i-Trader

08.31.04 - Pullback to Support

Support Test In Tuesday's report I stated, "...10150-10175 now strong intraday resistance....support is at 10075-10100 on the expected pullback from the 10215 level..."

Tuesday the DJU4 tested up to 10152 early before failing and trading done to 10073 intraday. The buyers stepped in at this key support zone and produced a 102 pts reversal in the final 90+ minutes of trading. The result was a close back above the key 10110-10140 zone but now the buyers must produce a close above 10225-10235 to resume the upward momentum. A close below 10095-10105 would be weak.

On Monday the US bonds and notes broke out of 4-5 day consolidation and the buying continued Tuesday. For the 5-year note, a close below 110'100 is necessary to stem the upward momentum while a close back below 109'300, basis the Dec 04 contract, would be a weak sign. A close below 109'200 would confrim at least a short-term top. In the longer-term, closes below 110'24 and 108'28 basis TYZ4 and USZ4 would be the first sign of a possible top. Closes below 110'00 and 107'24 are required to turn the momentum lower and confirm a top.

The US dollar was weak on Tuesday, closing back beloe the key level of 8935 as well as 8900. A close above 8950 is necessary to turn the short-term momentum higher while a close above 8995 will solidify at least a short-term low. A close below 8890 would be weak with a close below 8870 signalling a short-term top for the greenback.

Crude oil is a key support with Tuesday 08.31.04 being the 8th down day from the contract high set on 08.20.04 at 4837. Recall that in the 08.25.05 analysis I stated, "...though the close below 4400 is weak, a close below 4100 is necessary to confrim a short-term top." Monday and Tuesday CLV4 spiked to session lows of 4140 but closed nearly 70-100 pts off the low. This market continues to mark time as it is setup for a retest of the 4800-5000 level, again barring a close below 4100.

08.30.04 - The Pullback

Short-Term Top The last update was on 08.25.04 for 08.26.04 and stated, ""...the upside may be overdone in the short-term...one more thrust higher to the 10175-10200 zone....close above 10225-10235 maintains the upward momentum...back below 10095-10105 would be weak. "

Monday the DJU4 failed at 10192 after setting a swing high on 08.27.04 at 10215, only 15 pts above the specfied top of the expected short-term range of 9900-9975 and 10125-10200. The close back inside the key closing area of 10110-10140 on 08.30.04 is a warning shot for the bulls with 10150-10175 now strong intraday resistance. Initial support on this pullback, per the 08.24.04 report is 9975-10000.

The US bonds and notes broke out of 4-5 day consolidation and are trading higher, inversely to the US indices. For the 5-year note, a close back below 109'300, basis the Dec 04 contract, is necessary to stem the upward momentum with a close below with a close below 109'200 a weak sign. In the longer-term, closes below 110'24 and 108'28 basis TYZ4 and USZ4 would be the first sign of a possible top. Closes below 110'00 and 107'24 are required to turn the momentum lower and confirm a top.

The US dollar manitained closes above the key 8935 level in four of the past five days. Recall that this key closing level confirmed a short-term bottom in the US dollar. To maintain the upward pressure, the buyers must now produce a close above 8995. A close below 8930 would be a warning sign with a close below 8890 confirming at least a short-term top in the greenback.

Crude oil is a key support with Monday 08.30.04 being the 7th down day from the contract high set on 08.20.04 at 4837. Recall that in the 08.25.05 analysis I stated, "...though the close below 4400 is weak, a close below 4100 is necessary to confrim a short-term top." Monday CLV4 spiked to a session low of 4140 but closed nearly 100 pts off the low. This market continues to mark time as it is setup for a retest of the 4800-5000 level, again barring a close below 4100.

08.25.04 - The Real Test

Key Tests for Markets No time for a detailed update tonight. Quick recap:

1. DJU4 broke out and as this is being written set a session high at 10196, 421 pts off the 08.13.04 low and above the 08.02.04 pivot high of 10188.
2. The expected short-term range was now 9900-9975 and 10125-10200 and in last Friday's Outlook I stated,"...the upside may be overdone in the short-term...one more thrust higher to the 10175-10200 zone."

This upside area is now being tested and the close above 10110-140 solidifies the 08.13.04 low at 9775. A close now above 10225-10235 maintains the upward momentum. A close back below 10095-10105 would be weak. The market broke out of a 3+day range consolidation with upside targets on the DJU4, NDU4 and SPU4 at 10225-10250, 1400-1410 and 1110-1115 respectively.

3. The US bonds and notes are nearing a possible reversal point. Wednesday they tried to breakout of a 3-4 day consolidation and potentially failed, completing yet another interday compresssion pattern. Thursday (08.26.04) is setup for a range expansion. For the 5-year notes, a break below 110'200 or above 111'030 will be an early warning sign for the impending move with a close above 111'060 strong and below 110'260 weak. In the longer-term, closes below 112'16 and 110'16 basis TYU4 and USU4 would be the first sign of a possible top with a close below 112 and 110 a sign of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and confirm a top.

The US dollar closed 8935 confirming a bottom in that market and also possible top in bonds. (see other data).

4. Crude oil retraced for the fourth day Tuesday into support. The market is now set up for a retest to the 4800-5000 level, though the close below 4400 is weak, a close below 4100 is necessary to confrim a short-term top.

08.24.04 - Nothing's Changed

Consolidation A quick update today. The outlook for both equities and bonds is unchanged from the prior two days' analyses.

As stated in Monday's report, barring a close above 10140 required to solidify the 9775 low, a short-term pullback to the 9975-10000 level is likely. The major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff. The expected short-term range is is now 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top.

The buyers have been in control of the interest rate instruments. However, the US notes and bonds are at major resistance levels at the late-Mar 04 lows and breaking through this area will require substantial effort. Also the major players are showing signs that they believe a top is near. The US dollar also closed above 8935, reversing the damage from the 08.06.04 employment report. Friday and Monday may have been a warning shots for the longs with Tuesday consolidating to produce the third consecutive range compression day. Wednesday (08.25.04) is setup for a range expansion. For the 5-year notes, a break below 110'200 or above 110'300 will be an early warning sign for the impending move. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the first sign of a possible top with a close below 112 and 110 a sign of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and confirm the commercials positioning.

Note that crude oil retraced for the third day Tuesday into support at 4375-4475. The market is now set up for a retest to the 4800-5000 level.

08.23.04 - A Day of Rest

No News Last week saw the DJU4 post a 355 pts gains from the 08.13.04 intraday low of 9775. Monday exceeded that high by 2 pts before reversing to settle down 28 pts at 10081. The higher print came following an early test to 10128 with a mid-afternoon pullback to 10085, the Friday afternoon breakout area. The final hour broke this key support area at 10085 setting up 10085-10100 as resistance.

Monday's action did little to change the short-term outlook. As statedin Monday's report, barring a close above 10140 required to solidify the 9775 low, a short-term pullback to the 9975-10000 level is likely. The major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff. The expected short-term range is is now 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top. Note that Monday was a range compression day, a precursor to a trend type move.

The buyers have been in control of the interest rate instruments. However, the US notes and bonds are at major resistance levels at the late-Mar 04 lows and breaking through this area will require substantial effort. Also the major players are showing signs that they believe a top is near. The US dollar is also beginning to show signs of strength, but must close above 8935 to reverse the damage done off the 08.06.04 employment report. Bottom line, for a top to be complete in the interest rate markets, price action needs to confirm these leading signals. Friday and Monday may have been a warning shots for the longs; closing at or near its lows on Friday and leaving real gaps on Monday, the second consecutive range compression day. Tuesday (08.24.04) is setup for a range expansion. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the first sign of a possible top with a close below 112 and 110 a sign of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and confirm the commercials positioning.

08.22.04 - Interest Rates Headed Higher Soon?

Never Fight the Big Boys I was doing a quick scan of my charts for the upcoming week and came across one potentially ominous piece of information. I watch the committment of traders data in some markets for confirmation of possible market reversal points. The "big boys" (commercial traders) are rarely incorrect in their market assessments – when they begin taking a large position in one direction it’s time to sit up and take notice. By nature they have deep pockets and are therefore often early in establishing their play, but ultimately they win out.

This past week’s data demonstrates that the commercials are betting that interest rates are headed higher (bond and notes lower). As laid out in the Friday 08.20.04 update, US notes and bonds up against major resistance levels. The last time that commercials were this negative on US interest rates was in late Feb and early Mar 04, roughly 2-3 weeks before Treasuries topped out and reversed with the 30-year bond dropping over 13 pts during the next 1-1/2 to 2 months. Clearly, traders need to be on alert for reversal signals. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and Friday 08.20.04 may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion.

08.20.04 - Outlook

How High is High A quick update this week. Last week I called for a short-term rally of 200-300 pts off the 08.13 lows. As of Friday, the DJU4 booked 355 pts, a 3.6% move in one week. Barring a close above 10140 (see below), a short-term pullback to the 9975-10000 level is likely though there may be one more thrust higher to the 10175-10200 zone.

Last week's outlook specified a 9800-9875 support zone and 10025-10100 resistance area. This week's action revises the expected range to 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top. Given that the major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff, a short-term pullback is in the cards until the market can post a close above 10110-10140 to solidify the 9775 low.

While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments. The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower. Friday may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

As for crude oil, the rally continued with Oct crude, now the front month, tagging 48.37/bbl on Friday. Last week with the market at $46.02 on the close, I stated, "... CLV4 based in a 600 pts range for nearly 2-1/2 months before the breakout move. Therefore, the momentum is to the upside with a potential target of $48-50/bbl." Now support is at the mid-40s and though a short-term failure is possible at current levels, only a close below 4400 basis the Oct 04 contract would indicate a short-term top. Pullbacks to the 4400-4450 level must be considered a reaction to a major upmove. A close below at least 4100 is necessary to confirm a failed breakout.

08.19.04 - Quick Update

Consolidation No time for a detailed update tonight. From Wednesday evening's report, "...a short-term consolidation is likely now with the extremes set at 9975-10000 (early support at 10025-10050) and 10100-10125 on the upside."

Suffice it to say the the DJU4 traded within 15 pts of Wednesday's high and the tape was neutral-to-weak. The result was a drop down to the expected support zone of 9975-10000, setting a 9990 low, before reversing to trade 61 pts off the low in a late afternoon reversal. With no economic news on tap today, watch for the range to continue playing out. Recall that the longer term outlook is for a 9800-9875 support zone and 10025-10100 resistance area. A close above 10110-10140 remains necessary to solidify a low. A close back below 9965-9980 would be an early warning sign for the buyers.

08.18.04 - Rebound Continues

Time for the Real Test Wednesday saw buyers step in at the open as the indices opened lower from overnight pressure caused by the AMAT news and Asia. As stated in Wednesday's report, "...intraday 9900-9950 is support and 10050-10100 resistance...close above 9965 sets the stage for continued upside pressure...Wednesday is setup again for a range expansion similar to what occurred Monday...NDU4 still has a real gap at 1349-1353...providing some pressure to pull that sector higher." The market played out as expected and now its time for the real test.

Wednesday appeared to be a day initially propelled higher on short-covering but fueled by real buying as the session wore on, almost a "I've missed the low, I have to get on somewhere" type of day. By the close, the DJU4 hit an intraday high of 10090, the highest level since 08.05 (the day before the employment report). The market internals were strong as well with A/D at >+1500-1700, the trin at 0.50 and setting an extreme intraday NYSE tick of +1422. Note also that NDU4 finally filled its gap at 1353.

The DJU4 is now to the upper end of the expected 9800-9875 to 10025-10100 range. Furthermore, the buyers have posted three consecutive winning days, pushing the market 315 pts off last Friday's low. This past weekend I outlined the probability for a 200-300 pts rally. Having met the goal and based on the test to the key resistance levels, a short-term consolidation is likely now with the extremes set at 9975-10000 (early support at 10025-10050) and 10100-10125 on the upside. Recall that the longer term outlook is for a 9800-9875 support zone and 10025-10100 resistance area. A close above 10110-10140 remains necessary to solidify a low. A close back below 9965-9980 would be an early warning sign for the buyers. A potential pattern to watch for today if a reversal is to occur is a break above Wednesday's highs on neutral or weak tape and then fall back through the Wednesday high area of 10070-10090.

The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Wednesday posted weak daily patterns across the board but confirmation that the three-week move has run its course requires closes below signifincatly lower levels. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

08.17.04 - Dead Cat or AMAT?

Real or Fake? The rally continued Tuesday on a weak CPI report. All three indices snapped back from late session weakness in the NDU4 on Monday with the DJU4 trading back up above 10000 before stalling. An intraday high at 10015 was met by profit taking with the market falling back to breakout support by midday before stabilizing. The balance of the session bounced between intraday support at 9940-50 and resistance at 9965-9975 playing out the, "...given the trend-type move Monday, watch for a consolidation to setup today." specfied in Tuesday's report.

With the two-day trend move higher capping early Tuesday at 10015, 240 pts off the Friday lows, the expected 200-300 pts rebound be peaking out. It comes down to the Applied Materials (AMAT) earnings report and guidance. Barring a surprise and with no economic news on tap for Wednesday, the stage is set for another consolidation. Longer-term, the range is set at 9800-9875 for support and 10025-10100 for resistance. Intraday and short-term, 9900-9950 is support and 10050-10100 resistance.

The close above 9965 sets the stage for continued upside pressure though the market is moving into key resistance. Note that Tuesday's close was the highest since the last close above 10000, at 10105 on 08.04, two days beofe the employment report. The short-term potential is 10075-10100. A close above 10110-10140 remains necessary to solidify a low. The techs have to kick it in gear or else the market's stuck at resistance. Tuesday may have seen some reallocation as the techs were stronger than the broad market. Note that the NDU4 still has a real gap at 1349-1353 using the 08.05 low and 08.10 high providing some pressure to pull that sector higher. A close back below 9900-9915 would be an early warning sign for the buyers. Wednesday is setup again for a range expansion similar to what occurred Monday.

Nothing has changed in the notes and bonds. While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments. The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Closes below 112 and 110 basis TYU4 and USU4 will be a weak sign with closes below 111'04 and 108'28 are required to turn the momentum lower. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.