As The Month Progresses, Watch For This…
The December S&P 500
futures (SPZ and ESZ) finished an impressive week, despite several
weaker-than-expected economic reports. With the exception of Tuesday, in which
the combination of quarter-end selling and a negative reaction to the Consumer
Confidence and Chicago PMI reports rattled the market, the futures showed good
underlying strength. Wednesday started the month of October with a bang, with
the Big Board showing the strongest breadth in 5 years at 4.6 to 1. Up until
Wednesday, the equities market was having a tough time moving higher, even with
upbeat data. However,
that changed Wednesday when market players were able to shrug off 2 economic
reports that suggested that the U.S. economy has weakened from the summer uptick.Â
Many economists suggested that the soft numbers were a result of the one-time
tax rebates being exhausted. If this is the case, it suggests that the strength
seen in summer may be unsustainable and we could see a weaker economy down the
road. At the same time, since stocks acted well in the face of this news, it’s
probably too soon to conclude anything. This is especially true in light of
Friday’s jobs report, which hinted that the employment outlook could (and I
stress could) improve in the near-term.
Should
conditions improve in the labor markets, it will without a doubt change the
entire outlook for the consumer portion of the U.S. economy. At this point, it
still may a bit too soon for corporate America to start hiring back workers,
since top-line growth (i.e. sales) remain quite lackluster for most companies.Â
Furthermore, most of the profit increases we have seen in recent months have
come from head-count reductions. It could very well be counterintuitive for
most companies to start adding staff at this point. Let’s not forget, 1 report
does not make a trend, so further evidence will be needed before one can clearly
suggest that the employment outlook is improving.
The December S&P 500 futures closed Friday’s
session with a gain of +9.00 points, and finished the week with a gain of +34.00
points. Volume in the ES was estimated at 831,000 contracts, which was ahead of
Thursday’s pace, and well above the daily average. On a weekly basis, the 1,056
level is an area of converged Fib resistance (see chart). On a daily basis, the
contract couldn’t break resistance at the September reaction high at 1,038.50
and posted a shooting star. On an intraday basis, Monday’s session will open
with a game of “ping pong” as the contract hovers above 60-min support at 1,025
and below 13-min resistance at 1,033. The 1-min 3-Line Break chart closed with
a long bias and a break price of 1,027.75.
                                       
                                      Â
Looking ahead this week, keep
in mind that the end of October is the end of the fiscal year for many mutual
funds. For the majority of funds, it will be their best year since 1999, and
the pressure will on to pump performance by dumping stocks and locking in the
gains. Be prepared for increased volatility as the month progresses. The
economic calendar is pretty quiet with the only real major report being Friday’s
Producer Price Index.
Daily Pivots for 10-6-03
| Symbol | Pivot | Â Â Â Â Â R1 | R2 | R3 | S1 | S2 | S3 |
| COMP | 1878.93 | 1893.32 | 1906.01 | 1920.40 | 1866.24 | 1851.85 | 1839.16 |
| INDU | 9577.13 | 9661.71 | 9751.12 | 9835.70 | 9487.72 | 9403.14 | 9313.73 |
| NDX | 1374.79 | 1386.47 | 1397.48 | 1409.16 | 1363.78 | 1352.10 | 1341.09 |
| SPX | 1031.36 | 1037.80 | 1045.74 | 1052.18 | 1023.42 | 1016.98 | 1009.04 |
| ESZ | 1028.17 | 1038.33 | 1048.17 | 1058.33 | 1018.33 | 1008.17 | 998.33 |
| SPZ | 1030.77 | 1035.53 | 1042.57 | 1047.33 | 1023.73 | 1018.97 | 1011.93 |
| NDZ | 1375.83 | 1388.67 | 1400.83 | 1413.67 | 1363.67 | 1350.83 | 1338.67 |
| NQZ | 1366.83 | 1397.67 | 1418.83 | 1449.67 | 1345.67 | 1314.83 | 1293.67 |
| BKX | 907.84 | 911.74 | 918.87 | 922.77 | 900.71 | 896.81 | 889.68 |
| SOX | 447.26 | 457.40 | 465.67 | 475.81 | 438.99 | 428.85 | 420.58 |
| DIA | 96.12 | 96.54 | 97.28 | 97.70 | 95.38 | 94.96 | 94.22 |
| QQQ | 34.15 | 34.47 | 34.80 | 35.12 | 33.82 | 33.50 | 33.17 |
| SPY | 103.53 | 103.97 | 104.73 | 105.17 | 102.77 | 102.33 | 101.57 |
| SMH | 36.90 | 37.49 | 38.07 | 38.66 | 36.32 | 35.73 | 35.15 |
Fair Value & Program Levels
Fair Value — (1.68)
Buy Premium — (0.94)
Sell Discount — (2.90)
Closing Premium – (1.35)
Please feel free to email me with any questions
you might have, and have a great trading day on Monday!