Monday’s Levels

It was
another tough week for the equity and equity futures markets,
after a mid-week
rally fizzled out and then some on Friday’s options expiration.  Much of
the week’s weakness stemmed from a number of companies, such as VRTS, BMY, and
NT suggesting they would be restating numbers.  In addition, January’s PPI
report was finally released and indicated that inflation could be a problem
going forward.  This was very evident in the price of crude oil, which
reached levels not seen in the last decade.  Keep in mind, economists
estimate that every $1 increase in the price of oil is equivalent to a $7
billion tax on consumers.  Another theme for the week was the continued
increase in volatility, as large swings were seen daily.  While the overall
declines were not overly dramatic, the losses did come after large declines last
week, with the tech-heavy NASDAQ now finishing lower in 8 out of the past 9
weeks.  Breadth for the week was mixed, while a pick-up in put buying was
seen in the P/C ratio.

The June SP 500 futures closed
Friday’s session with a loss of -15.50 points, and finished out the week with a
loss of -10.75 points.  Volume in the ES was estimated at 649,000
contracts, which was behind Thursday’s pace, and right at the daily average. 
On a weekly basis, the ES extended its break of its March ’03 trend line and
settled below its 200-week MA.  Looking at the daily chart, the ES was
turned back at Fib and 10-day MA resistance to post a key reversal and market
structure high, and looks ready for another test of its 100-day MA support at
1104. On an intraday basis, if you throw out Thursday’s screwy news spike, both
the 60-min and 30-min charts are testing the 1st reversal area on bullish
Butterfly patterns.

                       

The Dollar Index (DXC) posted a
daily inside reversal and was able to close back above the 88 area, but still
faces 20-day and 100-day MA resistance.  June bonds cracked 10-day MA
support and confirmed daily Stochs divergence, but were able to hold last week’s
low at 114-18.  The Banking Index (BKX) posted a weekly doji and a daily
market structure high to settle on its 50-day MA.  The Semiconductor Index
(SOX) closed at the week’s low, just above its 200-day MA, which it hasn’t faced
since it broke it from the south in March ’03.  A break of that support
brings weekly Fib support into play at 446 and the daily head-and-shoulders
target in the 435 area. 

Despite the
argument that last week was options-related
,
it’s probably safe to say that the key indexes remain in the same corrective
phase they have been in for weeks.  And this corrective phase has started
to damage market sentiment, as AMG reported that the first weekly outflows from
equity funds in 18 weeks took place.  This shows how little it takes to
rattle the markets, after the vicious three-year bear market.  Following
the market top in March of 2000, equity inflows took place for another few
months.  Clearly, this time around, sentiment is fragile, and and if the
current pullback continues, we could see the withdrawals from funds pick up. 
Mutual fund cash levels remain near historical lows, so it’s pretty imperative
that the key indexes find some footing soon, especially with quarter-end less
than 2 weeks away.


Program Trading Levels

Fair Value – (1.38)

Buy Program Premium – (0.31)

Sell Program Discount – (2.43)

Closing Premium – (2.74)

Closing Bias: If the futures gap up at the
open, watch for a retracement down towards the gap fill.

Please feel free to email me with any questions
you might have, and have a great trading day tomorrow!

Chris Curran