Equity Index Update by Brad Sullivan

[HamzeiAnalytics]

Posted 10:45 CST

Equity Index Update
Tuesday November 15, 2005

Editor's Note: Brad's comment is a bit delayed today as he was very active trading this morning.

The index markets participated in another listless trading session ahead of key economic reports due this morning. The buyside pushed both the SPZ and DJZ to new intraday highs for the current upmove before sellers quickly appeared. By session's end, there was little change across the index complex.

Today we saw the PPI and Retail Sales reports released, with both reports mixed in terms of their impact moving forward. However, the real key for the session will most likely be the discussion with Federal Reserve Chairman-Elect Ben Bernanke. Currently, the equity market continues to be stuck in the recent ranges between 1233 and 1240 for SPZ. In my opinion, it will continue to chop around this zone until we get through the CPI report tomorrow morning. If that report comes in tame, and Mr. Bernanke's testimony relieves the markets, then I would look for a challenge of 1250 before the week is out.

One of the key tenets of the bear argument is the current deterioration in breadth across both the NYSE and NASDAQ. There is little question that the markets are being led by fewer stocks. However, the flip-side to this argument is simple. Given the current price level of the indices, what happens if a rally to new trading highs occurs with an increase in the overall participation of stocks? Would this idea still hold or would the sellers throw in the towel? That will be the KEY TRADING POINT as we move into 2006. In the meantime, sit back and enjoy the rally.

Good Trading to All,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 06:20 CST

Equity Index Update
Wednesday November 16, 2005

The index markets suffered a reversal of fortune yesterday afternoon after early buying pressure, on the heels of a strong rally in the fixed income market, failed to sustain recent trading highs. In fact, 3 of the 5 index markets made new intraday highs for the current rally off the recent October lows. The DJIA, SPX and Midcap made it to new ground, while the Russell 2000 and NDX failed by a small margin. Once the buy side was unable to defend the higher ground, sellers quickly gained control and pushed each index down significantly from their respective lunchtime highs.

The most aggressive move occurred in the ER2Z contract (Russell 2000 mini) as the range expanded to nearly 2% for the session. The volatility was even greater when one considers a break of 1% off the open, followed by a 1.2% rally, then a nearly 2% decline. This action leads me to believe that the market will attempt to find a base at lower levels in the next few sessions. I expect the 650 to 645 level will provide key support for the index and should lead to a base building zone for a further push towards 675.

The reversal in the SPZ was triggered by early afternoon selling from Morgan Stanley's desk. The firm moved roughly 2,500 contracts from 1238 to 1231 before they hung up the phones. This reversed early morning buying from Goldman Sachs' desk that occurred from the 1235 to 1238 level. All told, the failure for the index to hold around the 1239 level for a push to 1245 seems to have strengthened the case for a tight trading range into expiration. If the market is unable to break out of the 1% range of 1228.50 to 1241 after the CPI report this morning, I would expect a yawn into Friday.

The NDX failed to hold above 1650 on a closing basis, a mild negative moving forward. On a momentum play, this failure should lead to a moderate pullback and test of the 1630 level. Only a settlement below UNCH on the year -- that level is 1621 -- would call into question the ability for this index to keep the upside bias into year-end.

Today's action will be dominated by the CPI reading, the flattening yield curve -- which has everybody and his brother talking about the upcoming recession -- and DOE inventories. Overnight, the index markets are slightly lower, but in line with fair value, the fixed income market is trading around unchanged, the dollar is firm, gold is higher by nearly $3.00 and Crude Oil is moderately lower.

Good Trading to All,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:10 CST

Equity Index Update
Thursday November 17, 2005

The index markets survived another bout of early session selling, particularly in the Midcap and Russell 2000 contracts, and were able to stay bid into the closing bell. Volume flows were tame in the index markets as players seem to be content with their respective positions. Sellers have pushed each index lower in the morning sessions, but have been unable to sustain any real downside momentum. In fact, this seems to be a shallow correction in the Russell 2000 as it dropped nearly -3% from its recent trading high of 670 to the 650 level yesterday. However, as has been the trading theme since October, buyers came in and supported the index, leading to a strong close.

This morning the indices are higher, with the ND trading near the highs for this rally at 1666. The markets are taking their cue from strong rallies in the Japan -- as the Nikkei crossed 14,400 on the close -- and Europe as most of the major markets are higher by around +1%. One of the key aspects to today's trade will be what I refer to as the "Thursday" rule. The indices have a statistically significant trade that occurs on the day before expiration. The tendency is for the market to be a "One-Way Street." Given the proximity of recent highs, the odds are that if we do have a “One-Way” move, it will be to the upside. 1245 remains a tradable near-term target for the SPZ contract. If buyers fail to take advantage of the strong open, I would prepare for more chop with 1235 acting as a magnet for prices.

One brief comment about Gold, Silver, Palladium, Platinum, Zinc, Nickel, Copper, Soybeans, Wheat and Corn...WOW!

Good Trading to All,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:00 CST

Equity Index Update
Friday November 18, 2005

The index markets staged a solid “One-Way Street” rally yesterday, particularly in the final hour of trading where option expiration-related programs helped push the markets to their highest settlement prices in this current rally. Clearly, the leader of this move is the NDX. Since turning positive for the year on November 4th, the index has tacked on significant gains. Currently, the NDX is now up over +3% on 2005. However, the most impressive statistic regarding this index is that we now find ourselves over +10% above the October intra day low of 1515. Earlier this month, while the market was holding above the UNCH for 2005 level, I put the trading target of 1700 on the board by year-end. The odds of this prediction have increased dramatically given our current rally. However, it would not surprise me to see the outsized gains we have witnessed recently slow over the next few sessions. Look for increased upside towards the last trading day of November and early December.

The biggest winner, in the broadest sense of the word, continues to be the MIDCAP 400 (EMDZ5 mini symbol). The cash index closed yesterday at ALL-TIME HIGHS. In my opinion, there appears to be little resistance in sight, with 750 a legitimate target for the end of 2005. Dollar flows continue to push this index as players move money into equities that remain in bull markets, with Biotechs serving as a prime example. One of the top weightings in this index is GILD, which made an all-time high on Wednesday's settlement.

The SPZ was able to push to the trading target I outlined yesterday morning of 1245. Given the current bid in globex trading, the cash market is poised to challenge the 1245ish trading highs for 2005. The index stands up 2.5% on the year, and is looking to push the elements for a solid return with a year-end rally. I continue to think 1275 is a tradable target for year-end. Large scale buying came from Goldman Sachs’ desk in the final hour push higher as they were estimated to buy over 1500 contracts above 1240.

Finally, I would like to discuss the selectivity of our current rally. All I hear out of the sell side camp is how there is no breadth, no participation and so on. What I think these players have failed to take into account are two points. First, selective rallies can carry out for years -- for example, the early 1970’s “Nifty Fifty” and the late 1990's. Second, I continue to look at this breadth phenomenon in the opposite way. In my opinion, if the breadth figures were at current levels and the market was at 1280 there would be an argument for the sell side. The FACT IS THIS -- THE MARKET IS UP ONLY 2.5% IN THE SPX ON THE YEAR. THAT IS NOT A RALLY! I think this nuance is seemingly lost on so many traders, that want the market to go lower, still blinded by the bear market a few years ago. I believe that the breadth figures have deteriorated in an ongoing correction and are poised to reverse much of that trend into year-end. I suspect that if the SPX hits my trading target of 1275 -- and let's remember, this is not a large bullish call as it would only represent +6% on the year -- the breadth figures will be dramatically better than the current readings. To say it another way, I don't want to be a buyer of market with its best breadth readings of the year, due to the range-bound trading we have witnessed the past few years. I want the weakness in breadth relative to recent price levels because it gives the long position a tremendous potential push for gains when this reading gains traction.

These are rallies to enjoy -- Domestic Indices, the Dollar, the Metals, the Nikkei, European equities, GOOG, Biotechs, Reinsurance and Insurance Brokers. Sit back, relax and let em' run until Santa slides down the chimney.

Good Trading to All,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:25 CST

Equity Index Update
Monday November 21, 2005

The index markets continued to push higher on Friday as expiration-related buy programs and good news from General Electric (GE) helped spark more gains. When the bell rang, it registered a new closing and intraday high in 2005 for the SPX, MidCap 400 and NDX. The DJIA and Russell 2000 continue to lag behind, particularly the DJIA, which is still fractionally lower for the year. Volume flows were moderate and players were able to create some reasonable size trading ranges after the early highs printed in all contracts just after 9:00AM CST. Given the velocity of the move since our October trading lows, it is reasonable to expect a basing period over the next few sessions in the index market.

Typically in bull rallies, the indices will make trading lows in the morning followed by afternoon buying and settlement highs. This pattern has held true throughout much of this move. Interestingly, I ran into a large SP futures trader the other day and he was telling me how he had been losing money recently – even though he was bullish on the market. Simply put, he typically trades only in the morning, and found himself building up positions that would move against him to his "uncle point," wiping out a fair amount of capital in the process. His disappointment was not the losing, but the fact that he was eventually correct in his trading idea. The interesting aspect of this story is that it applies to every trader. The index markets are a levered game, particularly when it comes to day trading. When using too much leverage, the trader is forced to be "right" almost immediately. In my opinion, this is a fruitless endeavor. I have always suggested to work on entry zones as opposed to specific points and never apply too much force as it relates to one's own capital position. I convey this story because I suspect that over the next several sessions, the indices will frustrate many traders in a similar vane.

Overnight, European and Far East indices are mixed, the dollar is lower, domestic fixed income is slightly higher and GM announced a large restructuring. This GM news could provide an excellent day trade opportunity for selling the rally.

Good Trading to All,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:10 CST

Equity Index Update
Tuesday November 22, 2005

The index markets continued their upward climb with a solid afternoon rally. The DJIA crossed above UNCH on the year, pushing all indices into the green for 2005. The Mid cap 400 (EMDZ mini contract) and the Russell 2000 (ER2Z mini contract) were the lead performers on the upside as steady buying set into these contracts after the early lows were made and continued into the bell. The NDX held onto modest gains after early selling, while the SPX pushed forward and traded up to 1255 before the close.

The indices have made tremendous strides since last Tuesday's downdraft. The SPX and NDX have each rallied a bit over +2% from that close, while the DJIA has tacked on around +1.5%. The Russell 2000 is the leader, with a +4% move from the low, while the Midcap 400 is around +3%. The only index trading at all-time highs remains the Midcap 400, with the Russell 2000 approximately 3% short of its high benchmark.

Yesterday's action produced a fair number of fresh breakouts, particularly among the attractive sectors. Biotech, Financial, and Internet issues all continued their collective runs. As I have pointed out in the past month, this rotation of market leaders is critical. The fact that the indices were able to hold the correction from September highs to approximately -6% in the SPX while money flowed out of the energy issues ended up as a bullish event for the market. If the capital raised with the energy sector sales had stayed on the sidelines, it would have been a disaster for equities. However, that did not occur and the money found a new home. Over my trading career, I have tried to live by one motto: Follow The Money. Right now the money continues to come into selective sectors and issues for the year-end rally. Why fight it?

Good Trading to All,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 07:45 CST

Equity Index Update
Monday November 28, 2005

The index markets continued their rapid ascent last week as players on the sidelines used the FOMC minutes, released on Tuesday afternoon, as a reason to get into the current rally. Wednesday and Friday's action was muted, at best, due to the holiday. Today, the indices are called to open higher as the SPZ is trading above its high from last week at 1272.50, up 2.50 overnight. Retailers are reporting sales gains that came in above estimates, Crude Oil is sharply lower, the dollar is mixed, fixed income is moderately lower and the metals are sharply higher.

The indices have been in a vertical move since mid-October's trading lows and are poised to challenge key psychological levels shortly. These levels are DJIA 11,000, SPX 1275, NDX (already there at 1700) and the Russell 2000 at 700. I suspect these levels will hold some value as a point of reflection and should lead to a breather. However, in a breakaway move like this, forecasting a breather should not be confused with getting short. A couple of weeks ago, I discussed at length the need for traders not to "lose" their long positions during sideways consolidation. That consolidation occurred between 1229 and 1215 in the SPX. I would argue that the market is due for a similar consolidation phase, not a correction. Having said that, with such strong historical tendencies for higher prices around the first few trading days of December, I wonder if the pause may not happen until next week? If this scenario turns out to be correct, there is a chance the SPZ could see 1300 by Friday's bell. The more likely scenario is a test and failure of the above levels today, followed by moderate losses in the market that get reversed in a big way on Thursday, the first day of trading in December.

One issue that has me concerned is the current ramping up of my Standard Deviation readings. Using a 22 day STD reading, the SPX is currently registering a +/- 1 STD of 21.54, the highest reading since last NOVEMBER'S reading of 30. The importance of this reading is more akin to a yellow light when driving. The odds for a consolidation or minor pullback have been historically their greatest when this reading breaks above 20. Another light flashing caution is the moving average extension. This reading measures the % difference between the simple moving averages (200, 135, 50 and 20) and the current index price. The Midcap 400 and NDX are trading at resistance levels of approximately +10% from their respective 200 day MA's. Since the bull move began in 2003, neither index has crossed above or below the 10% threshold for more than a couple of sessions. It is worth repeating that I use this reading as an “exit type” of reading from my positions. Currently, it is flashing yellow.

The NDX settled at 1700 on Friday. That level had been my trading target for long positions, accordingly I am selling out 65% of my NDZ long position on the open this morning. I will carry the other 35% into December option expiration, where I plan to exit that Friday. The Midcap 400 (EMDZ mini contract) continues to hold at all-time highs, but with my extension reading flashing yellow, I will cover 60% of my long position on the open. Technically, keep a close eye on the SPZ at 1275 as it should pose key resistance. Support remains between 1268 and 1266.

Globally, the Nikkei is closing fast on the key 15,000 level. For those of you that think our domestic market has momentum, take a look at Japan as it seems to have forgotten how to finish a session in the red. Europe is higher. Trend-wise, Soybeans, Wheat and Corn continue to lay down at lower levels -- still looking for 5.50 on the beans. Feeder and Live Cattle are just below key high levels.

Good Trading to All,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:20 CST

Equity Index Update
Tuesday November 29, 2005

The index markets dropped yesterday as players seemed to take trading profits that were generated around the historically bullish Thanksgiving holiday period. Early sellers were able to push the indices lower as the buyside seemed to go "hand in pocket" and wait for lower price levels before stepping in for accumulation. Volume was moderate, but each index futures contract settled significantly higher than its respective fair level. This leads me to the conclusion that much of the selling was done on a day trading basis and few players were building net short positions below 1265 in the SPZ.

Today's trading should be largely focused on the economic data due to come out today and tomorrow. At 9:00 CST the market will receive the November Consumer Confidence survey, which most are expecting/hoping to show a sharp rebound higher. In addition, the market will begin to prepare itself for tomorrow's release of Preliminary Q3 GDP. Given the impact that the GDP reading has had over the past 2 years, I would argue that this reading could be the most important economic release for the week, including the employment report on Friday.

As I discussed yesterday, a consolidation phase in the current rally should be expected as several of my indicators are proving to be extended. I anticipate a potentially strong 2 day rally Wednesday through Thursday as more money comes into play at month-end. If this scenario occurrs, it would leave the markets in a very extended state that could lead to volatile rangebounde trading in a 2% band (respective to each contract’s volatility). For the ER2, this would equate to roughly a 4% range into December option expiration.

Overall, the index markets suffered no damage from yesterday's decline. The trading was interesting across-the-board in everything from commodities to currencies. The dollar was whacked against the Euro amongst others, but this morning is gaining 1% of its substantial loss yesterday. Crude Oil traded down significantly, hurting XOM, CVX and COP, and in turn hurting the SPX. The trade of long XLF, short XLE continues to gain steam into year-end as dollar rotation picks up steam into the financials and out of the oils. The long end rallied sharply in fixed income, taking out key resistance levels as players seem to be ignoring the initial surge after the FOMC minutes last week and keeping the market on course for inversion. The obvious debate is: What will be the net impact on equities if this inverted yield curve takes place?

I expect today's session to be moderate in terms of overall movement and volume. Keep it close to the vest as the next couple of sessions have “fireworks-type” potential for movement.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:20 CST

Equity Index Update
Wednesday November 30, 2005

The index markets suffered losses yesterday as better than anticipated economic news led to worries that the rate hike cycle may not be concluded as quickly as many anticipated after last week's FOMC minutes release. This morning, the Advance GDP came in a touch better than anticipated. However, it has had little market impact. Instead, the index markets are focusing on a downgrade in Yahoo (YHOO) and a trimmed sales forecast from Novellus (NVLS). In addition, the bond market will be in focus for equities as treasury prices were hammered yesterday on the triple whammy of Consumer Confidence, Durable Goods and New Home Sales.

Yesterday's action in the treasury market warrants a minor bit of concern for equity prices. The concern is due to the scenario that the stronger economic data may put into action. That scenario is the opposite of the tenet on which many of the longs have built their case: the end of the rate hike cycle. Given yesterday's data, the equity market seems to be taking a “wait-and-see” approach with respect to the remainder of the week. If the data from CAPM, ISM and NonFarm Payrolls comes in significantly ahead of the current estimates, it is reasonable to think that early month money flows into equities may be negated by the data. If this scenario of strong data throughout the week plays out, I suspect we will have many of the trading longs liquidating positions into early month money flows. This would create a potential air pocket lower next week as the money flows dry up. By "trading longs" I mean funds that are active in trading the index markets, not “buy-and-hold”-type managers. REMEMBER -- THIS IS ONLY A SCENARIO.

The rest of today brings us CAPM and the Beige Book. In addition, expect lots of program trading ahead of the month end. Also, keep in mind that the futures contracts will settle at FAIR VALUE, not last sale. Finally, I laid out the bearish scenario above, but keep in mind I am still position long. However, I have learned that you need to keep an eye out for potential bumps.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 09:15 CST

Equity Index Update
Thursday December 1, 2005

The index markets suffered another bout of selling as November came to an end. For the 3rd straight session, buyers remained "hands in pocket" seemingly content with their respective long positions. Settlement was a bit frosty as the SPX closed below 1250 and the DJIA neared 10800 ahead of the final trading month for 2005. Goldman Sachs' desk was the lead seller in SPZ, parting with nearly 2500 contracts all session.

It is worth pointing out that on December 1st last year, the SPX rallied to a new high on the year. The index went from 1173 to 1191, settling on the high and setting the stage for a grinding rally into year-end. With the strong opening, it is worth keeping in the back of your trading mind that there is a chance for the SPZ to challenge 1270 by the close of trading. However, the real momentum indices continue to be the Russell 2000 (ER2Z mini) and the MidCap 400 (EMDZ mini). Both of these indices settled in the plus column yesterday, leading me to anticipate sharp gains ahead in the near term. My Russell 2000 target is 700 by year-end.

I would anticipate solid early morning buying on monthly inflows today, then a pretty choppy session ahead of the NonFarm payroll report tomorrow morning. Overnight, the Nikkei crossed the key 15000 level, Europe is higher on the ECB's first rate hike of 25bp, Gold is higher, Crude Oil is roughly unchanged. We have some key economic reports with the ISM and PCE as well.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:35 CST

Equity Index Update
Friday December 2, 2005

The index markets celebrated the arrival of December with buy tickets as money flows poured into the Russell 2000, Midcap 400 and NDX. The SPX and DJIA also put forth strong showings and reside a bit below recent trading highs. The trigger to yesterday's rally happened overnight as the Nikkei vaulted above 15,000 for the first time in 5 years. As the ball began rolling, shorts began to cover during European hours and in early U.S. trading. Institutional flow was seen on the buyside from the opening bell, particularly in the technology issues as the Semiconductor sector became the latest beneficiary of dollar rotation. The SMH (Semiconductors Holders Trust) hit levels not seen since Q1 of 2004.

The employment report released this morning was moderately received by the indices. The job creation was nearly in line with consensus estimates. However, much like a momentum stock’s earnings report during earnings season, the jobs report did not meet the whisper number, which was closer to +275k. Regardless, equities should continue to feed off yesterday's sharp rally. I would expect that this session follow a more trade-oriented pattern of lows in the morning and highs toward the close of trading.

If this pattern does not materialize, and the equity market reverses much of yesterday's gains, then I suspect the scenario I laid out a few days ago in which players sell into the early month strength with the markets stagnating just under recent highs may be at play. All told, the odds are for higher prices, but I suggest day traders wait for the afternoon before pulling the trigger.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 07:55 CST

Equity Index Update
Monday December 5, 2005

The index markets traded mixed on Friday, with the NDX and Russell 2000 leading the upside charge as both contracts settled at new highs for the current rally. The Midcap 400 and SPX finished slightly higher, while the DJIA was a bit lower on the session. The employment report proved to be a non-event in both the equity and fixed income markets. However, comments from San Francisco Fed President Yellen added some afternoon spice to the trade. Yellen stated that the positive performance of recent indicators "suggests that the overall economy has been resilient in absorbing the impact of the hurricanes. For 2006, it seems liklely that this strength will continue in the first half as rebuilding kicks in. Then, in the second half, a couple of factors are likely to cause economic growth to settle into a trendlike pattern." More importantly, warned Yellen, "While it seems unlikely that the end of the current tightening phase is yet at hand, there obviously will come a time when these two phrases are no longer appropriate, and other changes to the statement may be needed as well." From this statement, it appears 50 bp more of rate hikes are a lock. Further, one cannot discount the potential for a total of 100bp of additional tightening.

The market did little with the above statement from Yellen, but keep in mind that if the Fedspeak continues in this fashion, rates should push higher and the equity market will stagnate -- most likely around current levels until the monetary issue is completed. Remember, this is a scenario built on additional Fedspeak into the upcoming Fed meeting and thereafter.

The NDX continued its ascent on Friday, and appears ready to make a push towards 1750 by year end. Money flow has been particularly strong into the Semiconductor issues. However, we have seen this parade before. Quarterly money flows into this sector are not unusual and, given the extended levels of my moving average extensions, I would expect some consolidation before the next push higher. In other words, if already long, hold the position. If thinking of getting long at current prices, be wary.

The SPZ continued to struggle with the 1268 level, just below highs for the year seen last week. In general, the trade last week had a "soft" feeling to it in the SPZ, but with Thursday's rally, the index suffered only fractional losses on the week. That brings up a key point in regards to how much of this month will likely play out in terms of velocity and direction. I would expect much of the trading to be "One-Way Street"-oriented in nature. These make tremendous opportunities for day traders, so long as our market opinion does not get in the way. I would expect the month to end with a roughly 4% trading range, but some back and forth within the range along the way. If this prediciton is correct, utilize patience and let the market show you where it wants to go.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 07:55 CST

Equity Index Update
Tuesday December 6, 2005

The index markets lost minor ground yesterday after early selling pressure abated. Volume flows were light as players began to position themselves ahead of Thursday's Rollover into the March '06 (H) contract. On the economic front, the ISM Non-Manufacturing survey came in a touch light of consensus and had little market impact.

This morning, the indices are bid higher amid strength in Europe and the revision to Productivity from 4.1 to 4.7. The SPZ continues to hang around the 1268 level, just below recent trading highs. Today should be another critical test in the resistance zone from 1264 to 1268 in which the contract has been trading. Moving above this zone would likely bring 1275 into play. If the market fails to produce the upside push, I would suspect another potential air pocket lower towards 1260.

The NDX should be interesting this morning as Sears Holings (“SHLD”) and (“AAPL”) are called higher. The index was unable to sustain 1700 but shed much of the early -1% loss by the close of trading yesterday. Resistance in the NDZ contract should come into play from the 1708 to 1715 level. Much like the SPZ comment, if buyers fail to hold the bid early, I would expect a potential push lower towards the 1693 area.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 09:15 CST

Equity Index Update
Wednesday December 7, 2005

The index markets suffered a serious reversal from their respective trading highs in the final hour of trading yesterday. Volume, which was running approximately 20% below average all session, ramped higher during the decline. There did not seem too be any "real" reason for the final hour drop. Bear Stearns' desk was the lead seller in the SP futures on the way down. However, much of the decline seemed to be tied into day trader long liquidation below 1270 and fresh buying staying on the sidelines into the closing bell. This creates a tremendous opportunity for day traders to push the market lower, without any force from the other side.

Today, the indices will attempt to recover from the late selling. However, I suspect that the downside action yesterday reinforces the range trading theme I have been discussing recently. The market now finds itself in a position where the buyside is seemingly uninterested in purchasing the market at higher levels. When this occurs, it tends to create melt ups and downs in pricing without any change in the overall market outlook. It seems as though more of these pricing swings will be ahead of us for the next few sessions. For day traders these markets create excellent opportunities and plenty of "One-Way" streets.

In the short run, look for the SPZ to potentially test the 1259 to 1260 level of support today. If the market holds this zone, it should lead back to a test of the key 1268 level, but if it fails to hold this zone, look for a potential test of 1255. All told, I would expect the trade in all indices to be relatively tame and in a pretty defined range.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:10 CST

Equity Index Update
Thursday December 8, 2005

The index markets finished lower yesterday as players pushed the respective indices near the recent lows established on November 30. In the case of the DJIA, the index broke below the closing price of that session at 10805, but was able to gain some ground into the closing bell and settled just above that price at 10810. More importantly, the index closed in positive territory for the year, after briefly moving into the red during the session.

Today, the indices will digest the mid-quarter updates from Texas Instruments (“TXN”) and Xilinx (“XLNX”), while preparing for the update from Intel (“INTC”) after the close of trading. Currently, the markets appear to be locked into a trading range that has been in play since mid-November. Keep in mind, since our October trading lows each index has participated in a significant rally. The indices continue to work off their overbought status from a short-term technical level, while hitting some key long-term resistance zones. I suspect we will see more choppy "One-Way Street" trading action through next week. I would be surprised if any index breaks out of its respective trading range in that timeframe.

For the day trader, this continues to mean excellent opportunities within the ranges. Yesterday's action built on the final hour selling from Tuesday's session as sellers patiently walked the market lower. Today's trade should prove to be a bit choppier as the SPH is currently trading unchanged after being lower by nearly -5.00 overnight. CASH resistance levels are 1260 to 1261 and 1265 to 1267. Support levels are found from 1252 to 1249. Below this zone, 1245 is CRITICAL and should be used to establish long positions into the year-end.

REMEMBER, TODAY IS ROLLOVER DAY. FRONT MONTH CONTRACTS IN ALL EQUITY INDEX FUTURES IS "H" --- SPH6, FOR EXAMPLE. Also worth noting, fair value for the March futures contract in the SPH is +7.20 over the cash market. In the NDH6, fair value is pegged at +16.50 over the cash market. As usual, during the rollover sessions there is plenty of liquidity from arb players. Normally, this changes the trading "flow" from usual patterns. Keep this in mind as we move forward throughout the session.

Good Trading to all,

Brad