Equity Index Update by Brad Sullivan

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:10 CST

Equity Index Update
Tuesday March 7, 2006

The index markets continued their Friday afternoon decline yesterday with heavy institutional selling seen in three market phases. The first phase of the selling was on the open of trading, followed by back to back sell programs in the early afternoon. When the dust had settled moderate damage was done from a technical perspective, but, more important may have bee the psychological damage done to the buy side. In my opinion, yesterday's lunchtime selling seemed like a classic long liquidation. It is not unusual, after a Friday final hour move, for players to wait out the following Monday morning before deciding what to do with their positions. Yesterday, the market's inability to generate any buying enthusiasm early on left little choice for longs that were worried over the weekend. Accordingly, heavy selling hit the index markets at 12:30cst and again at 1:00cst. In general, if you were not trading during those times, the trade was quite choppy and slow.

One note I would like to share comes from the COT data, released yesterday for the SP Futures contract. The data shows a continued buildup on the short side from the commercials, with a combined (eminis and majors) reading of -51,000ish contracts. The large Speculators liquidated longs the previous week to some degree and now stand at a combined -15,000ish contracts. Finally, the small speculators appear to have been caught long at the top...their reported positions were +22,000ish contracts on a combined basis. Granted some of this data is skewed due to the impending rollover on Thursday, however, it is worth noting that the smalls appear to have been caught at the top.

After the close of trading yesterday, TXN disappointed the market with forward guidance that was not as bullish as anticipated. The ability for the Semiconductor stocks to hold serve today will be critical for the marketplace. During the past week, the momentum money has clearly shifted into these issues and if the boat is turned over it could get ugly on the downside for the NDX. As it stands, the NDX is has essentially been in a trading range of 1650 to 1700 since the sharp decline on February 2. If the index fails to sustain bids around the lower portion of this range, 1600 is on the board as a trading target.

The question on everybody's mind seems to be related to the bond market and its swoon over the past three sessions. This morning, the long end is again lower, but, off its worst levels. The current talk seems to be that everybody in equity land is scared of the 10 year hitting 5%. My feeling is that it does not matter, unless we were to have a sharp rise that overshoots that level due to some type of extraneous event...hedge fund troubles for example. In the meantime, I think much of the rise in yields is creating some excuses among the longs to liquidate trading positions. Core position selling would not be done until the indices moved sharply lower from current levels.

Implied volatility levels rose sharply as well yesterday in the index option arena. One of the things I have pointed out repeatedly from a day trading perspective is that if you are a momentum type trader, there are only so many sessions that create an atmosphere in which you can profit. It seems to me that we are on the cusp of that run right now...I would expect the volume flows to continue on the strong side, and the ranges to expand in the near term.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:25 CST

Equity Index Update
Wednesday March 8, 2006

The index markets felt broader selling pressure throughout yesterday's session as the small and midcap issues were pounded lower. The large cap's were able to fair better as the NDX and SPX sustained only moderate losses, while the DJIA actually finished with a slight gain. The drawback in yesterday's action for the buy side is that the momentum issues, the sector of the market that has performed so well in the last three years took a large hit. In the past, when these issues have rolled over, it has led to trading declines of nearly -10%. For the Russell 2000 that would equate to an eventual target of around 672 in the cash index. Interestingly enough, that is about where the 200 day moving average currently resides for the index.

The largest issue facing the index markets at this time is not, in my opinion, the yield fears on the 10 year note, rather it is the correction being felt across the commodity markets. From energy to livestock, these markets are taking a well deserved break from their rapid ascent. The problem rests in the makeup of index components for the Russell 2000 and Midcap 400, particularly the Mid cap with regards to its dominating presence of energy issues. As these commodities struggle to maintain their bid, it has produced the long awaited chance for their spread trade that, as one trading buddy puts it "has killed more Irish than the potato famine" --- yes the long DJIA or SPX short Mid cap or Russell 2000. We'll see how this plays out in the near term...my current readings have a 1 unit position of 4 ER2 contracts to 7 SP mini contracts.

After the close of trading yesterday, GOOG announced another mistake as it included sales forecasts in last week's analyst presentation that were for internal eye's only. The stock is called to open lower by -11.00 around the 352 level. That takes some of the luster away from the AX/NYSE merger which officially begins trading today. Ahead of this, the index markets are trading lower as Europe, particularly Germany (lower by -1.2%) is struggling lower today. Currently, the SPH is trading just above yesterday's session lows at 1273.50, -4.00 on the session. However, the real damage is being seen in the ER2 (Russell 2000 mini contract) as the index is called to open below yesterday's lows of 719.00. Currently the ER2 is trading at 717.50, -3.60 on the session. In addition, the Mid cap 400 mini contract (EMD) is also called to open below its low from yesterday as it trades at 760, -3.10 on the overnight trade.

The overall session yesterday was one of the more interesting we have seen in quite sometime. The large caps consolidated at slightly lower levels, while the overall issue list on the NYSE produced a reading of nearly 3 declines per 1 advance. In addition, the cumulative breadth readings on the NDX reached their lowest levels of the year (this is measured only from 1/3/06 so is not without some whip in the data). So, the obvious question is...what does it all mean? If one examines the rally from our October lows in the SPX to the 2006 highs, it registers around +11%. Much of that advance was found between the October lows into Thanksgiving of 2005, while we have extended higher in '06, we have also had a complete absence of volatility. If there is any type of implied volatility increase, it could cause a disruption in next week's expiration, much like we witnessed during January's expiration debacle this year. The reason behind this possible scenario rests in the hedge fund trade that remains ultra hot...selling naked options to collect the premium. If this situation were to show its head again next week, it would not surprise me to see new 2006 lows across the equity complex. Again...this is one scenario only and not the highest probability play, but it is worth keeping in the back of your trading mind.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 09:05 CST

Equity Index Update
Thursday March 9, 2006

The index markets participated in a volatile session that saw early selling and afternoon buying. At settlement, each index finished marginally higher on the day. This morning the markets are called to open slightly higher on the heels of a sharp rally in Japan. However, the indices still face headwinds just above closing prices from yesterday.

Specifically, the Russell 2000 cash index has heavy resistance from the 724 to 726 trading zone. If the index can settle above this zone, it will relieve some of the short term market pressure...that being said only a settlement above 730 in the cash index will give the buy side the upper hand in the short term. Yesterday's sharp bounce in the index off the session lows was important for multiple reasons, the most important being the buy side able to hold just above key support levels around 710. For the sell side, given the rate of decline since Friday, it seems awfully important that the index get some type of retracement to resistance zones, if this move is built for a longer term haul. Today's action should be critical in the index as I suspect we will test the key resistance zone I laid out above. A failure back towards the 720 level should set up more downside in the days ahead.

With regards to the SPM ( June is the front month today) I would look for heavy volume with relatively tighter ranges due to the active rollover from March to June. I would anticipate some follow buying on the heels of yesterday afternoon's rally, with key resistance coming in around the 1296 level in SPM.

All told, ahead of the employment and with a new front month contract, I would use a bit of caution in today's trade.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:15 CST

Equity Index Update
Friday March 10, 2006

The index markets reversed course after early continuation buying from Thursday afternoon's bounce failed to challenge key short term resistance levels. When the session ended, the NDX had a new low close for 2006 (fractionally) as well as its first negative close for the year. While the net change on the year is now fractionally negative, it is worth highlighting for the simple fact that the index is probing lower price levels while its upside is being contained around the 1690 to 1705 zone. The NDX intra day low around 1638 for 2006 essentially matches the 50% retracement level from the October low to the January '06 high. Any settlement below this level will leave traders looking for a fill of a large gap that remains from the November 3, 2005 open. That open produced a near +1% gap higher from a close of 1597 to 1611, the low for that day was essentially 1610. I think a challenge and gap fill in this index looks like a good odds play in the near term.

One index that I highlighted yesterday was the Russell 2000 and the first resistance zone located between 724 and 726 in the cash market. The index was able to stretch just above this zone before rolling over in the mid-morning and settling below 720. What is critical in my opinion is the fact that the cash market traded above the 725 level for 12 consecutive sessions after recovering from its Mid-February decline. We have now closed below this level for three straight sessions and appear poised to eventually test the February lows around 708. Similar to yesterday, only a close above 730 would spell the end to this scenario.

This morning, the employment report hit the tape and was a touch stronger than anticipated at +243k versus expectations of +215k. The January report was revised to +170k from +193...typically that would have added to some potential selling pressure in the fixed income market. However, the markets seemed pretty unimpressed with the readings. After an early break and subsequent rally towards the levels of the past few sessions, the 10 and 30 year issues have fallen back towards the unchanged levels. The dollar has gained moderately from the report, while Gold is trading below 540 and is at key bottom end support as it challenges February lows around the 538 level. The equity index markets have moved since the report, however, given the relatively thin volume flows in the pre market I would be a bit suspect of endorsing this move. Essentially, the indices are taking back some of the vicious final 15 minute decline seen yesterday afternoon on the cash market closing.

Clearly, the onus or burden of proof has switched to the buy side with the decline we have seen the past few sessions. Today's open and the subsequent action should give us a tell about the direction for next week. As for today, I would anticipate the markets to work off this upside open and test the downside levels established yesterday and earlier in the week. POTENTIALLY, there is a chance for some final hour fireworks.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:30 CST

Equity Index Update
Monday March 13, 2006

The index markets rallied sharply off their respective early trading lows on Friday and produced a solid uptick across the index complex. The lead performers were the DJIA and SPX, the former actually finished positive on the week as money flows seem to be rotating out of the energy issues and into more industrial type names. The SPX was fractionally lower on the week with the help of Friday's bounce, however, the NDX, Russell 2000 and Mid Cap 400 all settled at or below key short term support zones. The trading this week should be critical in terms of the near term market direction.

Last week I discussed the potential of a long DJI or SPX spread trade against the Russell 2000. Given the uptick in rates and the fear that this cycle may not be over any time soon, this play continues to intrigue me as we move into Q2. Beyond this trade, we are at a crossroads type of situation with regards to the index markets. Typically, option expiration weeks are bullish and contained in moderate ranges. But, every now and then this pattern fails and produces some outlier type of pricing. The current expiration cycle seems to have held serve (support) in the near term with the bounce witnessed on Friday. However, I think the indices will be sensitive to any quick rally in yields towards 4.9%...currently trading at 4.8% this morning in the 10 year. This rate fixation could last for a longer than normal period, much like the Crude Oil fascination the market displayed last year. Keep a close eye on this development...in my mind, unless we shoot quickly above 5.0% in the 10 year yield, this rate movement should not cause any lasting damage. However, as a day trader, it is worth keeping on the back burner.

The indices are called to open higher this morning on the heels of Friday's rally, a sharp continuation bounce in Japan and a firm trade in Europe. The domestic market is also being helped by a bullish call in PG and a banking merger. I continue to keep a very close eye on last week's breakdown area in the SPX...essentially 1285 to 1288. If the index can settle above this zone today, it should relieve the short term pressure and put lots of pressure on the shorts that are in at lower levels.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:35 CST

Equity Index Update
Tuesday March 14, 2006

The index markets opened firm on the strength of merger related news and continuation buying from Friday's updraft...however, the indices were unable to tack on anything substantial and by the end of the session had drifted lower, settling fractionally higher on the day. The range in the SPM contract was a paltry 6.30 for the session. In fact, only the Russell 2000 exhibited any type of interesting trading among the indices.

The small cap index opened higher and ran sharply above a key technical point at 730 in the cash market, however, the enthusiasm quickly faded and the index settled nearly -1% below its intraday high. The index seems locked around the 725 level as this price continues to act like a mangnet for pricing once we move 10 points away in either direction. Somewhere along the line this will change, but, in the near term there appears to be a lid on velocity at the recent extremes. What I mean by that last sentence is this : a trader better have a strong reason to get long at the top end of this range or short at the bottom end of that same range. The odds are continuing to stack against momentum style trading and rewards the selling of rallies and buying of dips. As a day trader, this is important but not critical as much of our sessions have been built around "one-way street" sessions. Therefore, momentum style day trading tends to perform well. As a swing type trader, the ability to buy weakness at the lower end of range and sell strength at the top end of a range is critical to survival.

Last night I participated in a calcutta for the NCAA tournament. In a room that was well represented from the trading community it struck me how interesting the emotional level becomes in an event like this. The guy who bids on everything to drive up the price, but, at the end does not really want to get long any of these teams. The guy that has to buy somebody even though the bankroll might be a bit thin. The well prepared guy that came to bid 1 team and only at his predetermined price. In the end it was an extension of what all traders do each day and it struck me that the most important aspect of trading is not technical or emotional, rather it may be the fact that what we are doing is nothing more than a game. The rules of the game are internal. By internal I mean that each of us are trying to participate in different result games. Trader X may want to make 3,000 a week, trader Y may want to make 5x that amount and so on down the line. The key to success lies in being able to understand why you are playing this game and take what you want out of it.

I have included two interesting charts on cumulative breadth...the NDX cumulative reading since the beginning of this year and the SPX top 100 issues cumulative since the start of the year as well. These readings continue to make the case that neither market can gain traction, but, more importantly that the NDX seems to be under distribution while the SPX names have held up pretty well. Tale of a spread trade? Time will tell.







Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 08:45 CST

Equity Index Update
Wednesday March 15, 2006

The index markets settled sharply higher on the strength of a strong earnings report from GS, a rally in the long end of the fixed income market and a rebound in commodity related issues. When the bell rang, the SPX settled at a new 2006 and multi year high, just shy of the psychologically important 1300 level. The DJIA settled at a new high for 2006 and now stands only 600 points away from its all-time high. As for the remainder of the indices, all had strong sessions, but remained below their high 2006 levels.

Today will bring a variety of potential issues for the market, the first being the DOE stats at 9:30 cst, this will be followed by the Beige book at 1:00 cst. Also on the docket is the potential of two bullish factors...expiration week bullish bias and end of the quarter window dressing. Given the rally we witnessed yesterday, it appears as though the die has been cast for further gains the next two weeks. That being said...this market has been the anti-momentum market and it will take continued money flows to push the buy side into waters not seen since 2001 in the large cap SPX.

The key in today's session may in fact rest around the 1308 to 1309 zone in the SPM contract. This zone essentially encompasses the high ticks seen in the cash index for 2006. More importantly was the amount of volume traded at within this zone yesterday. At two price points 1308.25 and 1308.50, the SPmini contract traded nearly 12% of its entire volume for the session. Keep this zone in play as a critical closing area, and one in which the buyers will most likely defend by the closing bell.

One of the difficulties in the day after trade is dealing with ramped up expectations of movement. Over the past few years, as volatility has decreased, these one way sessions are typically followed with light volume and tight trading. Today's session should be more of the same, however, with the potential sparks of DOE stats and Beige Book, there may be more of a reason for the market to extend its price levels today, but, the odds are for some quiet range trading.

Good Trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan's Morning Commentary

Posted 07:45 CST

Equity Index Update
Friday March 17, 2006

The index markets produced a session of divergence yesterday as the SPX and DJIA finished slightly higher, while the Midcap 400 and Russell 2000 were fractionally lower. However, the big swing happened in the NDX which failed at key top end resistance of our recent trading range between 1700 and 1710. The index reversed sharply on continued weakness in the Semiconductor's, GOOG and AAPL to settle around 1679, about -1.5% from the session high.

Earlier this week I included two cumulative breadth charts from the start of 2006 in the NDX and the SPX's top 100 weighted issues. At the end of this examination I put the comment about this looking like a potential spread trade of long SPX, short NDX. Given the continued weakness in the SMH, which closed at new lows for 2006 yesterday and a general dent the cumulative breadth it appears as though this trade could continue to grind higher through Q2.

Today's action will be dominated by option expiration, the NCAA tournament and St. Patrick's day. This morning the indices are trading moderately lower, the dollar is mixed, with strength against the high yielding countries such as Australia and New Zealand as the carry trades continue to be unwound by hedge funds. Weakness in the dollar continues against both the Yen and Euro. Silver is trading at contract highs, up nearly 1% and the long end of the curve is slightly lower after a major rally yesterday.

I suspect that today's action will continue to be dominated by technology concerns and whether or not the money flow out of these issues finds a home in other sectors. So far, it has been somewhat difficult to get on board with this rally in large caps due to the velocity from which we changed course. Let's not forget that one week ago the SPM was trading around 1282, so we have participated in a rally of more than +3% top to bottom in 5 sessions. Typically this would lead to some type of consolidation at levels just below recent highs. However, given the end of Q1 and the strength of the performance in this quarter, I cannot help but think that scenario seems too simple. My suggestion is to stay cautiously long large cap indices into April and see if the divergences that are taking shape continue to gain steam over the next 10 days. If this scenario plays out and divergences continue to show their head, we may be in for a rocky move to the downside in April.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 07:45 CST

Equity Index Update
Monday April 3, 2006

Nice to be back after a couple of weeks off to enjoy our newborn son. This morning the index markets will focus on a couple of factors, first the merger between LU and Alcatel, followed by the news that GM will sell its GMAC arm to a venture capital fund. In addition, the Nikkei had a sharp rally last night on the heels of fresh new fiscal year buying. That buying has spread to Europe, where the indices are all tracking higher and trading around key psychological levels -- 6,000 in both the DAX and FTSE 100. The question this morning in the states is whether or not any of this is enough to spark some interest on the buyside in the large cap issues?

Looking at the SPX, it is becoming apparent that the index heeded the warning of William Shakespeare when he declared "beware the ides of March." For since March 15th, the index has traded between 1291 and 1310. More fascinating than this tight range is that over those 13 trading sessions, the SPX settled between 1301 and 1307 on 10 of those sessions. The market appears stagnant - which is not necessarily a bad thing for the buyers, but, I have to wonder if those that are not fully long in here are waiting for a pullback or a breakout to buy? If the answer is the ladder, it could come early this week with potentially strong money flows entering the indices to start the new quarter. Looking back over the bull run that began in the spring of 2003, the SPX has rallied around +1.5% during the first Monday thru Thursday of April. Given our recent decline from the trading highs of 1310, a similar performance would take us right back to that level, with potential for more upside towards the key 1325 level.

I have included a chart with this update...in it is a fascinating look at 4 measurements on the quarter just ended in the 5 main index futures markets. The measurements are for quarterly return, trading range for the quarter, % change at the high of the quarter and % change at the low of the quarter. What is interesting to me is that not one index ever traded below -1% for the entire first quarter. Couple this with historically tight trading ranges over this same period and one has to wonder why we just don't sell every single option out there and hold on tight. But, one thing I know for sure, is that by the time I figure out the game - it is usually too late. We may have another quarter or two of this environment, but at some point look out.

Today also marks the start of 1/4 price increments in the Emini Nasdaq 100 futures, providing another death blow to volatility...also keep in mind that the markets settled at fair value, not last trade on Friday due to month end procedures. The last trade in the SPM contract was 1307.75, but settlement was 1303.25.






Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 09:15 CST

Equity Index Update
Tuesday April 4, 2006

The index markets staged an early trading rally, only to fall back under the weight of late session selling. The large cap indices of SPX, NDX and DJI finished moderately higher while the Russell 2000 produced the largest % loss. Once again the indices seemed to fall into the all familiar pattern of a sharp one way move during the morning hours, followed by a tight consolidation over the next couple of hours, finishing with an afternoon decline as bids are pulled out of the party. Today, the key question in my opinion will be whether or not we have a continuation of this selling? If the indices can hold an early attempts to push the trade lower, there is a good chance we could see some afternoon buying enter the picture. Typically, the first few sessions of a new quarter produce difficult conditions to "read" as players move in and out of various sectors. That action should be finished up by the end of this week.

On a minor negative note, the SPX closed below 1300 for the 3rd straight session. While the index is holding above recent trading lows, it will be important - from a psychological perspective - for the indices to firm above 1300 if new attempts at 1325 are to be made. The longer the markets hold at slightly lower levels from the highs, the more the indices feel "tired." In a bull market that is growing a bit long in the legs from a historical perspective, that can lead players to have a very short trigger on the sell side.

Yesterday, I questioned whether or not the buyers that are not fully long would wait for a dip or a breakout...if the indices can hold support this morning, it appears as though the answer will have been the dip.

Keep a close eye on the morning action as it should set the table for an afternoon move...SPM resistance for today lies between 1308 and 1309.50...above this zone expect an attempt at 1312. Any settlement above 1312 should be considered bullish moving forward this week. On the downside, the first support zone lies between 1303.50 and 1302.50. Below this zone 1300 to 1299.25 is critical...any settlement below this zone should lead to increased selling with an outside chance at 1288 by the end of the week.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:55 CST

Equity Index Update
Wednesday April 5, 2006

The index markets shook off Monday afternoon's late selling and staged a solid rebound in yesterday's session. In general, the mega cap issues performed well, with XOM, GS and GOOG settling on session highs and underpinning a strong bid as the SPX is seemingly holding ground in anticipation of new 2006 trading highs.

I pointed out in yesterday's comment that the indices needed to hold short term support in order to help the psychological makeup of the current index trade. The fact that the indices were able to bounce off early lows at minor support zones is critical as we move forward in this uptrend. Velocity continues to be the only thing hampering the index trade, as players continue to be a little spooked by the lack movement at higher trading levels. This is the potential "fly in the ointment" for the upside. Simply put, the indices need something to make players want to take higher prices and bid them. So far, we have not seen that magic piece of news. The obvious play on the news front is the idea that as the FED discusses the end of its tightening policy, the indices will stage a significant rally - upwards of 5 to 8% in the SPX. This scenario cannot be dismissed completely, however, given the rally into this potential news, it seems to me that the actual trading returns upon the FED announcing completion of its cycle will be more muted than many anticipate.

Today's session will be marked by any attempt to push the SPX through the 1310 level - and whether or not the markets are able to hold this bid. In addition, the NDX is approaching a key psychological number of 1725...that level is not unusual (the 25's in NDX) for profit taking to occur. Any settlement above this level is important, however, a weekly settlement above 1725 in NDX is more beneficial from a technical perspective. If this scenario plays out, look for 1775 before this move ends.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:50 CST

Equity Index Update
Thursday April 6, 2006

The index markets continued to drift higher yesterday in moderate volume. The SPX was able to close above the 2006 intraday high at 1311.56, while the NDX benefited from further money flow rotation to begin the quarter and the index is closing in on the intraday 2006 high of 1761. It appears as though the indices have continued to find money flow to begin this quarter - not a unusual pattern as I pointed out in my Monday comment that the SPX has rallied around 1.5% the past 3 years the first Monday through Thursday in April trading. The question now becomes can the indices build upon this momentum and carry themselves higher?

This morning has been pretty busy as far as news is concerned. MMM guided higher and is up about 4%, MRK is down about -4% on a trial loss, the retailers came in with a mixed back on their same store sales. In addition, the global commodity rally continues to push forward as Gold crossed above 600 in the front month contract last night. In addition, Crude Oil continues to move significantly higher and is trading around a multi week high at 67.80. Continuing on the energy front, front month gasoline has been on a tear and is nearing $2 per gallon. The long end of the bond market continues to struggle with the 30 year future lower by -13 ticks at 108 '27. All of these add up to some headwinds for the indices today.

The program related trading we have seen the past few sessions has been nothing short of astounding as far as I am concerned. There is little question that the impact on a day trader is large as the markets become a bit more difficult to read due to the velocity of some of the price movements. Typically, today will mark the last session in which the programs dominate the overall action. Finally, the market will begin to look towards the employment report tomorrow...all told there seems to be some external resistance facing the market today, however, it may not be enough to do any noticeable damage given the underlying strength we have seen this week. All told, keep it pretty close to the vest.

Also, I included a chart that depicts just how quiet the trading is in the SPX for 2006. Included are the daily 2006 closes in the index along with its % difference from the 20 day MA. Interestingly, we have not seen the differential move to +/- 2% this year.



Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:45 CST

Equity Index Update
Friday April 7, 2006

Not too hot, not too cold...this seems to be the trading theme index investors are playing this morning after the employment report came in pretty close to the consensus estimates. Some good news was gleamed from the lack of movement in the average hourly earnings component. Accordingly, the indices have put on their rally caps and are trading above the weekly and 2006 trading highs in the SPM contract. Still, for all the good news, the bond market remains in negative territory as the report seemed a bit unconvincing for players to push yields lower...it sure seems as if 5% on the 10 year note (currently around 4.90%) is a chip shot. The key question will be whether or not this has any impact on the equity market?

So far this morning, the answer seems to be no, but as I write this, the bonds continue to move lower and the SPM is beginning to take notice...it would not surprise me to see a strong opening sale in the index markets that finds a bottom in the first hour of trading. If the opposite occurs, and equities rally off the snap, I would be wary of a potential afternoon break from higher levels. Given the absolute lack of volatility in recent weeks, I suspect we may be in store for some 2-way trading in the near term, which would be a welcome change for the day trading community.

One key aspect of this trend higher has been the inability to "catch" players stuck the wrong way, that is a large part of the reason we have traded in such a quiet pattern the last several weeks. Today, given the selling in the long end, there is a potential to catch too many day traders on the short side of the parade because of the bond market. I have talked about this over the past couple of months, and the bottom line seems to be that the equity market has already priced in 5% on the 10 year and only a move that is disjointed would have a severe impact on the index markets. Thus far the uptick in yields has been very orderly and not produced any type of pressure - other than day trade related - on the indices. This could all change today of course, but, I would be very wary of selling short dips in this market. If you want to get short, sell the bounce.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:40 CST

Equity Index Update
Monday April 10, 2006

Institutional selling overwhelmed the indices on Friday as a variety of factors weighed on the equity market. The employment report, which registered a +211k increase, portrayed continuing expansion in the labor market. However, wage pressures declined on a year over year basis from 3.5% to 3.4% in February. So why did the bond market fall out of bed? One of the reasons being floated is the talk of a further unwinding of the global carry trade that has been so prevalent over the past few years. The 10 year note is now yielding just under 5% at 4.963% and giving equity players thoughts about potential credit crunching in the money supply. Yet, for all of this fear on the yield front, the equity market tends to move on a couple of other key factors...first and foremost are earnings. This week marks the beginning of earnings season and should produce a clearer picture of the economy. If the earnings are strong, it stands to reason that the equity market will begin to discount further rate hikes - so long as they do not continue throughout all of 2006. Another key factor in terms of equity movement is anticipation. Where the market could potentially have some trouble would be a scenario in which players have already gone long the market in anticipation of strong earnings, a friendlier FED and tame inflation. Couple these factors with another key - which is the external event idea - and one has to see a potential downside scenario that could be quick and painful. Similar to other corrections we have had in this ongoing bull market.

Today's index action will prove critical. Can the shorts build on Friday's decline? If yes, Friday's reversal lead to a substantial correction in the neighborhood of -7% or greater? Keep in mind that we are entering a historically volatile period for indices - around tax time. However, the month of April typically ends higher, so the question in light of all these cross currents is pretty simple...over the next 2 weeks will index prices be marked lower or higher? Given the long liquidation we witnessed on Friday, I would argue that there remains overhead supply and the most likely path is lower into option expiration.

On Friday it is worth noting that two major houses were lead sellers in the SPM contract, GSachs' desk sold an estimated 1,500 contracts all session and MStanley's desk sold a similar amount throughout the day. Pit traders will take their cue today from these houses and see if anything more is coming down the pike.

Support in the SPM contract resides between 1302.50 and 1299.50...if this zone is broken on a 30 minute closing basis it should be a green light for further selling throughout the day and target an eventual move towards 1280. On the resistance front, key spots in the contract are 1305.50 to 1306. Above this zone 1307.50 to 1308 and finally 1310 will be psychological resistance.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:10 CST

Equity Index Update
Wednesday April 12, 2006

Sellers dominated the trading session as each of the major indices slid into negative territory for Q2. The market continues to be under heavy long liquidation pressures since the early employment report bounce last Friday. The most glaring example of the selling is being seen in the belle whether index for momentum players, the Russell 2000. This index has dropped -4% since the high print Friday morning and continues to be well offered at former support zones. Last week I made mention that this index is overdue for a correction of 10% as it has rallied over +23% from its October '05 trading lows. In fact, a -10% correction in this index would essentially bring the index towards its 200 day moving average. During this bull market for the Russell 2000, each year we have had at least 1 correction of 10% and each came after prolonged periods of the index being overly extended from its 200 day moving average. In addition, these corrections typically take place in the spring and summer, adding another potential leg for the sellers to stand on. I have included 2 charts which show the extensions for 2006 between the index and its 20 day and 200 day moving averages. Note that since 2003, the index had not spent more than 5 consecutive sessions with a differential above +10% from its 200 day moving average...while I did not include that data on the chart, it is worth using from a broader technical picture.

Overnight the indices have traded in a narrow range, defined by yesterday afternoon's boundaries. The SPM is currently at 1294.50, up fractionally on the session...European markets are lower and Asia finished with losses. Crude Oil remains at elevated levels, just under 69 per barrel and today's DOE stats at 9:30 should provide plenty of market punch. There is no question the oil prices are impacting equities, however, the larger picture suggests that the fixed income market continues to lead the way in reasons for longs to exit the market. That being said, the long end of the curve is trading slightly higher, but below session highs. The dollar is moderately stronger on the heels of a slightly better than anticipated trade balance report.

Today's session will be dominated by a combination of things, the most important of which should be psychological in nature. In other words, how much lower will prices have to go before longs wish to liquidate a portion of their holdings? Certainly a moderate bounce is not out of the question, however, the name of the game remains sell the rally. Until that is proven incorrect, there is no sense in fighting this tide. One note to mention is the different characteristics seen during long liquidation periods. Typically, these sessions produce a consistent offer at lower pricing throughout the session...one thing the trade does not have much of is volatility. Instead, it resembles a classic one way street. Keep this in mind as it rarely pays to sell the dips or to buy the rallies in these sessions because of their nature.





Good Trading to all,

Brad