement from Treasury Department spokesman Tony Fratto to the effect that the administration still supports the "strong" dollar, but that the price of this strong dollar should be set in "open, competitive markets."

Tomorrow kicks off what is a full slate of economic data for the week, with the preliminary Q3 GDP and Chain deflator at 8:30, followed by consumer confidence and the Chicago PMI at 10AM. The dollar and treasury story delivered a large, uncertain range today, and I see no reason for that to change until the forex markets stabilize. The Nasdaq continues to trade bullishly compared with its peers but for all 3 indices, all but the most aggressive bears should be waiting for the market to show them some convincing weakness, at least on a break of the support levels discussed above.


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