Here’s What We Need To See With Upside Action
The major
indexes achieved respectable gains during what was a rather quiet week of
trading. A sharp 7.6% decline in crude oil and further optimistic comments by
certain Fed officials were the main catalysts behind the gains. More to the
point, there appeared to be a shortage of sellers, given the washout that took
place 2 weeks ago. This made for pretty dull trading conditions with a minor
bias to the upside. Overall breadth during the advance was positive, which is
always nice to see.
The
September SP 500 futures closed out the week with a gain of +9.50 points, while
the Dow futures added +70 points. On a weekly basis, the ES settled back above
its 10-week MA and really has no resistance up to its upper channel line in the
1120-30 area. Looking at the daily chart, the ES tested and backed off of
its 200-day MA, however, a close below its 10-day MA at 1095.50 would be needed
to temper the near-term friendly outlook. On an intraday basis, 60-min and
30-min simple trend lines continue to work well as both support and resistance.
The YM also settled above its 10-week and 100-day MAs, and is testing its 61.8%
Fib retracement of the June/August down move. In the small caps, the ER2
continues to be a laggard as it consolidates under its 10-week and 50-day MAs.
               
September
bonds (ZB) finished flat for the week to post the 2nd doji in a row under its
78.6% Fib retracement of the year’s decline. The Semiconductor Index (SOX)
continues to fade the broad market and is forming a weekly bear flag at its
broke channel line resistance.
               
Other than
the plunge in crude oil, there wasn’t anything too noteworthy to report. Many
attributed the decline in oil to the NYMEX raising margin requirements, threats
of the Strategic Petroleum Reserve being released, no further negative
developments in Russia, and calming of geopolitical tensions in Iraq. The fall
in oil also perked up the economic bulls because Alan Greenspan has suggested on
numerous occasions that high energy prices have been behind the economic
“soft-spot”.
Oil’s
decline seemed to trump most of the negative news on the earnings front, as
market players were able to shrug off warnings from Wal-Mart, Novellus Systems,
and Starbucks. This was a positive sign, and did suggest the bad news may have
already been reflected in many of these shares. At the same time, this rally,
which is now 2 weeks old, has been marked by extremely thin volume. Seasonal
issues likely have had a lot to do with the low volume, and this week probably
won’t be much different as much of Wall Street will be getting the heck out of
dodge during the Republican Convention. A full menu of economic reports
including Tuesday’s Consumer Confidence, Wednesday’s ISM Index, and Friday’s
Employment Report could manipulate the thin volume with added volatility.Â
Nonetheless, it’s still critical that the upside price action is confirmed with
expanding volume.
Program Trading Levels
Fair Value – (.21)Â Â Â Â Â
Buy Program Premium – 0.64
Sell Program Discount – (1.11)
Closing Premium – 0.43
Closing Bias – If the futures gap down at the
open, watch for a retracement up towards the gap fill.
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Please feel free to email me with any questions
you might have, and have a great trading week!
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