Posted 08:10 CST
Equity Index Update
Friday January 20, 2006
The index markets recovered ground from the recent selling seen from technology- related earnings and the plunge in the Nikkei earlier in the week. Large cap issues continue to underperform versus their small and midcap counterparts. The Russell 2000 closed yesterday's session at all-time highs and the Midcap 400 closed just underneath its ATH registered last week. Meanwhile, the larger cap tech issues continued to be weighed down on the earnings front in their heaviest weighted issues. On the flip side, the overall NDX breadth has been very strong the last 2 sessions as second tier issues gain momentum from strong earnings and market share increases. Typically, this market share increase is at the expense of some of the larger cap issues in the same very index and makes for a compelling pairs trading environment and reinforces the reasoning behind the small and midcap strength over the past couple of years.
In yesterday's session, the NDX's overall breadth was 78 advancers and -22 decliners, yet the index was up less than 1% and finished the session substantially below its session high. The main culprit was GOOG, which reversed from strong early gains to finish down on the day, but a further look at the weightings and their tape shows that of the top 26 issues in the NDX, only 16 advanced and -10 declined. The index will be hard pressed to have a dramatic lift without full participation from these issues – which account for roughly 64% of the total index weighting. However, it is worth noting that I find this divergence to have bullish potential. If the remainder of earnings season sees more rotation into second tier names, it continues to illustrate that capital being moved out of select large cap issues - INTC for example - is finding a home in smaller sector names - MRVL for example. My worries about the index markets occur when the capital moves to the sidelines and fails to rotate into other equity areas. Typically, that is when we find the music stops and somebody does not have a chair.
Overnight action continues to hold the indices lower as Europe and Asia are largely mixed. The SPH failed to hold above a resistance zone that stretches from 1289 to 1292 yesterday afternoon. Settlement was at 1288.25 and we are currently trading -2.00 at 1286.25. The NDH is trading a few dollars lower at 1735, well off the early afternoon high of 1753 yesterday.
The stalwart index yesterday was the Russell 2000, led by heavy institutional buying on the open of trading, this index powered higher all session and finished with a strong gain of 1.5% at new all-time highs. Open interest in the ER2 expanded nearly 5% with the rally and this index appears to be in full throttle mode for the near term.
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Posted 08:30 CST
Equity Index Update
Thursday January 19, 2006
The index markets suffered declines on the heels of poor earnings outlooks from INTC and YHOO and further weakness in the Nikkei 225 index. The bright light for yesterday's action - if one is bullish - lies in the overall performance of the indices as a whole. Little overall damage was done in the broad market as breadth readings were only moderate on the downside. Further evidence of support was the ability for the indices to hold key levels from earlier this year and late 2005. Keep in mind that the SPX went to a session low of 1272.08, below the critical support zone of 1276 to 1274 but settlement in the index came above the key zone that capped the index from Thanksgiving '05 into the year end. Technically speaking, if the market can continue to find its legs above this level it is likely to lead to a renewed assault of the 1300 level.
This morning, the index markets are called to open higher on the heels of strong earnings out of AMD and MER. Meanwhile AAPL, which was significantly lower after its earnings release yesterday afternoon, has been able to rebound towards the unchanged level. The weekly initial jobless claims reading came in below the key 300k level, adding strength to the dollar and moderate weakness in the treasuries. Crude Oil remains a bit below 66 ahead of the DOE reading at 9:30cst. Further support in the pre-market has been found in the Nikkei rally, as well as supportive gains in Europe.
Today's trade will be critical for the indices. The key question is this: Can the indices move higher in the face of earnings that appear to be solid, but not blowout in nature? The guidance thus far has been mixed. However, if AAPL can reverse the early slide and move into higher ground by the end of the session I suspect then the overall indices will follow its lead. On the flip side, if AAPL fails and AMD reverses some of its gains, I would expect the indices to test yesterday's trading lows. All told, in my opinion today's trade will not be clear until some time is spent digesting much of the last 2 sessions earnings reports. I think that once that is complete, the afternoon should provide a move that becomes directional in nature.
Good Trading to all,
Brad
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Posted 08:30 CST
Equity Index Update
Tuesday January 17, 2006
The index markets are called to open sharply lower on the heels of a significant decline in the Nikkei 225, which lost nearly -3% on the session after a regulatory probe was announced into Livedoor, an internet portal. Further exacerbating the overnight losses is the performance of Crude Oil, which is now up over 2% at $65.21 on unrest in Nigeria. Finally, downgrades were seen in the Tech sector at AMD and AMAT. Currently, the SPH contract is trading at 1287.50, lower by -5.20 on the session and below Friday's session low.
The earnings parade begins today as YHOO, IBM and INTC will report after the close of trading. This is welcome news from a day trading perspective as it should add volatility over the next couple of weeks in the indices. In the SPH, resistance is seen from 1290 to 1291. Above this level, key resistance can be found between 1293.75 and 1295.25. Any hourly close above this zone takes much of the short-term pressure off the market. Support in the SPH will be found pretty close to the opening area -- 1288 to 1287.50. Any hourly close below this zone puts a move towards 1275 on the board. The difficulty in forecasting any type of move like the one mentioned is the fact that the market focus is squarely on the earnings reports. In fact, this opening range may end up being the bottom of today's session, so position short sellers may consider being pretty conservative with regards to today's trading session. The fact is that if we are down because of an independent event in Japan and Crude Oil rallying, the markets will only be in the red for a short time. If, however, there are greater concerns looming about the earnings reports, then we may have a different story.
Good Trading to all,
Brad