Equity Index Update by Brad Sullivan

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:55 CST

Equity Index Update
Wednesday February 8, 2006

The index markets drifted lower yesterday, however, the large caps, which have received the brunt of the recent selling were able to consolidate at support levels. The shift in the marketplace was felt in the ER2 and EMD as both the indices had strong downdrafts that produced technical damage in the short term. This morning the indices are called sharply higher on the heels of CSCO's earnings report last night and an upgrade in DELL as well as upward guidance in PEP on the earnings front. The key question is this...can CSCO turn the tide of the NDX? The index has held key support the last two session and breadth has stabilized during this test of 1650. Keep in mind...on Monday I wrote that the key to this market will be if the index makes a push for the -10% decline or stabilizes between -5 and -7%. Thus far, the ladder is proving correct.

Today's action should be dominated by early trading action off the CSCO news and gap higher. Potentially, I would expect the Mid cap and Russell 2000 to under perform in a relative manner versus the large caps. The DOE stats at 9:30cst, given the recent decline in Crude Oil, should have a large impact on the trading session. Keep in mind...we have been following the oil market in terms of equity pricing for quite sometime and this reading will be important for the large cap issues such as XOM,CVX and others.

The SPH should have resistance from 1260 to 1262, above this zone and the trade looks a touch better. The next key spot for the market will be 1265 to 1266.50. Only a settlement above this zone will turn the index from negative to short term positive. On the support side...if the indices ignore the CSCO news and focus on the current "drivers" of this down leg, I would expect the SPH to test the 1255 level with an outside chance to hit 1250. CRITICAL SUPPORT IN THE SPX (CASH INDEX) RESIDES FROM 1251 TO 1245. A SETTLEMENT BELOW THIS ZONE WOULD NOT BE HEALTHY IN THE SHORT RUN FOR THE MARKET.

The two indices with the most to "lose" in the near term seem to be the Mid cap 400 and Russell 2000. Keep a close eye on support in the ER2H contract at 715, 712 and 709. The current trade in the index leads me to think we will test these areas shortly, possibly as soon as today. Only a settlement above 725 would change this outlook. The EMDH contract should remain under heavy pressure, in large part due to the index component weightings. Two of the top four issues are home builders, and the lead issue is an oil company, MUR (Murphy Oil). Further troubling in this makeup is the amount of natural gas and drilling issues that account for the largest sector weighting in the index. Given the current selling in these issues, I suspect we will see lower prices, most likely a play towards the 760 - 755 zone before we neutralize.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:00 CST

Equity Index Update
Thursday February 9, 2006

The index markets put in a strong performance yesterday as final hour buying turned minor large cap gains into significant one's by the closing bell. When it was over, the SPH reversed Tuesday's decline, the NDX settled at its highest level for the week and is now +1.8% off the intra day low - which also happened to equate with unchanged on the year - from Tuesday afternoon. The DJIA also proved strong as large cap issues produced gains, while small and mid caps finished moderately higher.

Within the small and mid cap arena, it is important to dissect yesterday's trading action. Both of these indices made bounced sharply off their respective support zones, however, they were unable to generate further gains above key short term resistance levels. In the ER2 contract, I continue to look at the 725 to 730 resistance band as critical. A move above this zone is a positive for the upside, however, I tend to think most of the strength in the small caps is behind us. This statement should be viewed in context of relative performance. Given the updraft in this index since the start of the year, the corresponding large cap issues spreads are trading at a large discount to their historical levels. If one believes in any type of mean reversion, this is the opportunity to get long large caps and short small or mid cap issues. On a weighted basis, including implied volatility of each index, my current unit size for the ER2-SPmini spread is 4 ER2's against 7 SPminis.

The large cap performance was helped by the turnaround in shares of GOOG. the stock traded as low as 354 and change (margin call anyone) before rebounding to 369 by the close of trading. I continue to believe that this issue is the most important stock in the marketplace right now. Particularly when one measures the psychological impact it has on small and large investors alike. If the stock can consolidate at slightly higher levels, and the money that has flowed out of this issue the past week can be rotated into other issues, then we have the ingredients for a sustainable rally in large cap's. Another key factor in today's trade will be the reception of the 30 year auction. As this auction has approached, the index markets have had a divergence with the fixed income markets. Yesterday's 10 year auction was not overly well bid in the fixed income market, leading to lower afternoon pricing in these contracts. However, equities rallied once the bond market closed. Divergence. I have discussed the past week my thoughts on money being taken out of equities and put into fixed income - specifically the 30 year - ahead of this auction. The equity rally in the afternoon confirmed my speculations that part of the reason for our recent decline has been money flow out of equities and into fixed land. Keep a close eye on this action today.

Overnight...the SPH is trading higher at 1270.50, up 2.25...the NDH is up 6.00 at 1681.50...the USH is lower by -10 ticks at 112 '07, and is closing in on last week's employment report low of 112 '03...the dollar is moderately weaker ahead of tomorrow's International Trade reading and should remain quiet...Crude Oil is slightly higher and GOLD is sharply higher, up 7.50 at 561.30.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 07:45 CST

Equity Index Update
Monday February 13, 2006

The index markets were able to take back the aggressive early selling in the marketplace and settle higher in the large cap arena. Small and Mid caps continue their respective under performance, however, were able to bounce off key support levels and rally about +1% - from those levels - by the close of trading. Early volume flows were cautious ahead of the Olympic opening ceremonies, locals and prop players were able to push the market down with relative ease from the opening bell in both the NDX and ER2. Near the end of the first hour of trading both the DJIA and SPH reversed course and spike lows were created in each contract. From there, it was a slow grind higher, that picked up steam in the early afternoon when the opening ceremony went off without any terrorist activity. The NDH rallied about +2% from its new low of this move - 1642.50, but, like all indices was unable to hold the bid into the closing bell. While the markets all settled off their lows, none could muster the ability to settle on their highs. Seemingly, this leaves us in a wide trading range ahead of Wednesday's Ben Bernanke testimony in front of the US Senate.

This morning the markets will focus on a couple of factors...first and foremost will be the snowstorm throughout the NYC area and the impact it will have on traders and their ability to get to work. Secondly will be any response to the sharp sell off in the Nikkei last night. The index closed below 16,000 on heavy volume. Thus far, European markets have not followed the downward path of the far east and are trading moderately higher. The final focus on the market should be the performance of GOOG after Barron's knocked the stock in a cover page article. Given the history of this publication and its front page articles, I would say the odds for a buy GOOG reversal trade will play itself out before the session is over. If this occurs I suspect we will trade towards the higher levels of our recent trading ranges.

Another issue that keeps playing in the back of trader minds is the yield curve inversion. The potential fly-in-the-ointment scenario for the domestic equity market is a recession. The debate about our current situation within the yield curve centers on those claiming that the curve is inverted due to massive demand for our longer dated issues on a global basis. Versus those that say a recession, based on historical data of past curve inversions, is looming. I have no idea which side is actually correct in this debate, and to be blunt I am not sure that either scenario is healthy for the equity market. On the one hand, a recession looming is not when one wants to go long the market. With respect to global demand for our long dated products, my question is pretty simple. Why would investors want to receive such a paltry yield on the longer dated treasuries? Certainly, there must be some alpha to discover somewhere...apparently not. With the recent auctions in the 10 and 30 year, an interesting pattern emerged in the equity markets. When the 30 year went down in price, the equity market rallied and vice versa. It seems that some of the treasury movements were directly influencing equities as pensions moved money into one market and out of the other. Now that the 30 year is on settlement from its auction, I suspect that this recent pattern may not play out...but, keep it in the bookshelf as it is bound to resurface around quarterly end.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:10 CST

Equity Index Update
Tuesday February 14, 2006

The index markets were able to survive a quiet session that found many players at their respective east coast homes after the weekend blizzard on the east coast. Volume flows were tame ahead of Wednesday's testimony from Fed Chairman Bernanke, today's retail sales report and upcoming tech earnings from DELL and HPQ. Obviously, the big daddy in all of these events remains Wednesday's testimony. The markets are anticipating getting a "clear" feel of what Bernanke thinks about the current cycle and how much longer it may last.

On that note, the release of today's Retail Sales report was shockingly strong, with the headline reading coming in at +2.3%, significantly higher than the anticipated +0.8% that was the consensus estimate. In the wake of this report, the long end of the curve has traded to new lows for 2006, with the USH contract hitting 111'28. The dollar has rallied sharply against the European currencies, but, is lower against the YEN. The index markets have traded lower by a moderate amount since this reports release.

The potential problem in the equity market, given this release, is pretty simple. Taken as an economic barometer, this is a very healthy reading of the current economy, however, if the equity market - which is a forward looking mechanism - is worried about data flows this reading presents a problem. The problem is simple...everybody wants the FED to stop raising rates, this type of data represents expansion, not contraction. If we continue to expand in our domestic economy, the rate hikes will continue and those that bet on a FED endgame will suffer. Accordingly, those that have made that bet - one that was made very aggressively on the first trading session of 2006 - have found themselves liquidating trading positions over the past couple of weeks. The key in the short run remains the Russell 2000 and MidCap 400 indices. If the rate cycle continues for the next few months, these contracts should feel the brunt of liquidation pressures.

As for today...I would expect some choppy action with moderate to light volume ahead of tomorrow's big session.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:40 CST

Equity Index Update
Wednesday February 15, 2006

The index markets put on their respective rally caps, led by a charge in the DJIA as it crossed and held the psychological 11,000 level. Further support in the collective indices was found after the Russell 2000 and Mid cap 400 tested key support zones and bounced rather significantly from these levels. The SPX closed at 1275, now lower by only a fraction for the month of February. Volume was solid across the index complex, which seemed to lead towards the idea of position squaring ahead of Fed Chairman Bernanke's first congressional testimony.

Today's trading action will be dependent upon what Bernanke says - or does not say - regarding the economic outlook and discussion on the current rate hike cycle. The key question with regards to his testimony and the indices collective response is simple...if Bernanke signals a near end to the current cycle of hikes, is their any upside left? Or has the market already priced this event in? In my opinion, the answer to this question will most likely come tomorrow. Keep in mind that it is not unusual for the indices to do a one way fake out session, followed by a 2 or 3 day reversal after the event has ended.

The FED Chairman will have his text released at 9:00cst and his testimony will begin at 9:20cst. I suspect, after the initial flurry of orders, we will see a rather tight range until the completion of his testimony this afternoon.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:45 CST

Equity Index Update
Friday February 17, 2006

The index markets continued their probing of higher price zones with a solid rally yesterday. Fed Chairman Bernanke's second day testimony went off without any glitches and more than that, it appears that many were impressed with the direct nature of his language when answering the committee. All told, it appears to me that a portion of this current updraft has to be considered the Bernanke rally. The indices were wavering ahead of his testimony, mainly due to the fact that Greenspan had been in charge so long that there was a comfort between he and the markets. Ahead of this shift in Fed leadership, the markets grew worried, the past two sessions of testimony and the results within the index markets seemed to have provided a relief bounce.

This morning, the indices will focus on the DELL results, PPI and the Consumer Sentiment Preliminary reading. In addition, it is option expiration and a long weekend ahead of Monday's holiday. The odds would normally favor tight ranges, however, given the run higher this week, there could be some volatility as the session progresses.

The index markets are called to open around unchanged, to slightly lower as DELL is called to open -1.00...in addition, INTC is lower in sympathy as it is the exclusive provider of chips in DELL's computers. All told, this should make for some potential declines IF THE OPENING BID IS SOMEWHAT ARTIFICIAL. By that statement I mean that the bid on the open will not reflect the underlying problems in the market this morning. Instead, it will be tied into the expiration and built around yesterday's closing prints. It is not uncommon in these situations to see high prints registered at the open of trading, followed by a decline for most of the morning before the market settles into itself and reasserts the trend. Given the desire for most traders to leave early today, I would expect some attempted "pushing" in the negative direction over the first hour of trading.

The domestic and global fixed income markets are having significant rallies this morning...Crude oil is sharply higher and now rests 2.00 above its low made in the final 30 minutes of trading yesterday...Gold is back above 550...One other comment on the index front...THE SPX's RANGE FOR 2006 COMING INTO THIS WEEK WAS ROUGHLY 3.9%. SO FAR, THE INDEX HAS PRODUCED A RANGE OF NEARLY 2.5% FOR THE WEEK AND IS CLOSING IN ON MULTIYEAR HIGHS. This is not a bearish picture and moving forward, I suspect we will challenge the key 1325 level before this move is over.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:40 CST

Equity Index Update
Tuesday February 21, 2006

The index markets participated in a quiet option expiration related session on Friday. Given the weakness in DELL and INTC, as well as some inflation turning headlines on the PPI front, the indices held serve quite well. The week ended with sharp gains for most indices, only the NDX was unable to participate in significantly higher prices. If the NDX cannot move higher in the next couple of weeks on a relative basis, this will be an important divergence and could lead to a large decline towards the end of Q1 across the indices.

Today's trading action will be focused squarely on the FOMC minutes which will be released at 1:00 cst. The minutes should solidify opinions in the marketplace as to the direction and amplitude of potential hikes as well as inflationary pressures that may be building in the pipeline. Prior to this release, look for the indices to stay in a relatively tight trading range. Little in the way of overnight equity news as Europe is higher across the board and the Nikkei was able to regain its footing after some heavy selling the previous session.

Worth noting on a technical level is the running breadth data I keep track of in the various index markets. The SP500 is interesting because the top 20 weighted issues are actually registering a cumulative negative reading since the start of 2006. However, the remainder of the top 100 issues have shown relative strength this year and are trading around their cumulative high for the data period (remember only 2006). In my opinion, this does not represent bearish action...I continue to look for the indices to be under accumulation in the near term.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:55 CST

Equity Index Update
Wednesday February 22, 2006

The index markets finished lower on the heels of sharp selling in the NDX, specifically tied to the Semiconductor Index as Citigroup downgraded the entire sector. The broader indices fared a bit better...on the encouraging side of the ledger for the buy side was the late afternoon rally in the Midcap and Russell 2000 indices. In fact, the Midcap future finished the session in positive territory. The SPH seemed to hit a bit of a "air pocket" after a strong open above last week's highs. However, the index was able to hold minor support located around the zone of 1285 to 1282.

This morning, the indices will focus on the CPI report, which was in line with the Core rate at +0.2%...the headline rate was a touch higher than expected at +0.7%. In response, the fixed income market has rallied sharply off their earlier session lows and now stand in positive territory. The dollar is mixed and the indices are called to open slightly higher.

Given the decline in yesterday's trade it will be interesting to see which direction the market takes today. We appear to be grinding around towards the higher end of our 2006 range, with the technicals pointing towards higher levels after this consolidation. Accordingly, I suspect the indices will attempt to recapture some higher ground left from yesterday in the early portion of the session. If this attempt to hold higher prices fails...look for renewed selling interest with another attempt to push the SPH towards 1280. In my opinion, today's trade will be critical as we discover whether or not yesterday's decline has any "legs" in the NDX. If it does, the larger question then becomes...can the broader indices hold their ground with the tech market declining?

Overall...today should be a setup day for our next leg in the marketplace. I suggest keeping a close eye on volume in the mini contracts as the last couple of sessions have been on the light side. If volume flows expand today with a directional move, it should be taken as a next leg signal.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:35 CST

Equity Index Update
Thursday February 23, 2006

The index markets took another step higher yesterday as the NDX recovered from its Semiconductor led sell off on Tuesday. The one resting fly in the ointment was our settlement in the futures arena. Each contract settled well below their respective fair value's and in some cases below their cash index closing prices. Much of this was tied to a large institutional seller that came into the SP arena around 2:55 CST and held the offer into the closing bell. The key question in terms of this morning's activity is whether or not the selling into the close of trading will have much carry over impact?

Given the overnight performance, or lack thereof, it appears that the final selling thrust has pared some of the buyers ambition at higher levels. So far, the buy side has focused on defending support zones, however, there has been little appetite at the higher end of our established trading zone. Certainly, this will need to change if the collective indices are to put another leg higher in this current rally. If this fails to happen, it appears as though we may find ourselves drifting back lower in the near term. However, unless the established support levels in each index are taken out, this appears to be more of a time situation. At the core, the domestic index markets have not moved quickly or traded out of range much since this bull market began. In response to that, players have become accustomed to buying the dip, but not chasing gains in fear of top ticking the market. Until this mantra changes, much of the movement at higher and lower price bands tend to create back and forth type of trading situations within a 1 to 2% band. The question now is this...after last week's sharp net gains, cant the indices utilize that momentum and push higher? Or was it nothing more than some short covering on a Bernanke based rally that will quickly fizzle? The answer will play out over the next week or so.

I would anticipate the market to follow lower during the first hour or so of trading today. After that, we may take our cue from the DOE weekly stats and whether or not any supportive bids are found at various levels in the indices. If the sell side is unable to press the markets below support zones built up from yesterday's session, I would look for a retest of the trading highs and a possible carry above the 2006 high in SPX. Technically speaking, volume flows remain light...NDX needs to build on support from the 1670 to 1675 level, below this things could get a little dicey on the downside.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:25 CST

Equity Index Update
Friday February 24, 2006

The index markets were unable to hold early gains and finished with slight losses across the complex. Volume flows remained light and players did not seem interested in taking the market above key resistance areas in the SP or NDX. The Russell 2000 was able to print a new all time high, by a fraction during the lunch hour...however, the index was met with aggressive late session selling which leads me to believe that much of the upside thrust we witnessed in the late morning yesterday was day trade related. This puts the overall market psychology in questionable zone. If longs fail to produce buyers at higher levels it will lead to a markdown in prices as liquidation occurs near our resting 2006 highs. However, the counter point to that last statement has been the ability for the indices to hold key short term support levels which have allowed the market to hold onto last week's sharp gains.

This morning the indices will be paying close attention to any new developments on the oil refinery attack in Saudi Arabia. Since the release of this event, the SP futures have slid from 1292 to 1288 and have steadied around 1289.50. Gold has rallied a bit and Crude Oil is up nearly +3% on the overnight session. Given the light volume flows we have seen, coupled with it being a Friday, it seems to me that this event in Saudi Arabia will hold much of the market attention today. I would anticipate some follow selling early from day traders as they try and push the market towards the lower trading zones for the week. If this attempt fails, it should produce a replay of what we have been seeing this week...players buying the first hour low prints and walking the market up through the late morning.

One chart that has attracted my interest repeatedly during the last week is breadth statistics in the NDX...the cumulative breadth readings for 2006 closed at their second lowest level of the year at -47. More disturbing is the fact that the top 26 components in the index (which account for nearly 64% of the total weighting registered a new low tick on Tuesday's close. This action typically foreshadows choppy trading action within a tight 2% range before producing a leg lower. This market needs to stabilize in the near term if there is to be a collective push higher. Keep a close eye on the breadth readings as we move forward in this index.

As for today...keep an eye on the headlines and expect relatively light volume and pretty thin conditions dominated by the local and prop traders.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:05 CST

Equity Index Update
Monday February 27, 2006

The index markets survived the initial downdraft over a spike in Crude Oil prices after the attack in Saudi Arabia and settled moderately higher across the complex. Volume flows were bordering on non-existent as players continue to wait for a spark to drive the next round of pricing movement. In the interim, the markets have officially worked off the overbought conditions that were registered on Standard Deviation readings as well as moving average extensions.

The best example I can give in regards to the overbought condition being worked off resides in the Russell 2000 index. The index closed at its all-time high on Friday, however, its 22 period Std. Dev. reading has declined by nearly 60% since its former closing high was registered the last week of January. At that point, the index had rallied off its consolidation zone that lasted the last two weeks of December. The 2006 rally in the index produced a move from 670 to 733 in January. February has brought a shallow dip, followed by new highs and lower Std. Dev. readings. Typically, this signal in the STDev relative to price will lead to a sharp move in one direction. Historically, the odds favor higher pricing, particularly as this move is centered around the month end and potential month beginning fund flows. If the move is sharp in this index, I suspect we will move towards the 755 to 765 zone before the upside tires. However, the downside risk would be more substantial in terms of velocity and price probing. If the lower odds scenario played out, and the downside was triggered, I would suspect 680 would trade before the move ended as many a long is levered up here at the highs. The one confusing and lowest odds play would be a further crunch in the STDev readings within a tight trading range at moderately higher levels, 730 to 745 for example. If this scenario plays out, the odds of a volatile move lower in the spring raises its head.

As for today's trading, INTC received an upgrade, the dollar is mixed...SPH is trading higher by 1 point after pressing up to last week's high zone overnight...the NDH is higher by 3.00. This performance in the indices overnight is impressive as the markets settled substantially above their respective fair values on Friday's close. The final 15 minutes of trading brought a significant buyer in the ND futures. This buyer seemed to help the other indices higher and the markets certainly "feel" poised to make a collective push to higher ground. The key to the whole parade of indices moving higher is resting with the NDX and its current downtrend line established off the January highs. This technical issue has been discussed frequently during the last week as players try and explain away the lack of follow to the upside. The question then becomes, can the rest of the indices rally much more without NDX participation? The answer depends, much like it did in 1999, on money flow. If large cap technology continues to be a choice of last resort among the buy side and momentum players I suggest the other indices could rally significantly as money moves into their respective coffers. Certainly, over the long haul this would become a divergence that could have negative ramifications. However, in the short run, let's look at the facts...the Russell 2000 is at an all time high, the DJIA is at a 5 year high, the SPX is a fraction off its 5 year and 2006 high and the Midcap 400 is within 1% of its all-time high. Meanwhile the NDX is -5.3% FROM ITS 2006 TRADING HIGH. As we move into the final month of the quarter, it will be fascinating to watch the money flows in and out of these indices. If the current sale of NDX continues, and that money finds a home elsewhere, it should be more of the same. NDX underperforming to the other indices. Can anyone remember when the DJIA was given up for dead in 1999?

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:30 CST

Equity Index Update
Tuesday February 28, 2006

At the close of business today, two months will officially be in the books for 2006. So far, the indices are acting in a similar vane to last year with a compression in volatility and volume. Players appear to be unable to muster any price acceleration, however, the buy side has held a higher band of support in most indices since the testimony of Fed Chairman Bernanke. It is becoming more evident that the index rally witnessed two weeks ago was in response to the new chairman's plain speak and quite frankly the removal of one potential source of worry. Since Bernanke's trip to the hill, 3 of the 5 indices traded to new 2006 highs...the key will be the markets ability to hold higher support levels and eventually land a breakout upside session. If this fails to materialize, it does not signal a massive correction...instead it looks like another test of the bottom end of our 2006 ranges.

A relatively new phenomena the last couple of years has been the rise of hedge fund day trading. The past few sessions in the index market illustrates this example quite well. Yesterday, after holding a bid at new 2006 highs in the Cash SPX, the index was unable to push higher in the final hour and at 2:30 cst, liquidation longs came into play. The market held up relatively well for a stretch, but forced selling in the final 15 minutes pushed the trade back to a 1294 settlement, up only 0.75 for the session. So far, one of the most reliable patterns in 2006 and late 2005 for day traders has been the afternoon fade. Once an index rallies a decent amount, then proceeds to move sideways over the course of a couple hours, long liquidation becomes the name of the game and sellers hit 'em into the close. This trading is in direct contrast to many strategies day traders have learned and employed over the last decade. Volume flows have increased significantly while volatility has plunged...this leads to fewer and fewer opportunities for a day trader. One indicator I track closely that allows me to keep myself out of too many trades in any session is the index mini volume. When flows are light throughout the first hour of trading (such as yesterday) it becomes easier for a fund or funds to be the primary market. When this occurs much of the final push to daily highs or lows are created from smaller traders being forced to liquidate. By using an indicator such as volume flows every 30 minutes, it allows me to determine if I have a good chance of being the "sucker" that day. The player forced out by a bigger fish's relentless push against my position.

Keep that thought in mind over the next few days...if volume remains light be very cautious.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:25 CST

Equity Index Update
Wednesday March 1, 2006

"With an Uneasy Feeling in My Chest, Wondering What it All Means."

- Steve Earle

I thought that the above line described yesterday's trading action better than anything I could write. Simply put, the obvious headline excuse was GOOG and its shocking release over a web conference that growth was slowing. The stock, in a panic, dropped from 395 to 338 before stabilizing and settling at 363. The fascinating aspect of this event was the response in the index markets. The markets were trading on the soft side of the equation before the announcement in follow from Monday's final 30 minute drop from the highs. Once GOOG opened the door, the floodgates did not exactly open...rather it was a pretty calm downdraft that included just about every recent market leading sector into the month end. The question now becomes this : was yesterday another one day wonder on the sell side?

Typically, I try and pay attention to sentiment indicators and things of that nature to get a psychological feel for the marketplace. What I found interesting about yesterday's drop was the lack of media focus surrounding the DJIA giving up 11k. Instead, the focus was on the DJIA putting forth its best start to a year since 1998, up 2.6% YTD. I don't pretend to know a whole bunch, because as a speculator I have been proven wrong quite often...however, this focus on the good instead of the bad seems to reflect a shift in the market outlook. Since the vicious bear market declines a few years back, most of the market attention has been on negative situations. In other words, people get scared when the DJI drops -100 in a session. The fact that this did not happen yesterday is critical in my opinion. The downside may not play out today or tomorrow, however, for the first time in years there is a public complacency in the marketplace. I suspect we will see a vicious springtime cleanup of this newfound psychology.

In the near term, I continue to look for the indices to move lower and focus on a variety of cross currents. Including, the inverted yield curve, the GOOG debacle and its impact on the overall market, as well as the batch of economic data that will be delivered over the next couple of weeks. For today's trade, in the SPH contract, I am focusing on the resistance zone between 1285 and 1287. If the market were able to move above this zone on a 30 minute closing basis it would relieve much of the short term pressure and remind me of the quote I used to begin this comment. On the support side, look for 1282 to be a key level, followed by yesterday's low area of 1280.50 to 1280. Underneath this zone 1276.50 to 1275 becomes a target.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:40 CST

Equity Index Update
Thursday March 2, 2006

The index markets participated in a melt up higher with early month fund flows being put to work, particularly in the Midcap 400 index and Russell 2000. The larger cap indices continued to lag behind the aforementioned leaders. This morning, the indices are called to open lower across the board, leading to the speculation that yesterday may have been nothing but a early month push higher.

This morning, the indices seem to be focusing on interest rates as the yields on the 10 year and 30 year are moving towards multi-month highs. The most interesting aspect within today's session will be the determination of which side has the stronger hand. Certainly, after the sharp gains yesterday, momentum is on the buyers side...however, the rally yesterday was met with heavy offers from the 1287 to 1293.50 area and while these offers obviously traded out, it would be a negative factor if the SPH were to settle below 1285 today.

Much of today's action should be determined by the ability for the indices and specific sectors (semi's) to maintain there support levels established intraday yesterday. If these gains fail to hold, I suspect the sellers will press the advantage and try to push the broader indices back towards lower levels established during Tuesday's decline. As I wrote yesterday...a 30 minute close above 1287 in SPH would leave me confused as to the near term market direction...I am officially confused.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:10 CST

Equity Index Update
Monday March 6, 2006

Over the weekend, I drank some beers with a trading friend of mine who told me that he had a "really bad year on Friday." He came into the market selling on the open and just about every other chance he had below 1290 in SPH, building up a maximum short position for the eventual battering in the index that was to take place. Unfortunately, the market reversed course and came within a whisper of taking out the 2006 trading highs. This led to my buddy buying in his shorts near the highs and calling it a bad year. That the market eventually reversed course and settled at a level that would have given him a net profit far more damaging psychologically than if the SPH had rallied to 1310. My worst trading streaks happen when I throw in the towel on a trade like the one I just described, only to see it come right back. It is at that point that you question your ability to "read" the current conditions and so on and so on. What my friend failed to account for in his analysis (and me as well far too many times that I care to recount) was the "spark."

I use the word "spark" to provide me with a event that will push the pricing in one direction. This concept can be analyzed into any time frame one wishes to pursue, from day trading to positioning. The "spark" in Friday's session was twofold in my opinion. First, the INTC news was not crippling to the stock itself or the NDX. That should have been the first clue, that something was not right in the potential downward price direction. Secondly, after some dovish FED comments around mid day, the financials (which had been dogs the last couple of sessions) turned higher. This led to a sharp light volume short covering rally, forcing many a player out based on money concerns as opposed to their actual trading idea. This brings me to another point...when trading size, you better be right. While that seems obvious, for traders that rotate bet size to as much as 10x intraday, they have to cut losses quickly when they have size on.

As for today's trade, the indices have bounced a bit after a vicious final hour decline on Friday. Leading the way is a proposed merger between AT&T and Bell South which has helped to build a bid underneath the telecom sector. INTC received an upgrade from Citigroup to buy from hold and RIMM is well bid after its settlement on Friday will allow the company to continue its operations. Of course, the elephant in the room is the fixed income market. Thus far, equities have held up very well in the face of a steep selloff in the long end of the curve. As long as this uptick in yields is able to find some steadiness in the near term, it should not have a great impact on equity prices. On the flip side, if yields on the 10 year were to shoot quickly over 5% it could lead to some digestion problems for stocks.

Today's session will be interesting on many levels, the first will be whether or not there is any follow from Friday's final hour selling. If the early answer is no, that does not mean that we are in for a rally session. The one constant of this market the past several sessions has been to fade the prevailing direction in the afternoon. Accordingly, I think the final hour of trading will be the most telling about the market intentions moving forward this week.

Keep in mind a couple of things...first the index futures rotate into the June contract (M) as front month on Thursday this week. Second, the Bank of Japan has its 2 day meeting ending Thursday. Finally, we have the employment report on Friday morning. This of course is followed by the following week's triple witching expiration. Amidst all of this, we are looking for a "spark." Given the continued range bound action, it will take something to drive price direction in the near term.

Good Trading to all,

Brad