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Market Sentiment, Tuesday, 04/08/2003

Between Rounds
by Steven Price

The broader markets gave a couple of head fakes early on today, as traders digested the importance of reports that Saddam Hussein may have been killed in a Monday night bombing. The overnight rally on the news quickly dissipated on the market's open and it appeared that we would see a continuation of Monday afternoon's sell-off. However, an Al-Jazeera report that Saddam was dead gave the market a boost that stopped the drop and sent the market sideways.

The Dow pulled back on Monday's sell-off to a pivotal level - 8300. That level has been significant ever since last summer, as closes below it have led the market much lower. Pullbacks that ended above it have also led to eventual big rallies. The August 2002 rally that eventually topped out at 9077 came after a bounce from that level, as did the November rally to 8800, the November- December rally to 9034 (after a mid-November drop) and the January rally to 8869. September actually saw a rally from a close of 8283, so the theory is not foolproof. However, it has been consistent enough to draw traders' attention. Today's close just below - at 8298 - is bearish according to this theory.

The other economic factors that have traded consistently with the equities (with or against) also gave mixed signals. Oil futures, which have traded inversely to the equities like clockwork, spent the day on both sides of unchanged but finished slightly higher (bearish for stocks). Gold spent the day mostly higher (bearish for stocks). The U.S. Dollar index was slightly off (bearish for stocks). Bonds saw some buying, pushing yields lower (bearish for stocks).

However, in spite of more bearish indicators than bullish, none of these indicators moved strongly enough to give clear signals for stocks. The ten-year yield, which rolled over hard from its 200-dma on Monday and gave the first sign of equity weakness, had the most decisive move on Tuesday. It fell back below the 50% retracement of its Oct-Dec range and appears headed toward its 50-dma at 3.86%, which coincides with the next retracement down at 61.8%. That would reflect more buying of bonds and selling of stocks.

Monday's rally finally reversed the NYSE bullish percent higher. It now joins the OEX, SPX, Dow, NDX and COMP in rising columns of "X." They all added additional bullish boxes on the Monday. However, the afternoon sell-off looked anything but bullish, giving what appeared to be a reversal signal on the daily candlestick charts. Traders are now left with conflicting signals from those two arenas.

It is not a mystery as to why we are seeing such strange divergences. We are trading in an environment that is taking its cues from military success, or lack of it. When I say lack of it, I mean the pace at which the war is proceeding. It is apparent that the U.S. is going to eventually win and if Saddam is dead, then it will likely happen quickly. However, the recent equity rally has come in the face of sinking economic data and leaves us to ponder whether we have already seen our war rally. If so, then we will be left to digest what so far has been more earnings warnings than upside surprises and contraction in both the manufacturing and non-manufacturing sectors. However, if those rising bullish percents are as reliable as they have been in the recent past, then we may yet have another leg up.

Market Averages


52-week High: 10673
52-week Low :  7197
Current     :  8299

Moving Averages:

 10-dma: 8204
 50-dma: 7992
200-dma: 8360

S&P 500 ($SPX)

52-week High: 1176
52-week Low :  768
Current     :  878

Moving Averages:

 10-dma:  870
 50-dma:  847
200-dma:  884

Nasdaq-100 ($NDX)

52-week High: 1573
52-week Low :  795
Current     : 1046

Moving Averages:

 10-dma: 1049
 50-dma: 1012
200-dma:  990


The Semiconductor Index (SOX):

The SOX took the techs lower after a warning from RFMD. The company gave revenue guidance that came in slightly above estimates, but also predicted a loss of -$0.05-0.07 per share. Analysts expected the company to break even. The SOX dropped almost 4% and fell back through its 200-dma at 307, finishing the day at 303. The next support level here should be the 50-dma (now at 294), which held up on the last dip at the end of March.

52-week High: 393
52-week Low : 214
Current:      303

Moving Averages:

 21-dma: 313
 50-dma: 294
 200-dma: 307


Market Volatility

The VIX broke 30% on a closing basis for the first time since the end of January. This can be seen as bullish for equities; however the last tests of that level actually took the volatility indicator between 29% and 30% in December, just before market pullbacks. The extension lower to a previous area of support could signal a pullback in equities again. However, a move below 29% would be significant and would signal a continuation of the recent rally - at least until the VIX reaches 26%. CBOE Market Volatility Index (VIX) = 29.59 -2.14 Nasdaq-100 Volatility Index (VXN) = 40.92 -0.52

Put/Call Ratio Call Volume Put Volume Total 0.76 452,172 361,367 Equity Only 0.69 316,090 217,273 OEX 0.98 18,237 17,852 QQQ 0.27 38,314 10,154
Bullish Percent Data Current Change Status NYSE 43.6 + 2 Bull Confirmed NASDAQ-100 57.0 + 4 Bull Alert Dow Indust. 43.3 + 3 Bull Alert S&P 500 48.0 + 3 Bull Confirmed S&P 100 47.0 + 0 Bull Alert Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend
5-Day Arms Index 1.01 10-Day Arms Index 1.28 21-Day Arms Index 1.21 55-Day Arms Index 1.38 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points.
Market Internals Advancers Decliners NYSE 1214 1599 NASDAQ 1338 1686 New Highs New Lows NYSE 49 29 NASDAQ 61 37 Volume (in millions) NYSE 1,434 NASDAQ 1,275
Commitments Of Traders Report: 04/01/02 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercials stayed long for second most bullish reading of the year, just one period after shifting from net short to net long. Small traders reduced their overall net long position by increasing their shorts. Commercials Long Short Net % Of OI 03/11/03 440,688 485,938 (45,250) (4.9%) 03/18/03 483,224 490,582 ( 7,358) (0.1%) 03/25/03 424,781 415,258 9,523 1.1% 04/01/03 417,637 409,332 8,305 1.0% Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: 9,523 - 3/25/03 Small Traders Long Short Net % of OI 03/11/03 169,450 102,631 66,819 24.6% 03/18/03 184,907 153,400 31,507 9.3% 03/25/03 143,402 123,178 20,224 7.6% 04/01/03 143,580 126,594 16,986 6.3% Most bearish reading of the year: 20,224 - 3/25/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 *NEW SECTION DUE TO READER REQUESTS* This is our first report of this data. Commercials currently maintain a net short position, while small traders are net long. Commercials Long Short Net % Of OI 04/01/03 98,460 321,335 (222,875) (53.1%) Most bearish reading of the year: (222,875) - 04/01/03 Most bullish reading of the year: (222,875) - 04/01/03 Small Traders Long Short Net % of OI 04/01/03 2,296 1,146 1,150 33.4% Most bearish reading of the year: 1,150 - 04/01/03 Most bullish reading of the year: 1,150 - 04/01/03 NASDAQ-100 Commercials reduced long positions by just under 10%, while small traders left long positions nearly unchanged, but reduced shorts by about a third. Commercials Long Short Net % of OI 03/11/03 43,641 56,020 (12,379) (12.4%) 03/18/03 58,877 64,302 ( 5,425) ( 4.4%) 03/25/03 44,403 36,436 7,967 9.9% 04/01/03 40,493 36,893 3,600 4.7% Most bearish reading of the year: (15,521) - 3/13/02 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 03/11/03 27,196 9,674 17,522 47.5% 03/18/03 37,097 26,951 10,146 15.8% 03/25/03 10,313 20,080 ( 9,767) (32.1%) 04/01/03 9,771 13,306 ( 3,535) (15.3%) Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercials increased short positions slightly, while leaving the long side alone. Small traders left both sides of the equation unchanged. Commercials Long Short Net % of OI 03/11/03 21,726 14,370 7,356 20.4% 03/18/03 26,880 18,853 8,027 17.6% 03/25/03 19,752 10,212 9,540 31.8% 04/01/03 19,068 12,672 6,396 20.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 03/11/03 5,549 7,727 (2,178) (16.4%) 03/18/03 6,589 8,343 (1,754) (11.7%) 03/25/03 5,076 7,721 (2,645) (20.7%) 04/03/01 5,142 7,459 (2,317) (18.4%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01


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