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Market Sentiment, Tuesday, 09/21/2004

Mixed Signals
By James Brown

The market continues to flash investors mixed signals. The Dow Industrials did rally but the bounce began to fail this afternoon. Meanwhile the NASDAQ Composite continued to climb and broke through its simple 100-dma. The S&P 500 is out performing the Dow today but it too is stuck under resistance. Overall the market turned in a rather bullish session. Every sector closed in the green with homebuilders, networking and oil stocks as the strongest sectors.

Market internals were very bullish. Advancers beat decliners by 20-to-7 on the NYSE and 2-to-1 on the NASDAQ. Up volume was about 3 times down volume on the NYSE and about 2.5 times down volume on the NASDAQ.

Investors appeared to interpret the FOMC's interest rate hike to 1.75 percent, the third hike this year, as a positive vote of confidence on the economy. Yet bonds continued to climb even as stocks ticked higher. If the economy is improving why are investors moving money into the "safety" of bonds? Jim goes into more depth in tonight's market wrap.

Another boost to investor confidence today was the housing starts, which came in above economists' expectations. Homebuilders were the best performers today with a 4 percent rally in the DJUSHB index. Adding fuel to the move was KBH and LEN who both reported earnings and beat estimates last night.

Sounds like a bunch of good news doesn't it? Somehow traders are turning a blind eye to the rise in crude oil. Prices climbed to over $47 a barrel today and closed at $46.26 up 1.46 percent. The OIX oil index soared 2.77 percent to hit new all-time highs. Rising oil prices may be good for the producers and refiners but it takes a heavy toll on the rest of the economy from manufacturers to consumers.

If the oil issue wasn't bad enough Wall Street seems to be ignoring the steady stream of earnings warnings as well. There was a truck load of bad news from the technology sector today but the group still churned higher. Of course some of today's earnings news was positive but it didn't come from the technology sector. Besides I don't believe that a couple of strong earnings reports from Goldman Sachs (GS) and Lehman Brothers (LEH) was enough to inspire a new wave of confidence. The brokers almost always beat the estimates and the earnings warnings are only supposed to grow in number as we near the next earnings season.

Speaking of confidence I don't have much confidence in bullish plays with the VIX/VXO volatility indices trading so low today. The VXO hit new multi-year lows at 12.86 this afternoon. We don't have to tell you just how bearish that is on a contrarian basis. Then again as Art Cashin reiterated on CNBC today the market tends to fool the greatest number of people as often as possible and if you've been watching the volume of puts on the QQQs lately then the market should be heading higher to confound the hordes of put owners looking for a decline on the NASDAQ.

Yes, we have plenty of mixed signals.


Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  9230
Current     : 10244

Moving Averages:
(Simple)

 10-dma: 10250
 50-dma: 10128
200-dma: 10272

	
S&P 500 ($SPX)

52-week High: 1163
52-week Low :  990
Current     : 1129

Moving Averages:
(Simple)

 10-dma: 1123
 50-dma: 1101
200-dma: 1116

		
Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1301
Current     : 1435

Moving Averages:
(Simple)

 10-dma: 1416
 50-dma: 1381
200-dma: 1440

		



CBOE Market Volatility Index (VIX) = 13.66 -0.77
CBOE Mkt Volatility old VIX  (VXO) = 12.86 -0.92
Nasdaq Volatility Index (VXN)      = 20.30 -0.26


Put/Call Ratio Call Volume Put Volume Total 0.76 834,590 631,199 Equity Only 0.72 672,724 483,557 OEX 0.92 20,512 18,944 QQQ 1.39 67,466 94,183
Bullish Percent Data Current Change Status NYSE 62.6 + 1 Bear Correction NASDAQ-100 45.0 + 2 Bull Alert Dow Indust. 56.6 + 0 Bear Correction S&P 500 61.4 + 1.4 Bear Correction S&P 100 58.0 + 2 Bear Correction 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-dma: 1.02 10-dma: 0.87 21-dma: 1.03 55-dma: 1.20 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 -NYSE- -NASDAQ- Advancers 2015 1984 Decliners 798 1025 New Highs 169 80 New Lows 18 31 Up Volume 1181M 1050M Down Vol. 407M 425M Total Vol. 1607M 1508M M = millions
Commitments Of Traders Report: 09/14/04 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 www.cftc.gov. 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 After the last few weeks of just minor changes we're seeing some heavy volume in the commercials' positions. They added 27K contracts to their longs and 43K contracts to their shorts. This is the most bearish the "smart money" has been in weeks. Small traders also added to positions with a net gain in their bullish bias, naturally. Commercials Long Short Net % Of OI 08/24/04 402,599 420,478 (17,879) (2.2%) 08/31/04 406,637 416,778 (10,141) (1.2%) 09/07/04 415,952 426,342 (10,390) (1.2%) 09/14/04 442,049 469,982 (27,933) (3.0%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 08/24/04 135,151 100,351 34,800 14.7% 08/31/04 144,120 114,343 29,777 11.5% 09/07/04 157,732 130,817 26,915 9.3% 09/14/04 167,310 126,513 40,797 13.9% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Hmm... it looks like commercials have pulled back a bit on their e-mini short positions but they remain net bearish on the market. Small traders didn't make any big changes and remain strongly net bullish. Commercials Long Short Net % Of OI 08/24/04 392,065 473,911 ( 81,846) ( 9.4%) 08/31/04 372,071 543,100 (171,029) (18.7%) 09/07/04 371,111 600,593 (229,482) (23.6%) 09/14/04 377,643 586,139 (208,496) (21.6%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 08/24/04 211,995 76,184 135,811 47.1% 08/31/04 258,624 77,036 181,588 54.0% 09/07/04 286,194 80,075 206,119 56.2% 09/14/04 289,155 81,314 207,841 56.1% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is where it gets interesting. The NDX futures witnessed some huge surges in volume. Commercial traders' long positions rose 25 percent. Yet their short positions rose 34 percent. The overall change was a sharp reduction in their net bullish bias. Small traders also opened their wallets this past report. Long positions more than doubled and short positions surged 125 percent. Yet small traders remain net bullish. Commercials Long Short Net % of OI 08/24/04 48,624 43,222 5,402 5.8% 08/31/04 48,167 43,411 4,756 5.2% 09/07/04 51,814 44,179 7,635 7.9% 09/14/04 64,282 59,808 4,474 3.6% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 08/24/04 11,666 10,068 1,598 7.3% 08/31/04 14,635 10,572 4,063 16.1% 09/07/04 16,817 12,561 4,256 14.5% 09/14/04 36,372 28,584 7,788 12.0% Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Wow! After weeks of very little action the DJ futures are finally seeing some volume. Long and short positions for commercial traders' both rose 41 percent. Thus their overall bias didn't change. Small traders also raised their bets and remain strongly net bearish. Commercials Long Short Net % of OI 08/24/04 28,919 23,658 5,261 10.1% 08/31/04 29,143 24,147 4,996 9.3% 09/07/04 29,128 24,011 5,117 9.6% 09/14/04 41,951 34,486 7,465 9.7% 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 08/24/04 5,052 7,214 (2,162) (17.6%) 08/31/04 4,929 7,122 (2,193) (18.2%) 09/07/04 5,041 8,656 (3,615) (26.4%) 09/14/04 8,121 14,425 (6,304) (27.9%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03


 

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