Option Investor
Market Wrap

Success or Failure Likely to be "4-Lettered" Word

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After some intra-day gyrations, stocks finished mostly higher by the close, but at tonight's close I'm going to say the current market's rally will be dependent on the four-lettered stocks of the NASDAQ as this market looks like a cat ready to cough up a sizeable fur ball, with buyers looking to have a slight upper-hand.

Earlier today, just before 12:00 PM ET, I recapped some of today's economic releases here in the U.S. in an intraday update, and I'll quickly post portions of today's reports..

Global Economic Calendar -

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At 10:00 AM ET, The Census Bureau said wholesale inventories fell by 1.1% in October to $438.2 billion, which was better than Wall Street's forecast for a 0.2% decline.

The decline in inventories came as a relief as sales remained weak, falling 4.1% to $3.774 billion from a downwardly revised September sales figure.

On the demand side of things, sales of durable goods were down 4.2% (+/-1.1%) from last month and were down 1.6% (+/-1.9%) from a year ago. Sales of metals and minerals, except petroleum were down 5.2% from last month and sales of motor vehicles and motor vehicle parts and supplies were down 4.5%. Sales of nondurable goods were down 4.1% (+/-1.1%) from last month, but were up 6.5% (+/-2.3%) from last year. Sales of petroleum products were down a hefty 11.2% from last month and sales of farm product raw materials were down 6.1%.

October's inventory to sales ratio rose to 1.16 from last year's 1.10%.

Additional "inventory" data came in the form of crude oil and refined products from the Energy Information Agency (EIA).

The EIA said U.S. crude oil inventories rose by 392,00 barrels, which was below analysts estimates for a 1.0 million barrel build.

Total gasoline stockpiles rose by 3.72 million barrels, while total distillates saw a hefty 5.6 million barrel build. Ultra-low sulfur diesel (<0-15 PPM sulfur), a distillate, showed a 2.7 million barrel increase, while heating oil stockpiles (>500 PPM sulfur) were up 1.68 million barrels.

EIA Crude Oil, Total Gasoline, Total Distillates (Table)

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January Crude Oil futures (cl09f) opened higher on the floor at roughly $44.00 and traded a morning high of $45.00 to the penny just ahead of the EIA inventory figures. A knee-jerk, or say a "blown ACL" move lower to $41.89 was found at in just 25-minutes of trade, but by lunch-time, January futures were making an intra-day high to $46.17!

Whew! By today's settlement, January crude finished up $1.45, or 3.45% at $43.52.

January Unleaded (rb09f) settles up $0.0323, or 3.45% at $0.9687, while January Heating Oil (ho09f) slid $0.0342, or -2.38% to settle $1.4027.

On the demand side of things, refiners increased their crude oil inputs by 387,000 barrels/day with the percent utilization of operable capacity also rising to 87.44% from last week's 84.34% of total capacity.

My number of days of crude oil supply edged down to 21.8 days supply from last week's 21.9 days supply.

Closing Internals - 12/10/08

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The 12:00, 02:00 and 04:00 PM price benchmarks of the majors give you some idea of the choppiness, or intra-day volatility, and at time it seemed like buyers were going to run the table, and at times it seemed like sellers would mount to a sharp decline by the close.

Just as I was finishing the 12:00 intraday blog, I was updating the various TRIN, TRINQ and VIX.X ticks at 12:00 and on the 5-minute intervals I thought I was observing some S&P 500 Volatility (VIX.X) action that looked like a BEAR cat was coughing up a fur ball. After returning from a meeting late this afternoon, a suspicious jump in the VIX.X gives the impression another sizeable option trade had a BULL cat coughing something up.

VIX.X and SPX.X - 10-minute intervals

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At this point I'm going to say "false alarm," but something might be up with today's VIX.X observations. The SPX.X itself seemed little moved and without having been able to review some of today's SPX/SPY-related options activity, I might have to assume some pre-option expiration positioning.

If the VIX.X had ended up BELOW the 52.00 measure at today's close, then that initial dart lower could have been the "cat's meow" with SPX likely pressing 950.

Now, see the SPX.X chart above and the DARK GREEN 996.25 near the top? That this QUARTER's Support 2, or Q S2.

Now, keep that in mind as I give you what I think should be considered as this week's "Guinea Pig" and the chart of the week!

NASDAQ-100 (NDX.X)

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One hundred of the NASDAQ's largest market caps are represented here, but unlike ANY of the other major U.S. averages I follow in the Pivot Matrix, ONLY the NDX/QQQQ are back to challenge the Quarterly S2 (Q S2) at 1,231.

There are SEVERAL excellent tests for further technical strength besides the institutional Q S2.

Near-term downward trend from the 10/14/08 bounce to lower 11/04/08 relative high, where that trend continues to hold.

Having now "drug it down" 0% retracement to the 11/21/08 intra-day low, on Tuesday we would have observed a test of conventional 19.1% retracement at 1,252.

The 50-day SMA at 1,254, where so far, the Dow Industrials (INDU) and S&P 100 (OEX) have been able to trade this week at their respective 8,841 and 446 price levels.

My thinking is this.

If the higher Beta NDX/QQQQ can bust a move higher through these formidable levels of technical resistance, then we're going to see traders get more AGGRESSIVE in the direction of that move.

It seems like a "wide range" from the MONTHLY Pivot (1,195.75) and Q S2 (1,231.04) and even conventional 19.1% of 1,252, but that's the very short-term "range" this market (NDX/QQQQ) is giving.

Conversely, the NDX/QQQQ MONTHLY Pivot also serves the near-term SUPPORT, where if BROKEN to the downside, will also bring more aggressive SELLERS in, or TAKE OUT some long BULLS.

At Tuesday evening's close, Dorsey/Wright's NASDAQ-100 Bullish % (BPNDX) had risen to 62.00%, meaning 62 of the 100 stocks did show a point and figure buy signal on their chart.

This is the HIGHEST level of bullish % for this narrow index since May.

I think BULLS, NDX/QQQQ, or other major average bulls want to see FURTHER STRENGTH come from somewhere, and at tonight's close, the NDX/QQQQ looks to provide the greatest number of technical resistance challenges.

The internals suggest "buy." From here, it will be PRICE action that matters most.

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