Posted 07:35 CST Equity Index Update Wednesday January 25, 2006 The index markets remained in their respective holding patterns - with the exception of the Russell 2000 - which printed all time closing highs yesterday. In fact, the action in the ER2 has made for difficult sledding in the other index markets as spread ratios and money flow are having a larger impact on holding the large cap issues at bay. The SPH continues to be rejected at the 1275 to 1277 resistance zone, however, the index is holding well above the low trading areas from Friday. Even more compelling for the buyside is that the sellers have not taken advantage of their Friday move. It seems that the bears may have taken some off the table with Friday's decline and do not feel the need to keep pushing the markets in the near term. That is a surprising outcome in my opinion...simply put, I would have anticipated a more aggressive tone to the trading these past two sessions. The fact that we are chopping about in a range above last week's low seems to add to the overall confusion around index trading yesterday. Clearly, the indices are hard pressed to make much headway higher or lower than moderate support and resistance points leftover from Friday. If today's trade tests these areas only to fail, I would anticipate a stronger bout of selling across the index board. This morning the indices are called to open near their respective highs from yesterday's session on the heels of a strong bid in Europe. The key question is will this be enough to entice domestic equity buyers? The news is pretty light until we have the DOE weekly stats at 9:30cst. That reading should provide a catalyst in one way or another given the rediscovered interest in Crude Oil during its recent rally. Crude is trading -.55 this morning at 66.55. Another note of interest this morning is the aggressive move higher in Silver overnight, now trading at 9.46 up over 2% on the session. Gold has benefited from this as well and is closing in on its high for the move. Gold is currently trading up over 1% at 564. Today's trade action has all the markings of a session where day traders get trapped. Essentially, the SPH has traded between 1269 and 1275 for 2 sessions. The vast majority of that trading has taken place between 1269 and 1272.50. Obviously, this zone has become short term support above last week's low. In my opinion, it is also a no man's land if one is looking to establish shorts, however, scalp long buyers have found this zone to be profitable. Essentially, the indices are probing levels higher and lower to find the spot where the markets will generate trading interest. Given our penchant for volatility crunching sessions one has to wonder if Friday was a fluke? If so, the lows appear to be in for the move...if not the sellers will take advantage of the growing complacency and try for another push lower. Good Trading to all, Brad
Posted 09:00 CST Equity Index Update Thursday January 26, 2006 The index markets participated in a volatile back and forth trading session that ended with little net change. However, underneath the final results where some critical shifts in the trading background. In my opinion, the key seemed to be the final hour of trading as the sell side could not maintain the pricing of each index below key support zones. Further, the strong buying into the bell, which settled each index well above their respective fair values, should be seen as a clue for more upside gains this morning. The ER2, or Russell 2000 mini contract, remains the most interesting play on the index board. The contract, after settling at all-time highs yesterday, spent the majority of the session bounding between 1715 and 1717.50 before aggressive final hour buying pushed the market to positive territory by the session close. This puts the index at a critical juncture as far as my extension and standard deviation readings are concerned. The contract is now at levels of extension, +10% from its 200 day moving average and its standard deviation, +/- 1 STDEV is 13.92 points or nearly 2% on a 22 period reading. In my opinion this leaves the index with one of 3 possibilities from current levels. First, this could be the beginning of a blow off top as money pours into the index and we move towards 775. Second, the index suffers a sharp 7 to 10% correction - which is in line with previous extensions of similar size the past 3 years. Finally, the final option is that the index works off its overbought state with a sideways move that stays contained within a 3% band. I have chosen to speculate on the second possibility, a sharp correction. I initiated option positions in February and March to take advantage of what I see is a solid odds play. If it does not work out it will be interesting to witness which option the market takes - further rally or sideways contraction. This morning the markets are called to open sharply higher on the heels of a strong rally in both the Nikkei and Europe. The SPH is trading near 1279, up significantly from settlement and closing in on +1% from its fair value reading. Normally, this leads to a solid opening scalp short trade as the futures get out of whack with fair value before the cash open. Normally, by the end of the first 15 minutes of trading that trade is rectified. The key question concerning the upside is this...can the buyers push the SPH above the resistance zone from 1275 to 1277 and hold it in order to challenge another critical resistance area from 1279 to 1282. Given the winds of momentum, a 1.4% rally since the afternoon low yesterday, I would have to say the odds are for this to occur. The bigger issue then becomes can the index close above 1282? If the answer is yes, I suspect we will see some solid earnings from MSFT this afternoon and further upside as the markets attempt to take back the Friday debacle. Clearly yesterday's action was a blow to the sellers. With everything going their way, the players could not close the market below key levels. Like a boxer coming off the standing 8 count, the buyers were able to defend and force short covering into the bell. Maybe this is the beginning of wide trading range or maybe it is the start of another leg higher. Only time will tell and today should provide more clues to the eventual answer. In the meantime, day trading should continue to provide opportunities at inflection points, but, be wary of the whip. Good Trading to all, Brad
Posted 08:50 CST Equity Index Update Friday January 27, 2006 The index markets participated in a choppy back and forth session that ended with strong gains in both the large and small cap markets. MSMFT and BRCM were all the focus after the market closed as their earnings reports provided a lift in the post cash market session. Further lifts were provided from the Nikkei, which closed up nearly 3% and Europe which remains higher across the board. However, the GDP reading was a touch light and sent off some warning bells about the domestic economy. In addition, Crude Oil is working its way back up and is trading over 1.5% higher at 67.30. The continued rally in the ER2 contract seems to be the talk of the index trading community...less clear is whether or not this sharp money flow increase into the small cap arena is bullish or bearish for the large cap issues. Here are the facts, the ER2 is up +7.88% on the month, compared to a +1.87% rise in the Russell 1000, the index that represents the largest 1000 cap equities in the United States. Another way to show the strength in small caps rests in the index spread trade. In 2006, a spread trade of long 4 ER2 contracts and short 7 SPmini contracts has netted a profit of over +13,000. This spread represents 1 unit, or the closest measure we can get to fair value between the indices given their dollar value and implied volatility levels. Simply put, this rise is startling as their appears to be a ground shift happening underneath our feet in the domestic index dollar flow. While I contend that this flow is bearish for large caps...it does not mean large caps cannot rise. It does mean that they have the potential to sharply underperform the small and mid cap sector for yet another year. The SPH continues to be stopped by the 1279 to 1282 resistance zone...our overnight high hit 1283.75, before the GDP report knocked the SPH down to 1277.50. The market is called to open around yesterday's high level of 1280.50. I would suspect some choppy range action between 1281 and 1278 in the first half hour of trading, followed by an attempt to hit 1285 in the index. The key question is if this rally attempt will have enough underpinning to move the markets higher. Clearly, the largest strength issues appear to be the Broker Dealers, led by GS and MER...however their respective weightings are relatively light in the index. The critical question is this...can the rally in Japan, Europe, domestic small and mid cap indices lead the large caps higher? We continue to get clues to this answer, but, the largest clue may have been the shot that was fired last Friday. Something is brewing beneath the proverbial surface...and until we can put that sessions debacle behind us, a sell the rally large cap scalp trade appears a good way to play the day trade. Good Trading to all, Brad
Posted 08:50 CST Equity Index Update Monday January 30, 2006 The index markets participated in a sharp rally, led by the underperforming large cap issues on the heels of a better than anticipated earnings report from MSFT. The NDX was able to push higher, but, failed to hold the sizeable early gains that drove the index as high as 1717, just a notch below the key 1725 level. This level was the breaking point on Friday January 20th, that led to a quick plunge towards the 1670 zone. The index was able to rebound from early afternoon trading lows, and settle just a bit below session highs with a solid % gain. With so many events on the docket for this week, it is critical to have a sharp understanding of what the marketplace is anticipating. The first question on the board is whether or not the indices will put in a Greenspan premium ahead of tomorrow's meeting. Will the chairman end his career as everybody anticipates, with a final rate hike? Will he surprise us and not raise rates? Will he signal that the rate hike cycle is over? The key question... is will any of it matter? The facts are pretty simple...in the face of rate hikes the market has been able to perform near historical results in the large cap arena and blow the door off in small and mid cap historical performance...will that change when the fed pauses? Years ago, Marty Zweig discussed his cardinal rule which was don't fight the FED. However, the FED began to ease while the equity market tanked earlier this century...and has rallied as the FED has increased rates. Is this concept no longer valid? So many questions about where this path leads for equities, and the answers should be found in short order. In my opinion, the indices look like they have potential to vault significantly higher in the short run. That being said...I am long Russell 2000 puts and flat everything else. Why? I cannot decipher whether or not this updraft is a "false" trend destined to be reversed like the action on 1/20. Or if this updraft is the real deal and a type of brave new world, led by small and mid caps domestically, Asia and the emerging markets globally, with Europe just behind. As you can see...too many scenarios without the answers for today's action. My trading instinct tells me that the longs will attempt to close the markets near the session highs, but, lots of chop for much of today's session. Tomorrow will be critical as the FOMC decides and GOOG reports. Save the powder until then. Good Trading to all, Brad
Posted 08:20 CST Equity Index Update Tuesday January 31, 2006 The index markets traded in a quiet, narrow range ahead of today's critical data. This data entails the end of a very solid month in terms of net performance in the marketplace, the FOMC meeting and the final day of Fed Chair Greenspan, GOOG earnings after the close of trading and the State of the Union address this evening. The ECI was released earlier this morning, however, its market impact was slight. At 9:00cst we will receive the Chicago PMI and Consumer Confidence for December. While these reports may influence the trade in the short run, it is evident that the 3 main events - outlined above - are the drivers behind today's trade. Accordingly, I will be on the sidelines until this afternoon's announcement in the equity world. Players will be keying on any potential shift in the statement. The largest question in my mind for this statement is whether or not the market is "spent." By that term I mean this...have the indices used all their juice to get these sharp January gains on the news that is destined to come - that the FED is just about done with the rate cycle? Or is there more upside once the all clear signal is officially flashed? Difficult questions with no clear cut answer in the short term. Today's events should provide the marketplace with more clues and some volatility, but not a clear answer. Good Trading to all, Brad
Posted 08:15 CST Equity Index Update Wednesday February 1, 2006 The index markets were jolted with late session selling on the heels of disappointing earnings from GOOG. The NDH's last trade was about -1.2% from fair value...however, due to month end settlement procedures, the contract actually settles at the recognized fair value level. In this case it was 1719.50, versus a last trade of 1699. The miss from GOOG overshadowed the action from the FOMC meeting. Fed Chair Greenspan's final meeting pushed through another +25 bp rate hike, increasing the Funds rate to 4.50%. The most relevant part of the statement centered on the committee altering its forward guidance for future policy actions to be more ambiguous. The FOMC noted that "some further measured policy firming may be needed." This compares to the guidance provided at the 12/13 FOMC meeting, which stated that "some further measured policy firming is likely to be needed." Classic Fed speak. At the end of this statement dissection, the index markets did not seem to know what to make of it. Early selling, followed by strong buying that took the indices back to their respective highs for the day. However, the index market could not build on the buying and fell back well before the GOOG report hit the wires. One of the fears I had moving into the session yesterday was that the "juice" may be over as far as the buyside is concerned with respect to the end of this tightening cycle. Clearly, players would have enjoyed a "clean slate" for Bernanke and some funds seemed to exit positions when this did not happen. Today's action will seemingly be centered on the GOOG news...however, underneath the surface is AMGN trading significantly higher on news and solid earnings from BA, helping the large caps in the pre market. GOOG itself has rebounded from some panic type selling in the 350's to a current price of 391. I won't get into speculating on the merits of the earnings report in GOOG and the newfound fear of its tax rate...I will focus on the psychological impact of the stock and the impact it will have on today's session. From a market sentiment point of view, the current decline in GOOG is critical for the main reason that this stock is a "feel good" issue. In other words, everyone knows GOOG - its used as a verb in modern english. Now, when a verb gets hit on earnings it operates differently than say INTC. The response in today's trading action will be interesting to watch. Will the market focus on other issues - such as BA, AMGN and the bounce in Europe...or will GOOG psycholigically damage the indices? I think the odds are for a bounce that could turn into some vicious covering and momentum higher by the close. Keep a close eye on the Midcap 400 which closed at an all-time high yesterday. Good Trading to all, Brad
Posted 08:15 CST Equity Index Update Thursday February 2, 2006 The index markets participated in a narrow range driven session as the indices worked off the GOOG overnight news and moved higher from the overnight trading lows. All told, the markets remained bid at lower band price levels...however, the indices also struggled to find wanting buyers at higher prices. The Midcap 400 pushed through its all-time highs, but did not accelerate from that level. Instead the index stayed range bound for the afternoon. The Russell 2000 was also unable to push back to its recent high and remained in a choppy sideways trade. The NDX and DJIA were the best performers on the session - and the DJIA is back towards the 11,000 level. The SPX meandered for the session in a quiet back and forth trade. Today the markets are called to open modestly lower, with the SPH trading at 1283.25, -4.00 on the session. There was little in the way of news overnight to be the catalyst behind this move. Japan finished higher and Europe is fractionally down. The domestic fixed income market is quiet and the dollar is higher against most of the major currencies - particularly the YEN. For those of you trading the Dollar/YEN, the market appears to have shook off the sharp short covering witnessed towards the end of 2005. The YEN is now quietly drifting back towards 2005 lows in what appears to be a very manufactured type of movement. Tomorrow will bring the employment report, leaving me to speculate that the odds of staying within yesterday's trading ranges in the indices are quite strong. From a day trading perspective, I think keeping it close to the vest today is the best idea. Good Trading to all, Brad
Well I was going to subscribe to Brad's commentary, screw that,, Thanks Farzi. ...Rennick out ps. Hey Farzi, do you think you can get the updates from closingtrend.com and start posting them. If you do I'll cancel my membership,, LOL!!!
Posted 08:20 CST Equity Index Update Friday February 3, 2006 The index markets suffered through some aggressive mid-morning selling yesterday. Strong institutional selling hit the SPH contract around 9:35cst yesterday, the estimates were that one house sold the equivalent of 7,000 contracts from the opening bell until 10:30. This order was handled on both the emini and in the pit traded contract. This morning, the indices are called to open lower once again on the heels of today's non-farm employment report. The actual report came in a bit lighter than expected at +193,000 versus the estimates of +250k...however, the fear in the marketplace seems to be centered on the UNEMPLOYMENT RATE. That figure came in at 4.7%, substantially lower than the 4.9% anticipated reading. The wager being laid right now across the global spectrum is that the FED will not be done with the current rate hike cycle as quickly as many had predicted. The DOLLAR has staged a massive rally against the global currencies on this reading, while the fixed income market is trading lower, but, significantly off the highs of the session. Another issue in the report is the growth on a year over year basis in the wage component of the report...all of this action is leading to a potential global 1 way street today. What I mean by this is simple...lower bonds, higher dollar, lower equities. If this slide or one way street develops in the equity market I would suspect we would be in for a decline of significant proportions. I would anticipate some volatile price action in the first 90 minutes of trading, but, by the end of the session I think the odds are tilted towards a downdraft that carries the SPH below 1260. Key issues along the way would be any reversal in the dollar and bond market. Support points in SPH are 1265, 1262 to 1258. Finally, 1253 to 1250 is the last line of defense. The NDX, which was in the midst of a very confusing 3 day pattern appears to be hanging by the proverbial thread. If you include overnight data in the NQH contract, the issue had 3 consecutive sessions within the same wide trading range, roughly 1692.50 to 1725. Yesterday's breakdown below the 1692.50 level on the close should open the way for a test of the 1650 zone. Good Trading to all, Brad
Posted 08:05 CST Equity Index Update Monday February 6, 2006 The index markets suffered another decline in the large cap issues as the SPH, DJIA and NDX fell for the second straight session. Disturbingly, for the buy side, the NDX settled at its lowest point of 2006 at 1664.53. The index still is in positive territory for the year at +1.5%; however, it is now -5.5% from the high print of the year at 1761 on January 11th. The large cap weightings of INTC and GOOG have clearly hurt the index during this decline...the key question moving forward in the near term is pretty simple...are we in for a 10% correction from the recent trading highs, or is the market attempting to bottom out somewhere near a -5 to -7% downdraft? Given the current momentum on the downside, it would appear that this move will attempt to trade towards the 2005 closing price of 1645...conveniently for dip buyers, this would put the current downleg at about -7% from the January 11th high. In my opinion, this would be an excellent chance to get long the index for a move back towards the 1725 level. Friday's trading action put a few questions on the table in regards to wage inflation. Given the updraft in that area, it seems the Bernanke FED is destined for at least 1 more rate hike, and potentially as many as 2 more as he decides to err on the side of inflation beating. Certainly, this is not the news that many equity investors had hoped to hear. Accordingly, the indices have been selling down on this news. Today's action will prove interesting as the bears have a chance to put a dent into the marketplace. However, each time this opportunity has presented itself - recently - the sellers have decided to cover their positions and not press the advantage. If that were to occur today, I would speculate that we have seen a short term bottom in the marketplace. Keep a close, close watch on the Midcap 400 and the Russell 2000 as neither index has shown any serious signs of deterioration from their recent all-time highs. If these two indices were to have heavy selling in the next couple of sessions, it would be a blow to the overall market's health. Finally, this week brings very little in the way of earnings, but, it does bring the 10 year and 30 year auctions. Keep tabs on any impact this will have on the yield curve as Friday's reversal in the 30 year could be a sign of things to come. Demand is expected to be heavy for that issuance. Key support in the SPH remains at 1262 - 1258...any settlement below this zone should lead to a move towards 1250-1249 and that is a level that the buyside must hold. On the resistance front...1273.50 to 1276 is a critical zone. Any 30 minute close above this zone should lead to a test of the 1281 level. Good Trading to all, Brad