Sentiment Figures You Should Be Aware Of
Stock
index futures finished higher for the 1st full week of 2004 on some
of the heaviest volume levels in months. The underlying indexes were led by
technology and small-cap shares. Overall, we continued to see the trend of
rotation out of sectors that are highly interest rate-sensitive into higher beta
growth-oriented names. At times, it also seemed as if there was a panic by fund
managers to buy volatile issues because of fears of missing the train.
Nevertheless, the week ended on a sour note largely due to the much
weaker-than-expected December jobs data.
The March SP 500 futures closed
Friday’s session with a loss of -9.50 points, but were still able to finish out
the week with a gain of +11.00 points. Volume in the ES was estimated at a
heavy 870,000 contracts, which was well ahead of Thursday’s pace and well above
the daily average. On a weekly basis, the ES tested and backed off its 200-week
MA to form a gravestone. Looking at the daily chart, the contract posted a
market structure high and formed a gravestone to test the lower trend line of
its trading channel. The contract also closed right at the break price on its
daily 3-Line Break chart. Open interest decreased during Friday’s slide, which
is more indicative of longs taking money off the table than new shorts coming
in. The daily range opened up a bit, but is still in an overall decline as you
can see on the chart below.
On an intraday basis, the
contract retraced back up to broken 60-min, 30-min, and 13-min trend line
resistance before reversing back down again.
The SP 500
has now finished higher for 7 consecutive weeks during what is usually regarded
as a strong seasonal period. I would think that both end of the year window
dressing and New Year inflows have played a large role in the market’s recent
strength. Recently, it has also become apparent that the number of puts being
bought, as measured by the Put/Call ratio, has declined significantly.
Meanwhile, several sentiment surveys have recorded “off-the-charts” bullishness,
which is often regarded as being bearish from a contrarian standpoint.
Consequently, it appears as if equities could be building towards a correction,
if it didn’t already begin on Friday.
Despite the
issues raised above, the technical underpinnings of the major indexes are
currently so strong that any correction could serve as a nice buying
opportunity. More to the point, because of the large amount of fiscal stimulus
set to go into effect in early Q2 and the Presidential Election later this year,
it’s difficult to imagine the bear market coming out of hibernation any earlier
than Q3. On the other hand, if stocks continue to ramp higher without a decent
correction, it could be a warning sign that things are getting out of hand, as
they did in early 2000. Either way, until the market internals deteriorate, we
have to favor further upside on an intermediate-term basis.
Daily Pivots for 1-12-04
| Symbol | Pivot | R1 | R2 | R3 | S1 | S2 | S3 |
| COMP | 2092.45 | 2107.80 | 2128.69 | 2144.04 | 2071.56 | 2056.21 | 2035.32 |
| INDU | 10498.94 | 10549.20 | 10639.52 | 10689.78 | 10408.62 | 10358.36 | 10268.04 |
| NDX | 1525.05 | 1537.25 | 1554.03 | 1566.23 | 1508.27 | 1496.07 | 1479.29 |
| SPX | 1129.58 | 1134.25 | 1136.58 | 1141.25 | 1127.25 | 1122.58 | 1120.25 |
| ESH | 1123.33 | 1127.67 | 1135.33 | 1139.67 | 1115.67 | 1111.33 | 1103.67 |
| SPH | 1123.17 | 1127.23 | 1134.57 | 1138.63 | 1115.83 | 1111.77 | 1104.43 |
| NQH | 1527.00 | 1539.50 | 1557.50 | 1570.00 | 1509.00 | 1496.50 | 1478.50 |
| YMH | 10479.00 | 10536.00 | 10631.00 | 10688.00 | 10384.00 | 10327.00 | 10232.00 |
| BKX | 979.02 | 982.33 | 988.33 | 991.64 | 973.02 | 969.71 | 963.71 |
| SOX | 543.59 | 551.49 | 559.68 | 567.58 | 535.40 | 527.50 | 519.31 |
| QQQ | 37.89 | 38.19 | 38.65 | 38.95 | 37.43 | 37.13 | 36.67 |
| SPY | 112.70 | 113.13 | 113.86 | 114.29 | 111.97 | 111.54 | 110.81 |
| SMH | 44.76 | 45.42 | 46.09 | 46.75 | 44.09 | 43.43 | 42.76 |
Program Trading Levels
Fair Value – (1.16)
Buy Program Premium – (0.44)
Sell Program Discount – (2.08)
Closing Premium – (1.96)
Please feel free to email me with any questions
you might have, and have a great trading day tomorrow!