Brad Sullivan's Morning Commentary

[Hamzei_Analytics]

Posted 08:25 CST

Equity Index Update
Tuesday October 18, 2005

After a celebration of all things White Sox, it is time to get back down to business - at least until the weekend. Yesterday, the indices built on Friday's gains with help from GM and MO. In the former's case, the company reported awful earnings, but, was saved when it announced a health care deal with the union. In the latter's, it was a judgment just after 9:00 cst that sent the stock rallying. Essentially, big tobacco will not be on the hook for potential claims of over $250 billion. MO rose nearly 5 points on the session.

While these issues were the setup for the session, I found the markets ability to hold serve and finish near the session highs a impressive feat. Like any good news event, one typically wants to fade the move after the orders have played out - and this is exactly what happened yesterday. The ER2 (Russell 2000 mini futures contract) fell from a spike MO induced high of 638.70 to 627.70 before rebounding in the final 90 minutes of trading and settling at 636. The SPZ contract also fell, from a high print of 1195.75 to 1186.25. But, it rallied back to settle at 1194.25 on the session. The other 3 major indices participated in similar moves. If one puts an ear to the ground, I suspect that the sell side attempted a push lower - with moderate volume and day trade oriented positions. When the buy orders came in the afternoon, it was time to cover the trades. The key question is whether or not this action represents a buying opportunity? My immediate answer is no - although a move above 1205 cannot be discounted in the SPZ over the next couple of sessions. To be blunt, the index market was in dire need of a trading bounce and this is the current state of the marketplace. However, I think the easy part of the bounce is behind us and I suspect we will create a wide, choppy trading between 1185 and 1205 over the next few sessions.

Last week I wrote about the need to have a plan for covering shorts or purchasing longs into a "free fall" type of market. In the Russell 2000 I earmarked the cash levels between 615 and 610 as the spot to cover shorts and begin initiating partial long positions. Most of this analysis was due to the velocity of the downdraft the index was dealt in a 7 session run. That run covered nearly 10% from high to low. The index now appears as though it could make up ground towards the halfway point of the move - roughly 644 - before running into resistance. As it stands, the most critical part of trading in this environment is to not chase the current move with so little left on the table.

One issue that was a bit disturbing in yesterday's advance was the lack of volume and breadth on the upside. In the SP500, 311 issues advanced and -176 declined. Up volume accounted for nearly 62% of total volume in the index. These were decent readings, however the DJIA recorded only 16 advancers to -13 declines and up volume leading down volume in these issues with only 52% of total volume. Given the weight of MO and GM this is disappointing for the DJ IA and should be highlighted as a red flag. In the NDX strength was found in the to 25 issues, with 16 advancing and -9 declining. However, the bottom portion of the index changed the overall picture as the final tally for the 100 was 55 advancers and -45 declines. Considering this index is approaching critical resistance between 1550 and 1560 the breadth must improve substantially - otherwise I would look for another leg lower.

Overnight the SPZ is fractionally higher as earnings season is in full force after IBM last night. Today brings MMM, MER, JNJ, UTX, WFC and INTC after the close...the dollar is sharply higher ahead of the PPI report...bonds continue to move lower as the marketplace becomes comfortable with the 10 year yield around 4.5%.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 07:55 CST

Equity Index Update
Wednesday October 19, 2005

The index markets took a step backwards after a two day trading bounce in yesterday's action. The falling price of crude oil had significant negative impacts on key energy issues XOM, CVX and COP. In addition, Monday's leaders - MO and GM both gave back a significant portion of their rally. However, the other shoe to drop occurred after the close of trading as INTC produced earnings numbers that gave way during the companies conference call. The stock - which had initially traded up to 24.20 on the news, is around 22.80 this morning. That in turn has pushed the indices even lower overnight with the NDZ currently trading at 1535.50, -11.50 on the session.

As I pointed out in yesterday's comment, the NDX had rallied back to the first key resistance zone between 1550 and 1560. The failure for the index to spend any time above 1550 in yesterday's action points out how cautious the buy side is becoming into earnings season. Given the INTC news and the fact that we are in expiration week, there is potential that the index will test the key 1495 level before the week is out.

The SPX and DJI took the brunt of the selling yesterday given their large exposure to energy names. The SPZ has scale down trading support from 1175 to 1172, this zone encompasses the low of the move at 1172 on October 13. If the index moves below 1169, there is a strong chance that we will test 1150 by Friday's close. On the upside, resistance will be minor between 1179 and 1180.50. Above this 1183.75 to 1185 is critical.

One of the keys to the trade today will be taking advantage of the "racers." By "racers" I mean traders that will chase rallies and dips with momentum strategies throughout the session. These impulse movements turn out to be some of the best counter trades during a session with an external event leading the price discovery. Keep that in mind early as players will create volatility. That volatility should subside as the session wears on into a more directional trade.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 07:50 CST

Equity Index Update
Thursday October 20, 2005

The index markets staged a solid reversal after testing last week's low trading area in the morning session. In the afternoon, the upside gained a needed boost from the Beige Book report. The report seemed to calm some of the inflationary fears in the marketplace and the indices soared in the final 2 hours of trading. The table listed below highlights the movement from the time of the Beige Book release to settlement.


Contract % Move
SPZ +1.39%
NDZ +2.16%
ER2 +2.02%
EMD +1.47%
DJI +1.03%

These movements should remind us that the focus continues to be on inflation in the equity market. This decline started on the successive remarks from Fed Governors Fisher and Hoenig, now the indices are approaching 50% retracements of the down move from early in the month. This of course leads to the question, where do we go from here?

One of the bullish results - in the intermediate term - has been the flow of funds into certain technology related issues, specifically within the NDX. Currently, the NDX resides above all but 1 of its key MA's (the 65 day MA). The reason this event is critical in my opinion relates to a piece I wrote in the comment early this week. In that comment, I was concerned that we had not seen the flow of funds that are exiting the energy issues move into other sectors. This had the potential to be extremely bearish. If the money stayed on the sidelines instead of flowing into other areas, well let's just say that we have seen a few bull markets end that way. Apparently, this bull is not quite dead.

That being said, I continue to look for volatility over the next few weeks, in addition it would not surprise me to see another retest or lower low in a few of the indices over that period. However, I would use these drops to get long into December expiration week. Currently, I have 25% of my remaining short position in the EMD (mid cap 400) and a 20% long position in the ER2 contract. I have a resting stop on the buy side above 702 in the EMD and am looking to sell the ER2 position around the 645 level.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 09:20 CST

Equity Index Update
Friday October 21, 2005

The index markets suffered a dramatic turnaround in yesterday's action as a combination of poor earnings, a high prices paid component in the Philly Fed reading and a late session news event put the buy sides hands in their collective pockets. Today we will be faced with option expiration, strong results from GOOG and a warning from CAT. Given the tremendous volatility the markets witnessed after 7 people with association to the Hussein trial were kidnapped, I expect we will consolidate within that trading range today. In the SPZ that essentially covers 1187.50 to 1175.25.

While the late swoon painted the tape into extreme negative territory, it is critical to remember that the indices were soft all session. That is disappointing for the buy side as they were unable to string consecutive sessions to the upside. Another note to keep in mind is the fact that we had a similar trading episode in April of this year. On Tuesday April 12, the SPX rallied from 1171 to 1190 after the release of FOMC minutes. The next session, the SPX reversed nearly the entire rally and proceeded to move dramatically lower over the next 2 sessions. The potential for such a move is certainly upon us given yesterday's trading action.

That being said...the markets are set to open higher as bids were found overnight as players seemed to regroup after the selling extreme yesterday. Where does that leave us? My hunch is that with option expiration, the market will be program driven and attempt to recoup some of yesterday's decline. If that is the pattern it will produce a setup session for next week's action.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:35 CST

Equity Index Update
Monday October 24, 2005

The index market consolidated above the previous afternoon lows during a relatively quiet option expiration session. The vast majority of the trading on Friday stayed within the boundaries of Thursday afternoons final hour of trading. The DJIA and NDX had divergent sessions as CAT's earnings hurt the DJIA and SPX. Meanwhile, GOOG's earnings supported the technology sector. This session may become more important as the next few days of trading play out. The reason is that institutional flow seems to be moving towards certain technology issues with money garnered from selling energy and metal issues. If this trend continues, it will give the indices a supportive tone throughout the remainder of 2005. As I wrote last week, the upside won't throw in the towel until the money stays on the sidelines.

However, given the sharp reversal Thursday afternoon, plus the failure for the upside to generate consecutive strong sessions, I think we are in for another leg lower in the next couple of trading weeks. I think this is a buying opportunity into December expiration. Currently my positioning remains short 25% EMD, long 20% ER2 and POSITION LONG CHICAGO WHITE SOX.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:35 CST

Equity Index Update
Tuesday October 25, 2005

The index markets cheered the successor to Fed Chairman Greenspan in yesterday's action. Mr. Ben Bernake was nominated by President Bush to replace the maestro. As is custom in our markets, the indices cheered the arrival of new blood with strong rally. In fact, the rally was strong enough to push all markets, save the DJIA, above their respective 200 day MA's. Technology issues continued to perform as market leaders - this in the face of a declining SOX and trouble in the Networking sector. The NDX now resides above ALL of its key moving averages.

The key question traders must ask themselves as we move forward through today and the remainder of the trading week, is whether or not yesterday's action is a turning point in the current trading decline? If the answer is yes, one must position themselves accordingly for a year end rally. If the answer is no, I suspect the next couple of days will provide an opportunity to establish or add to current short positions. In my opinion, and I will confess that I went aggressively long front month 1215 calls in the SP yesterday, as well as selling puts in front month Russell's, that today will be critical. If the indices fail to build on yesterday's rally, there is a potential for a similar reversal akin to last Thursday. While I view this chance as remote, it is worth keeping on the radar - particularly as the session wears on. In my opinion, the final two hours of trading will be critical in terms of the ensuing market direction over the remainder of the month.

The trading session was determined by supportive bids as the session wore into the afternoon, however, in the fixed income market the opposite was true. The long end of the curve struggled and gave back a fair amount of its rally from Friday. The dollar initially sold off, then rallied and is now lower across the board. Also of note was the fact that the energy issues, particularly XOM, CVX and COP rallied yesterday in the face of a down oil market.

In preparation for today, be ready for potential wide ranges and a choppy first 90 minutes of trading as the "racers" will be out in full force. I think the afternoon will shape up as the best risk reward opportunity for day trading, keep it close to the vest until 12:30cst. One final note regarding my positions...I covered the remaining 25% short position in the EMD contract near the close of trading yesterday. Still long the 20% ER2 position and the option positions mentioned above. With regards to the option positions, they are highly levered and I am looking at these as fluent trading position. Simply put, I am not looking to hold on for more than a couple of sessions.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:50 CST

Equity Index Update
Friday October 28, 2005

The index markets officially gave back the Bernanke rally - and then some - in yesterdays powerful decline. The hardest hit index was the Russell 2000 as it settled just above key trading support around the 625 level. The SPZ held above its recent trading lows as well at settlement, with a key support zone in reach that resides between 1175 and 1170. Volume was light across the index futures arena as the SP mini contract traded less than 1 million contracts. Without question, some of this volume concern was due to the continuing celebration in Chicago for the White Sox. If you are a fan, like many traders in this city, there was no chance you were making it in for the morning. The market now faces a few keys moving ahead in the near term, for both the bears and the bulls.

The first key is to get the White House indictments out of the way, that appears as though it will happen sooner rather than later. In addition, the market must digest earnings from MSFT, but also key Semiconductor issues MXIM and KLAC. MSFT looks like it will be a non event, however, early indications in the Semi arena look pretty painful on the heels of these earnings. The continuing fear of inflation will have two key pieces of information for the market to act upon. Today's release of the ECI (Employment Cost Index) and Tuesday's one day FOMC meeting. Accordingly, I would expect the market to spend a fair amount of time chopping around some of the established ranges we have produced for the month of October. That is until these issues get resolved.

I suspect that many players are continuing to lick their wounds in this back and forth trading action we have seen over the past several sessions. Typically, this type of volatility represents bottoming action. Of course, that does not mean the markets cannot head lower in the near term, it does mean that I continue to look for a tradable rally into the year end.

In regards to the trading action today, I would highly recommend not having any pre game notions of up or down. Once again, when day trading, the key is being flexible in your approach. For the SPZ I expect to find support from the 1185 to 1183.50 level...below this zone 1181 to 1179...followed by the key zone of 1175 to 1170, if the market fails to hold this final support zone on the close, a retest of the 1135 level looks possible. On the resistance side, we are opening in a key area of resistance from 1187 to 1190...for the market to generate much upside from here it will need a 30 minute close above 1190 before probing the 1192.50 to 1195 zone. Any settlement above this leaves me dazed and confused.

One final note, MSFT is up this morning, but, QCOM is down over -3.00 on possible antitrust fears in Europe. QCOM is the 2nd largest weighting in the NDX and will prove pivotal today.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:20 CST

Equity Index Update
Monday October 31, 2005

The index markets staged a sharp rally on Friday as the DJIA and SPX were both higher by 1.7% at closing. Most of the discussion about the rally seems to be centered on the GDP release, which turned out to be better than expected, with total GDP growing at 3.8%. In addition, the core PCE deflator slowed to +1.3% and on a year-over-year basis it remains below 2%. However, I suspect that the thrust of this rally came when only ONE OFFICIAL INDICTMENT was handed down - and it was not Karl Rove, but a man who answers to the name "Scooter." It appears as though the index market had placed a "Rove Put" with the drop on Thursday, and bought the market back just as quickly on Friday.

Another key leg in the rally was the often ignored ECI report. In this reading, total worker compensation increased to 0.8%, in line with consensus estimates for the 3rd quarter. Similar to past quarters, the growth continues to be driven by gains in the benefits component, while the wages and salaries component remained subdued. Without question this was a good sign to the FOMC, which is watching to see if inflationary pressures are having any influence on wages and salaries.

This week will bring a bevy of economic information that will most likely provide trading direction for the remainder of November. Tomorrow will be a one day FOMC meeting along with the ISM survey. Thursday will bring Fed Chair Greenspan to the HILL for testimony on the state of the economy. Friday will be the Non Farm Payroll report.

Overnight, the index futures are pointed higher, with the SPZ trading at 1204.50, up 4.75 on moderate volume. Index markets across the globe participated in strong rallies as Friday's market performance provided the catalyst. The dollar is stronger against the Euro and Yen markets, while little changed against the remainder.

All told, if one believes a large portion of the recent decline was due to overhanging issues at the White House, then Friday's rally should be the start of another leg higher. 1205 remains critical in SPZ.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:05 CST

Equity Index Update
Wednesday November 2, 2005

The index markets were able to digest a larger-than-expected increase in the Prices Paid component of the ISM Survey, as well as multi-month lows in two key technology issues - Dell Computer (NasdaqELL) and Intel (Nasdaq:INTC), and settle above the last prints from Monday's session. This morning, the markets are called to open around yesterday's trading lows in both the SPZ and NDZ. Much of the decline seems to be correlated with continued weakness in the domestic fixed-income markets. Whether or not this "tandem trade" will continue throughout the session is questionable at best. The fact is that a 4.6% yield on the 10-Year Note will have little impact on equities. Certainly 5.6% would be a different story, but the odds of that occurring seem extremely remote within the next six months.

The larger issue in the near-term may, in fact, be the continued softening of Crude Oil. The front month contract continues to spend time below $60 per barrel and with today's DOE Petroleum Stats at 9:30cst, the crude market seems poised to move lower. If that is the case, a move towards $55 per barrel would have a significant PSYCHOLOGICAL impact on the public, and the odds are that such a psychological uplift would manifest itself into an equity market rally.

Today's action will be largely dependent upon any breaking out of this week's trading range. Underneath the surface, the indices are building a constructive trading base from which to rally However, we are still confined within recent ranges and until a breakout occurs, the possibility of a test of the bottom end of the range remains. Keep a close eye on volume in the index minis, as total contracts traded has declined dramatically since mid-October. Globally, Japan is nearing 14000, European indexes are a bit softer after a strong open , and the dollar is mixed with strength against the Far East offset by softness against European currencies.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 11:45 CST

Equity Index Update
Thursday November 3, 2005

The index markets staged a rally yesterday, breaking above key resistance levels in most of the indices. Could it be that the widely anticipated year end rally is under way? Absolutely. Particularly when you look at the performance of the MidCap 400 (EMDZ emini contract). I have highlighted this index throughout the trading year as the best performer - it now stands within 2% of its all-time highs registered earlier this year. Without question, this is the index to be long.

In regards to the other indices, the NDX, while lower on the year, continues to build on a very impressive upmove. What is most impressive has been the ability for this index to shake off the negative headline earnings news from a few key components. Unchanged on the year is around 1621 and it looks like a chip shot to 1650 before the month of November is out. The SPZ crossed into positive territory on the year with yesterday's close. This fact alone should trigger buyers for a retest of the 1235 to 1240 level. Above this, everybody is looking for the 1250 to 1260 zone - I think 1275 is a trading target to keep in mind for closing out the books on 2005. The Russell 2000 broke above the key 650 level in the cash, I suspect we have an excellent chance of trading into the 680 level over the next few weeks. Finally, the laggard DJIA has awoken and appears to be pointing towards a test of the 10800 level in the near term.

As you can tell from my writings...the market action has proven bullish and - IN MY OPINION - no sense in fighting it. I am reminded of a trader I knew when I was a relatively young trader. I was bearish, even though the market had been bouncing off its recent lows pretty aggressively. When I gave him all the reasons for being short, he looked at me and said, "Kid, you shorts had your day, its the buyers turn." Apt analogy for our current rally. The action today will be keyed on Fed Chair Greenspan's testimony on the Hill, particular points traders will be watching for are any discussions on inflation and/or any hints of the FED stepping off the rate hike train.

In the immortal words of Michael Steinhardt, whose order I once attempted to fill in a fast moving stock back in 1996...: "I DIDN'T SAY BID 'EM, I SAID BUY 'EM YOU _ _ _ HOLE!!!" I expect we will see those orders in action today.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:15 CST

Equity Index Update
Friday November 3, 2005

The index markets finished moderately higher yesterday as equities were able to shake off another round of selling in the domestic treasury market, a sharp dollar rally, and surge of $2 per barrel in Crude Oil. The day's economic data was good, as non-farm business sector productivity jumped 4.1% in the 3rd quarter, significantly faster than the 2.5% consensus estimate. Meanwhile, labor costs (a key measure of inflationary pressures) fell 0.5%, the biggest decline in over one year. This component builds on the ECI report released earlier in the week that also showed little wage inflation.

The indices continue to benefit from money flow as players are moving back into equities for a hopeful year-end rally. The NDX benefited from upward guidance from Qualcomm (QCOM) and Amgen (AMGN). The Midcap index cleared the 720 level for part of the session before falling back -- at its session high, the index was less than 1% from all-time trading highs. The SPZ, ER2Z and DJI all probed higher levels in early trading before fading towards unchanged, then bouncing a bit higher into the bell.

Today's action should be based in response to the Non-Farm Payroll report. However, given the uncertainty around the reading, I think it is safe to say most players have discounted the results of this reading. Accordingly, the market should move on continued acceleration in global markets as the Nikkei crossed 14,000 last night. In addition, the DAX settled above 5,000 in yesterday's action and remains above that key psychological level this morning. The domestic index markets may be a bit "tired" due to the recent rally. However, that is no reason to fade the strength of the current move on a positioning basis. I suspect the indices (depending on which index) will consolidate within a 1 to 2% trading range over the next week, before attempting to ramp higher during expiration. It is critical, from a trading perspective, for players to not "lose" their positions during periods of inactivity. When position trading, the larger picture and trading scenario must come into play. When day trading, the trader should have little, if any, opinions about market direction.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:05 CST

Equity Index Update
Monday November 7, 2005

The index markets participated in a quiet, consolidation session on Friday. Volume flows ran 30% lighter across-the-board as players defended the closing range zone from Tuesday's breakout session, but largely deferred any purchases at higher price levels.

One market that was not quiet was the forex market. The US dollar staged a tremendous rally against the Euro, Yen, Swiss and British Pound. The most significant move occurred against the Euro, where dollar buyers and stop orders triggered a move from 120 to 118 before the session closed. Along these lines, the fixed income market suffered losses and traded to new recent yield highs by the close of Friday's trading. The current move lower in the 10-Year Note feels similar to the downdraft we are witnessing in Dollar/Yen. The market seems to bleed lower each week, and with every minor bounce comes the belief that the low print is in. I do not think we will see the low/high yield in the 10-Year Note for a fair amount of time. The key question is whether or not the uptick in yields and dollar strength is negative for equities.

Given the current rally in equities, the easy answer is "No". However, looking forward 4 to 6 months, a 5.25% 10 Year Note yield and 110 Euro could present problems for the index market. Until that time, I don't see how a move to 4.8% in the 10 Year Note is all that negative for equities. It seems to me that so many players "want" this market to move lower that it sets the table for further rallies. I expect the indices to chop around in a 1 to 2% trading band over the next week before gearing up for another leg higher into the December option expiration week.

Technically speaking, this consolidation is healthy for the indices. As I pointed out last week, it is in this environment that many traders "lose" their positions. Simply put, this would mean selling one's longs out during the basing phase. This week, much like Thursday and Friday, will test the patience of those that are long. However, the bigger picture is more upside.

The NDX settled in POSITIVE TERRITORY with Friday's closing print of 1628. Amazingly, that is only the 3rd close of the YEAR above UNCH. Further strengthening the bull case is that 1635 and change is the high from 2004 and the highest level since 2002. I don't profess to know a whole lot, but I do know that the odds for a test of 1700 in the NDX are better than 50/50 before 2006 rings in.



Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:05 CST

Equity Index Update
Wednesday November 9, 2005

The index market participated in a quiet rangebound trading session for the 3rd consecutive day. Given the bond market holiday on Friday, it appears as though the indices will continue to chop in their current range until next week.

One index that did test its upside resistance yesterday was the NDX. The index pressed towards the key resistance between 1635 and 1637 before falling back. I continue to believe that the pullbacks from recent trading highs will be smaller and shorter in duration, setting the table for further upside gains. In this index, I expect to see 1700 before year end.

Overnight, the bond market is slightly lower, the dollar is moderately higher, Crude Oil is down a fraction, and Gold is up more than $2. Fed speakers today are Philly Fed President Santomero at 10:00cst and Cleveland Fed President Pianalto, also at 10:00cst.



Good Trading to All,

Brad

 

[blackcab]

How about putting this into one thread rather than creating a new thread each time?

 

[Hamzei_Analytics]

great idea -- we will stay with one thread starting tomorrow Thursday 10/11/05

 

[Hamzei_Analytics]

Posted 09:00 CST

Equity Index Update
Thursday November 10, 2005

The index markets tested recent high levels with a strong late morning rally on the heels of a surprise upside guidance report from Broadcom (BRCM) at 10:30cst and the testimony on the Hill from oil executives. Buy stops were triggered across the index spectrum, particularly in the ER2 and EMD contracts as both gained substantially. However, by the early afternoon, the sellers were able to push the market back towards lower level in the SP, ND and DJIA. The ER2 and EMD settled around +1% higher than they were trading before the BRCM announcement.

This morning will bring the Trade Balance report and the preliminary Michigan Sentiment reading. Most players are bracing for an upside surprise to the U of M report as the consumer has not yet been hit with heating bills and the price of gas is dipping. Given yesterday's failure to build on the upside price movement in the late morning, it appears as though today should be relegated to a range-bound, listless session.

In the near-term, key psychological support in the ER2 is placed at 660. Below this, look for another run to 656. However, for the index to have any damage done, the sellers must push the index below 655 on a closing basis as Step 1. Step 2 would require a settle below 650. I continue to hold my long positions as much of what I had anticipated at the beginning of the week -- quiet and range-bound trading -- continues to play out. Next week will bring the PPI, CPI and option expiration. Enjoy the quiet while it lasts.

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 07:15 CST

Equity Index Update
Monday November 14, 2005

The index markets added to recent gains with a firm performance in light volume on Friday. The standout contract was the Midcap 400 (EMD mini symbol) as settlement was 722.30. The index now resides less than 1% below all-time trading highs. The DJIA made a run at its next key resistance level -- 10,700 -- and appears poised to challenge this zone during the upcoming week. The SPX moved higher and is now probing key resistance zones between 1234 and 1240. The NDX took a bit of a breather after the large gains throughout last week, yet the index still finished in positive territory and held above a key psychological level of 1650. It is worth noting that since the NDX closed in positive territory for 2005 on November 4, the index has not looked back and resides at nearly +2% YTD. Finally, the Russell 2000 remained bid during Friday's action and appears ready to test the key 675 resistance level.

Overnight, the index markets, treasury and currency markets are all quiet. However, one set of markets that is not quiet happen to be the METALS. Copper, Gold and Silver are back on the proverbial come line (although Copper never left). Keep a close eye on these markets if you are a multi-market trader. It appears as though the odds are tilting for a settlement near the highs at year-end, and I for one do not think those highs are in just yet.

Today's index action should be led by any significant moves in Wal-Mart (WMT) after its earning announcement. However, the most likely scenario is a quiet range session ahead of the key economic releases we get Tuesday through Thursday this week.

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 10:45 CST

Equity Index Update
Tuesday November 15, 2005

Editor's Note: Brad's comment is a bit delayed today as he was very active trading this morning.

The index markets participated in another listless trading session ahead of key economic reports due this morning. The buyside pushed both the SPZ and DJZ to new intraday highs for the current upmove before sellers quickly appeared. By session's end, there was little change across the index complex.

Today we saw the PPI and Retail Sales reports released, with both reports mixed in terms of their impact moving forward. However, the real key for the session will most likely be the discussion with Federal Reserve Chairman-Elect Ben Bernanke. Currently, the equity market continues to be stuck in the recent ranges between 1233 and 1240 for SPZ. In my opinion, it will continue to chop around this zone until we get through the CPI report tomorrow morning. If that report comes in tame, and Mr. Bernanke's testimony relieves the markets, then I would look for a challenge of 1250 before the week is out.

One of the key tenets of the bear argument is the current deterioration in breadth across both the NYSE and NASDAQ. There is little question that the markets are being led by fewer stocks. However, the flip-side to this argument is simple. Given the current price level of the indices, what happens if a rally to new trading highs occurs with an increase in the overall participation of stocks? Would this idea still hold or would the sellers throw in the towel? That will be the KEY TRADING POINT as we move into 2006. In the meantime, sit back and enjoy the rally.

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 06:20 CST

Equity Index Update
Wednesday November 16, 2005

The index markets suffered a reversal of fortune yesterday afternoon after early buying pressure, on the heels of a strong rally in the fixed income market, failed to sustain recent trading highs. In fact, 3 of the 5 index markets made new intraday highs for the current rally off the recent October lows. The DJIA, SPX and Midcap made it to new ground, while the Russell 2000 and NDX failed by a small margin. Once the buy side was unable to defend the higher ground, sellers quickly gained control and pushed each index down significantly from their respective lunchtime highs.

The most aggressive move occurred in the ER2Z contract (Russell 2000 mini) as the range expanded to nearly 2% for the session. The volatility was even greater when one considers a break of 1% off the open, followed by a 1.2% rally, then a nearly 2% decline. This action leads me to believe that the market will attempt to find a base at lower levels in the next few sessions. I expect the 650 to 645 level will provide key support for the index and should lead to a base building zone for a further push towards 675.

The reversal in the SPZ was triggered by early afternoon selling from Morgan Stanley's desk. The firm moved roughly 2,500 contracts from 1238 to 1231 before they hung up the phones. This reversed early morning buying from Goldman Sachs' desk that occurred from the 1235 to 1238 level. All told, the failure for the index to hold around the 1239 level for a push to 1245 seems to have strengthened the case for a tight trading range into expiration. If the market is unable to break out of the 1% range of 1228.50 to 1241 after the CPI report this morning, I would expect a yawn into Friday.

The NDX failed to hold above 1650 on a closing basis, a mild negative moving forward. On a momentum play, this failure should lead to a moderate pullback and test of the 1630 level. Only a settlement below UNCH on the year -- that level is 1621 -- would call into question the ability for this index to keep the upside bias into year-end.

Today's action will be dominated by the CPI reading, the flattening yield curve -- which has everybody and his brother talking about the upcoming recession -- and DOE inventories. Overnight, the index markets are slightly lower, but in line with fair value, the fixed income market is trading around unchanged, the dollar is firm, gold is higher by nearly $3.00 and Crude Oil is moderately lower.

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:10 CST

Equity Index Update
Thursday November 17, 2005

The index markets survived another bout of early session selling, particularly in the Midcap and Russell 2000 contracts, and were able to stay bid into the closing bell. Volume flows were tame in the index markets as players seem to be content with their respective positions. Sellers have pushed each index lower in the morning sessions, but have been unable to sustain any real downside momentum. In fact, this seems to be a shallow correction in the Russell 2000 as it dropped nearly -3% from its recent trading high of 670 to the 650 level yesterday. However, as has been the trading theme since October, buyers came in and supported the index, leading to a strong close.

This morning the indices are higher, with the ND trading near the highs for this rally at 1666. The markets are taking their cue from strong rallies in the Japan -- as the Nikkei crossed 14,400 on the close -- and Europe as most of the major markets are higher by around +1%. One of the key aspects to today's trade will be what I refer to as the "Thursday" rule. The indices have a statistically significant trade that occurs on the day before expiration. The tendency is for the market to be a "One-Way Street." Given the proximity of recent highs, the odds are that if we do have a “One-Way” move, it will be to the upside. 1245 remains a tradable near-term target for the SPZ contract. If buyers fail to take advantage of the strong open, I would prepare for more chop with 1235 acting as a magnet for prices.

One brief comment about Gold, Silver, Palladium, Platinum, Zinc, Nickel, Copper, Soybeans, Wheat and Corn...WOW!

Good Trading to All,

Brad