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Bulls Advance on Light Volume

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Bulls Advance on Light Volume

Despite a sharp end-of-session selloff, the equity indices closed green today. Volume was light, with QQQQ trading just over half its daily average.

Breadth was mixed despite the positive close, with the number of declining issues exceeding advancers 1.3:1 on the NYSE and 1.1:1 on the Nasdaq. However, advancing volume exceeded declining volume 1.1:1 on the NYSE and 1.2:1 on the Nasdaq.

Daily Dow Chart

The Dow closed higher by .41% at 10486, rising from its opening low of 10440. The session high printed at 10534 at 3PM, following which an ominous declined followed, picking up steam in the futures after the cash close at 4PM. Despite the end-of-session selling, both the index and the futures closed in the green, with the Dow printing a nominally higher high and higher low from Thursday. This action lines up with the opening stages of a daily cycle upphase, and the 10-day stochastic finished with a bullish kiss. A positive close tomorrow would likely yield the first bullish cross, and a close above 10560 would confirm the new daily cycle upphase. On the other hand, a close below the 10440 level would set up the bounce from last week as a bear flag/deadcat bounce.

Daily S&P 500 Chart

The SPX rose all of .24% to close at 1174, also printing its low at the open (1172) and peaking at 1180 at 3PM. The session high was fractionally higher than Thursday's high, not the bullish stairstep higher that daily cycle bulls are anticipating, but an advance nonetheless with the 10-day stochastic trying to turn up from oversold. Provided that 1170 holds, the bias should shift from bearish to bullish, with 1185 the goal for an upside confirmation. However, the light volume and the failure at 1180 are a problem for bulls fighting the declining trend on the daily chart. While the oscillators want to turn up from here, the pattern of higher highs and higher lows is just two sessions old within a nearly 3 week downtrend, on very light volume.

Daily Nasdaq Chart

The Nasdaq held within a 12 point range for an inside day following Thursday's candle. Unlike for its peers, the 1993 low came at the close following the 3PM decline, with the high printed in the morning at 2005. Support at 1975-80 was not tested, and bears want to see that level violated to generate a bear flag breakout off last week's low. Bulls want to see a close above 2010, with confirmation of a new daily cycle upphase above 2025 resistance. The inside day printed today highlights the fact that the expected return of volume tomorrow after the Easter weekend will likely set the tone, either confirming or invalidating the light volume bounce attempt off last week's low. He daily cycle hangs in the balance.

Weekly TNX Chart

Despite the promise of the bearish stochastic divergence on the daily chart, ten year treasury yields (TNX) gapped up this morning and held their gains through the session, with TNX finishing the session higher by 3.4 bps at 4.625%. An unimpressive showing at the 13-week and 26-week t-bill auctions no doubt contributed to the weakness, as a total of 36B was auctioned off. The 17B 13-week t-bill auction generated a bid-to-cover ratio of 2.5 at a high rate of 2.78%, with foreign central banks taking 2.5B of the total. For the 17B 26-week t-bill auction, there were 1.99 bids for each bid accepted, with a high rate of 3.09%. Foreign central banks took 3.9B of the total sold.

The daily TNX chart shows a trending, bearish divergent sell signal on the 10-day stochastic. As we've seen in other bullish trending markets, the price can continue to rise significantly in spite of the indicator, and in such cases the price is the final arbiter. Here, any weakness within the uptrend should be mistrusted, and bond bulls will want to see the TNX back below the 4.53% area at minimum before believing any pullback. With the treasury auctions reflecting better-than-recent but only mediocre demand, the bullishness in the TNX is very convincing above that 4.532% line.

Weekly chart of Crude oil

With little in the way of geopolitical news today, the financial press was attributing the day's decline in crude oil prices to "easing supply concerns" and hopes that stronger economic data would continue to lift the dollar. The day's weakness had oil print a doji candle inside Thursday's range, within the ongoing daily cycle downphase that launched early last week. Immediate support is in the low 53 area, below which is stronger confluence from 51-52.25. May crude finished the day lower by 1.4% or 80 cents at 54.05.

European markets were closed for Easter, and it was a very quiet session with no major US economic reports. Even the corporate news ticker was slow today. Walgreen reported its fiscal Q2 results, announcing earnings of $490.9 million or 48 cents per share, meeting consensus estimates. Revenue was up 12% to $11 billion, with same-store sales up 7.7%. Last year's Q2 earnings came in at $431.6 million or 42 cents. WAG closed lower by 2.42% at 45.11.

Citing changes in market conditions, eggs distributor CALM reported Q3 earnings of $2.4 million or 10 cents per share, down $23.9 million or 98 cents in Q3 last fiscal year. CALM attributed the sharp decline to lower demand for eggs, in part because of a shift away from high protein/low carb diets. CALM closed lower by 7.12% at 7.44.

Pharmaceutical wholesaler ABC warned that fiscal Q2 earnings will miss expectations of $1.10 EPS, estimating earnings of $0.75-.85 per share. For the full year, ABC is forecasting earnings of $3.10-$3.50 per share, down from its previously projected $4.00-4.10 range. The company attributed the reductions to changes in its contractual relationships with drug makers, whereby wholesalers are now limited in the amount of inventory they can buy and are required to charge a per-transaction fee. CEO David Yost noted, however, that these changes should increase ABC's cash from operations for fiscal 2005 from $375-$475 million to between $900 million and $1 billion. ABC gapped lower and stayed there, closing lower by 11.59% at 54.03 on just over 5 times' its average daily volume.

The rumors were confirmed today, with Reuters reporting that a group of 7 private firms have agreed to purchase SunGard Data Systems Inc. for $10.9 billion. The group will pay $36 per SDS share, representing a 14% premium to Thursday's close, and will assume $500 million of the company's debt. Equity capital firm Kohlman Kravis Roberts & Co. is among the buyers, and this transaction is the largest leveraged buyout since it bought RJR Nabisco for $25 billion in 1989. SDS closed higher by 8.91% at 34.36 on nearly 10 times its average daily volume.

SNE took a hit in the first hour of the session, with its gaming unit (Sony Computer Entertainment) announcing that it has been ordered to stop selling PlayStation units in the US and to pay $90 million in damages for patent infringement to Immersion Corp. (IMMR). SNE will continue selling the units as the order has been stayed by the appeal it said it intends to file. The infringement arises from SNE's use of technology to make game controllers vibrate in response to events in its video games. SNE closed flat at 41.16, while IMMR rose 9.57% to close at 6.30.

There was more bad news for insurer AIG over the weekend, with news that the company restate financial results to an estimated amount of $3 billion, and that subpoenas have been issued to 12 of its executives. Currently, the beleaguered company is under investigation by the SEC, the Justice Department and other regulators. The stock opened weak but rose following a story in the WSJ which suggested, among other things, that even a negative multibillion restatement would not damage the company's long term financial stability. AIG closed higher by 2.54% at 57.02.

In other news, the symbol for the new Sears Holdings Corp. resulting from the acquisition of Sears by Kmart announced Thursday will by SHLD. Reuters reported that under the terms of the deal, Kmart shareholders will receive shares of SHLD on a 1-for-1 basis, while Sears shareholders will receive SHLD shares for approximately 59% of their shares, with the remainder of their holders exchanged for $50 cash per share. Later in the day, S&P assigned a BB+ rating to SHLD, the highest junk rating, and announced its debt outlook as "negative." SHLD closed its first day lower by 1.05% at 131.11.

Tomorrow, the lone economic report is Consumer Confidence, scheduled for release at 10AM with economists expecting 103. Thursday and Friday saw gains for the indices despite weak internals and very weak volume. Those gains have resulted in bullish signals printing on the daily charts as discussed above, but they are preliminary and subject to reversal until confirmed by higher prices as indicated above. The heavy hitters return tomorrow, and those gains will be on trial. Today's post-4PM selloff looked bad for tomorrow's prospects, but the afterhours futures are ticking up as I type.

Any weakness at the open could result in a rush for the exits as bulls try to protect last week's profits and bears try to catch the whipsaw down. On the other hand, strength through next resistance will add volume confirmation to the gains and send shorts covering. Because the daily cycle is due for a bounce and has been acting sold out since last week's downside doji spike, I'm ready to believe a bullish bounce- but tomorrow's early stance should set the tone. Traders seeking to avoid a potentially whippy battle for direction will look to follow either a break of upside resistance as noted above, or a downside bear flag breakdown should support fail to hold. Whichever occurs, tomorrow promises to be an exciting session.


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