NYSE and NASDAQ Markets

Tweet

Tim Ord

The NYSE Market:
Below is the NYSE McClellan Summation index and the McClellan Oscillator dating back for three years. The NYSE market becomes overbought when the Summation index reaches above +3500. The Summation index has been in the +3500 range since last October which implies the NYSE has been overbought since last October. Tops form on the NYSE when the NYSE makes higher highs and the Summation index makes lower highs. Recently the NYSE just tested its previous high of late February and the McClellan Summation index is making a lower high for the third time. The next time the NYSE Summation index turns down it will mark the top in the NYSE.





The NASDAQ-100 market:
A similar bearish setup occurred for the NDX. However, we believe a top is in for this index. There is a gap on the NDX near the 1808 level and that level is being tested on much lighter volume and triggering a bearish signal. Therefore is unlikely NDX will rally through the gap level which implies the February high will be the top. The same bearish scenario is present with the NDX McClellan Summation index as with the NYSE McClellan Summation index. The NDX made higher highs as the Summation index made lower highs. After the second lower high turned down on Summation index as the NDX made higher highs produced the sell signal. This sell signal was triggered near the February high. Strongest part of the decline may come when the Summation index turns down the next time.

Timer Digest Commentary -- My 2 Cents

Tweet

Fari Hamzei

A very wise woman once told us at a Southern California Technical Analysis meeting: "Trust Your Indicators" (keep that in mind as you read further here).

Well -- Tax Selling started early this week with the FED minutes showing the concerns for future core inflation is on the minds of Board of Gov. of FRB.

I would add this, if the rally we have witnessed from Mid-March was based on a FED rate cut assumption, then with today's release of FED Minutes, further wash out is a given.

Brace yourself and get rid of your least desirable stocks. Keep in mind, the daily and weekly trends are still up.


Editors' Note: This was filed with Timer Digest on April 11th, half an hour before the cash market closed.

Equity Index Update

Tweet

Brad Sullivan

The index markets continued to trade in a narrow range with a sustaining bid underneath the current pricing zones. Activity was light as volume flows are running at a -30% clip in some of the indices versus their respective YTD averages. This afternoon will bring the release of the Minutes from the last FOMC meeting and should spark some bit of trading activity. In addition Dr. Bernanke will speak in Washington and Richmond Fed President Lacker will speak on the economy in Charlotte. Given the lack of movement, I have included 5 charts today, 4 of which are focused on the MA % differentials since the start of 2007. The other chart continues to show the strong correlation between the YEN and SP.

Bond Market

Tweet

Sally Limantour

Friday’s non farm payrolls number was a bit of a shock and has dashed any hopes of a rate cut in the near future. Revisions of the past two months were strong and the unemployment rate fell to 4.4% matching a low back in May 2001. Interesting too was the strong leap in construction employment in an industry that has negative headlines on a daily basis. Remember that February’s number was quite negative and the 56,000 new jobs created in March construction is most likely an adjustment. The important thing is the trend and the direction for the past three months in construction employment is still down.

As of April 3rd the COT report showed the spec and fund combined net short position of
126,351 bond contracts. We have to assume this position is larger as the market is a full point lower now and it will be important to see the COT report this Tuesday. The 109 level I have been looking for in the Treasury bond futures (USM7) is close at hand and although the COT reflects a large short position amongst the spec community, bond prices can still go lower before a good bounce. In fact, many times I have seen bond prices move an additional 3-4 points even with an extreme COT position.

Talk of interest rate cuts will now be on the back burner as the Fed will remain on hold. Inflation is ticking up and having just returned from the Bahamas where I attended the Natural Resource Summit of the Americas, I am still convinced we are in a major bull market in commodities and this sector will outperform. It is both a supply and demand issue in many of the raw materials and we should see opportunities ahead in the base metals, precious metals, molybdenum (try saying that word three times fast) uranium, energy, alternative energy, water supplies and food. This is a theme I will continue to cover and focus on both in futures and the natural resource stocks.

Looking ahead in bond land this is a slow data driven week with the biggest news coming on Wednesday as the FOMC releases the minutes from March 21. Following this we have Chicago Fed Moskow speak about the US economy, then Thursday’s chain store sales and Friday’s report of the PPI, the Uni. of Michigan Consumer Sentiment and the international trade numbers for February. It is not inconceivable for the 30 year Treasury bonds to trade back to long term support at 108.00.

Equity Index Update

Tweet

Brad Sullivan

The index markets rallied off the surprisingly strong Non-Farm Payrolls data released on Friday morning. The SPM7 contract settled the trade at 1458, up over 5pts on the session. This morning our domestic market will be open, however, the DAX, FTSE and CAC are all closed and volume flows should be dramatically reduced.

As for the employment report, the headline reading was +180k versus expectations around -30% lower. In addition, the rate of unemployment dropped to 4.4% and revisions for the last two reports were sharply higher than anticipated. The true damage done was in the short end of the yield curve, where Eurodollars were hammered lower by -10 to -16 basis points in their shortened trade. The long end held up marginally better, but still finished with significant losses on the session. The dollar was able to rally against nearly all the major currencies.

The question on the board now becomes this…if the index rally from our recent lows has been predicated (at least partly) on lower rates, what happens now that the cut appears off the table in the short run? My suspicion is nothing that would take us lower. I think the marketplace was much more concerned with any Sub-Prime leftover worries a couple of weeks ago during Fed speak. When those fears were not shared with the FED, the indices took off to the upside. I would argue that most of the longs have been building positions based on the continued global economic expansion (Copper anyone?). However, there are two potentially damaging issues that the indices must overcome to gain any territory from the current pricing.

The first issue is the breaking of the staircase rally since the July ’06 retest of the 1225 level in SPX. The violence of that break in February remains and it materially changed the steady low volatility environment players had grown accustomed with trading. If this move is nothing more than a retest, late April and early May could prove to be a velocity driven trade on the downside in equities.

The second issue facing the marketplace is the erosion in the Money Center Banks and Broker/Dealers. These issues have been “liquidity” leaders for the current bull move and right now they are flashing caution in the near term.

Finally, with Europe on holiday today, trading should be thin and quiet. I would anticipate at least one attempt for the SPM7 to trade towards the 1453 zone, which is where the index was moments before the employment release. 1454.50 to 1457.50 should provide a choppy “no fly zone” throughout the rest of the session.

Timer Digest Commentary

Tweet

Fari Hamzei

Yesterday we saw U.S. stocks close sharply higher as a drop in oil prices calmed worries about inflation and news of an unexpected rise in home sales raised hopes that the housing market is stabilizing. Unquestionably, the rumors of the impending freedom for British Royal Marines held captive in Iran since March 23rd, fueled the strong bid across BigCaps, TechLand and Small Caps. And as George W spoke in the Rose Garden, bashing the Dems, our favorite Defense stocks BA, NOC and RTN, provided us an early warning of the explosive move.

Good Friday has historically provided an up bias for the market; however next week, we expect some selling as we all need to meet our obligations to Uncle Sam by April 15th.

Interesting Trades on Globex Last Night

Tweet

From our Virtual Trading Room Transcript
April 4, 2007
about 0717 PDT

Brad_Sullivan> one thing worth noting
Brad_Sullivan> that happened in the SPminis last NIGHT
Brad_Sullivan> nearly 28,000 contracts traded at 1447.50
Brad_Sullivan> and it was all in a short time period
Brad_Sullivan> with buyers coming in at 1,500 contracts a clip
Brad_Sullivan> and they were immediately pared off
Brad_Sullivan> by a seller
Brad_Sullivan> I have to say that I have never seen anything like that
Brad_Sullivan> it happened around 5:30 pm CDT
Brad_Sullivan> not sure what it means if anything
Brad_Sullivan> but it wreaks of something

Equity Index Update

Tweet

Brad Sullivan

Welcome to Q2…it seems like yesterday we were making our new year resolutions and now we are 25% through 2007. From a market perspective, we have witnessed a shift from the downward sloping volatility over the previous 8 months and now find the index markets in a rather interesting position. Clearly the global indices are a crossroads in terms of velocity and direction. Was the February 27th decline a warning shot of what may lie ahead? Is the U.S. economy slowing to the point of a needed rate cut? Is the Sub-Prime fiasco about to play a much larger role in the domestic consumer? Will the U.S. dollar continue to drop against the rest of the world? If the FED is worried about inflation…when will it show up in our readings?

As you can deduce from my thinking…there are many scenarios facing the index market over the ensuing months. One aspect of the trade that appears to be a pretty good bet from where I sit is that volatility has put in a floor and will remain elevated (relative of course) to those lows seen earlier this year. Listed below are the global performances for the indices. Once again…the U.S. is a laggard.

Global Stock Market Recap

Timer Digest Commentary

Tweet

Fari Hamzei

1410 on SPX is our next support.

Since we have not seen the much needed volatility retest (see my February 28th post http://www.hamzeianalytics.net/2007/02/volatility-my-two-cents.html), the current hostage crisis with Iran (British Royal Marines arrested during a routine patrol and taken to Tehran), coupled with Crude Oil Futures at six-month highs and the SubPrime Contagion, should be the impetus for this all crucial retest.



I suspect, unless Iran Nuclear Issue with the UN and this hostage crisis with the UK are resolved quickly, we will visit March lows (1364) and shake the trees till we get rid of the weak longs.

HOTS Mid-Week Options Commentary

Tweet

Peter Stolcers


I've been pretty vocal about how the market has discounted every shred of bad news. Even now, as the evidence mounts, the "spin doctors" are looking for a silver lining. Normally, the Fed Chairman has a positive influence on the market. That might still happen today, however, I heard concerns about a slowing economy and elevated fears of inflation. Productivity has slowed and resource utilization is very high. If companies absorb higher costs, the profit margins will be impacted. If they pass on higher costs, the consumer will experience higher rates of inflation. Neither outcome is desirable. I can't wait to hear the first positive twist on these developments. Chairman Bernanke is always very hedged in his statements and there were comments about full employment and a "resilient consumer". He also stated that the recent $2 spike in oil was not factored into his statements and it needs to be. In other words, sustained oil prices above this level could cause them to move rates higher. Gasoline inventories are low and there has been a draw on crude. Driving season is upon us and with the unrest in the Middle East; prices are not coming down anytime soon. The market spiked when it broke above SPY 141 and part of that rally was short covering. As you can see in the chart, we are not able to hold the gains. It is likely that we will test SPY 141 today and we may see a sharp decline. The market has been able to string 3 negative days together and that could be very damaging for the bulls. The bears would prefer to have a steady decline because it is sustainable. The large "air pockets" and snap back rallies are more noise than anything else. If we close below SPY 141 and there continue to be consecutive declining days, get short. The option implied volatilities are on the rise, but they are not expensive. I will buy in my put credit spreads and I will buy puts on weak stocks if that happens. I believe the bears will be able to drive the market lower today.