A Look at Friday’s Activity: The overall market moved moderately higher on Friday in a relatively broad based move that saw the majority of the sector indices I track move higher as well. The was strength the Retailers, Utilities, Gold/Silver, High Tech, Insurance, Chemicals, Healthcare related, Broker/Dealers, Consumer, Commodities, Cyclicals, Airlines, and Telecom indices. There was weakness in the Networking, Oil Services, Biotech, Banking, Transports, Oil & Gas, and Natural Gas indices.
Oil was lower by $1.41 to $88.18 per barrel, and Gold was higher by $33.30 to $1,812.50 per ounce. Wheat was lower by $0.076 to $6.882 per bushel, Corn was lower by $0.09 to $6.92 per bushel, and soybeans were lower by $0.032 to $13.53 per bushel.
A Few Thoughts Before the Open: In looking at the charts from Friday’s activity the extreme vast majority of the charts were to the upside. However very few had broken above upside resistance levels. The individual stocks within the overall market currently have an extremely correlation with the movement of the major market indices. I feel this a result of the increased use of exchange traded funds (ETFs) and computer driven trading; basically I think all the programers went to the same school and are following the same playbook. However this creates a problem on days like today. when the futures are sharply different from Friday’s close. In cases such as today there are an extremely few number of charts that moved counter to Friday’s move, and as a result there are very few trading opportunities for trading today. I feel this is ultimately detrimental to building a diversified portfolio.
I don’t really have a solution for the problem of this extremely high correlation between individual stocks and the major market indices. I think in the short term it is here to stay. I think it will subside over the longer term if the global financial situation calms down and if we see a reduction in the number of computer driven trading strategies. Until then we need to learn to live with it.
Following the strong move upwards in the later half of last week, I thought now would be a good time to update our support and resistance levels on the various indices I track.
In looking at the various indices I track, I have the following comments.
Dow Jones Industrial Average: The Dow Jones Industrials closed at 11,509.09 I currently see upside resistance on the Dow at 11,613.53 and downside support at 10,719.94 on a closing basis. I think the Dow Jones Industrial Average is in a sideways trading pattern with the upper end at 11,613.53 and the lower end at 10,719.94 Until the Dow closes above or below this range I think it is basically tracking sideways.
S&P 500 ‘SPX’: The S&P 500 closed at 1,216.01 I see upside resistance on the S&P 500 at 1,218.89 and downside support at 1,127.79 on a closing basis.
NASDAQ 100 Index ‘NDX’: The NASDAQ 100 closed at 2,306.09 I see upside resistance on the NDX at 2,325.06 and downside support at 2,192.96
The Dow Jones Transportation Average: The Dow Transports closed at 4,664.60 I see upside resistance on the Dow Transports at 4,683.96 and downside support level at 4,320.05 on a closing basis.
M.S. Commodities Related Equity Index ‘CRX’: The ‘CRX’ closed at 893.66. I see upside resistance on the ‘CRX’ at 924.89 and downside support at 847.10
KBW Banking Index ‘BKW: The ‘BKW’ closed at 38.69. I see upside resistance on the ‘BKW’ at 41.42 and downside support at approximately 35.10 on a closing basis.
S&P Banking Index ‘BIX’: The ‘BIX’ closed 118.86. I see upside resistance on the ‘BIX’ at 120.71 and downside support at 100.96 on a closing basis.
Amex Broker/Dealer Index ‘XBD’: The ‘XBD’ closed at 89.42 I see upside resistance at 92.97 and downside support at 80.87 on a closing basis. I am expecting the ‘XBD” to continue to move lower and test 80.87 on a closing basis.
S&P Insurance Index ‘IUX’: The ‘IUX’ closed at 161.55 I see upside resistance on the ‘IUX’ at 175.13 and downside support at 143.80 on a closing basis. I am currently expecting the ‘IUX’ to continue to move lower and test 143.80 on a closing basis.
Amex Gold & Silver Index: The Amex Gold & Silver Index ‘XAU’ closed at 217.56 I see upside resistance on the ‘XAU’ at 228.95 and downside support at 208.47 I have been looking at increasing volatility this index and as a result have widened my trading range by adjusting the downside support level down to 208.47. As a result I basically see this index tracking sideways between 228.95 on the upper end and 208.47 on the lower end.
Amex Oil & Gas Index: The Amex Oil & Gas Index closed at 1,148.83 I currently see upside resistance on the ‘XOI’ at 1,169.65 on a closing basis and downside support at 1,050.78. The ‘XOI’ appears to be in a sideways trading pattern. I have widened our trading band to 1,151.76 on the high end and 1,050.78 on the lower end.
M.S. Cyclicals Index: The M.S. Cyclicals Index ‘CYC’ closed yesterday at 867.29 I currently see upside resistance on the ‘CYC’ at 868.97 and downside support at 789.46 on a closing basis.
M.S. Consumer Index: The M.S. Consumer Index ‘CMR’ closed at 719.66 I currently see upside resistance on the ‘CMR’ at 725.78. and downside support at 691.44 on a closing basis.