Equity Index Update by Brad Sullivan

[HamzeiAnalytics]

Brad Sullivan Daily Market Commentary

Posted 08:10 CST

Equity Index Update
Monday April 17, 2006

The index markets participated in a quiet session ahead of the holiday weekend on Thursday. The small cap Russell 2000 index recovered some of their recent declines with a nice rally above the 755 level in the futures contract. In addition, the NDX was able to attract buyers and continue to settle above the key 1700 level. The large cap SPX finished largely unchanged with the market unable to generate any buy side interest at current levels. Typically, this would set the tone for further downside probing before buyers are willing to step up their allocation to the market.

Overnight we have had sharp moves in a variety of markets. On the commodity front, Crude Oil hit $70 per barrel before falling back slightly and currently finds itself at 69.80 on the session. In addition, the metals continue their rapid move higher as Copper, Gold and Silver are all trading at new highs for this current move. The dollar is under severe pressure after another Chinese official discussed the need for China to liquidate some of its U.S. Treasury holdings. The Euro, Pound and Swiss Franc are all higher by more than 1% against the dollar.

This week marks the beginning of the earnings parade...Citigroup reported earnings that were better than anticipated and is trading modestly higher. With so many companies reporting this week, today may play out as a setup type of session. However, the index markets has - historically speaking - produced some volatile one way streets on the day the tax man cometh. I suspect we may see some upside probing in the morning, but, sellers into the afternoon based on this pattern. All told, the SPM contract has traded between 1299 and 1289.50 since the plunge lower last Tuesday morning. I suspect this range may continue to hold, with minor adjustments on the outliers. In other words...1299 may stretch to 1302 on the upside and 1289.50 may move towards 1285.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 09:00 CST

Equity Index Update
Tuesday April 18, 2006

The indices recovered ground from a late morning sale that pushed the SPM contract to new lows for the current downdraft that begin on the employment Friday reversal session. The market is now squarely focused on the earnings front, today's release of the FED minutes and tomorrows CPI reading. With this as a backdrop, it becomes important to focus on the drivers - or potential drivers in any session. This morning's PPI release was on the tame side, but with tomorrow's more important inflation reading it will be background noise. Crude Oil continues higher, currently trading at 70.55 in the overnight session - yet, the market does not seem to be focusing too much on these higher prices. After the close of trading earnings releases from IBM and YHOO will be in focus...until then I suspect the indices may try and stretch a bit higher in anticipation of dovish FED comments this afternoon. I typically find that most of the action will come after the minutes are released this afternoon, hence the shorter than normal commentary. However, I did include 4 % differential charts showing continued support in the indices. We are getting pretty close to a make or break level for the markets. The longer the indices stay below Tuesday mornings breakdown levels, the more negative it is in the longer term.













Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 13:05 CST

Equity Index Update
Tuesday April 25, 2006

The index markets traded at lower levels across the board yesterday, however, the sell side was never able to take control at lower levels and afternoon buy orders crept back in. Day trade short covering was the name of the game in the closing 30 minutes of trading in the large cap SP, NDX and DJIA. However, the biggest story of the day was the selling witnessed in the Russell 2000. Rumors circulated around desks that a hedge fund is in the process of unwinding a long Russell 2000 / short SP 500 position. Whatever the reason, the ER2 was clearly for sale at and above the 770 level.

In today's action, I would pay close attention to the ER2 and specifically the 770 to 771.50 zone of resistance. If the index can close above this zone on a 30 minute basis, it should alleviate some of the selling pressure left from yesterday. The most probable scenario in this index, particularly as we are called to open around 770, is an early failure and test of yesterday's low zone between 765 and 767. The most interesting situation regarding this index will be its performance versus the large caps today. When we have seen dollar flows out of small caps over the past couple of years, it typically lasts for a few sessions. If today, the small caps outperform the large caps I think the rumor about a fund taking off its position yesterday will have merit.

One other thing worth keeping a close eye on today...the deteriorating picture found in the breadth of this updraft. Simply put, the indices need to widen beyond energy related issues for the broader market to advance from these levels.

As for the SPM contract...CRITICAL SUPPORT IS FOUND BETWEEN 1209 AND 1207.50...any settlement below this zone puts 1295 back on the board. On the upside...resistance is found between 1315 and 1317.50, with critical resistance stretching from 1320 to 1325. Overall, this index seems stuck in a pretty tight range. Bids seem to be resting below 1310 and offers are scale up above 1315. This action is typical of long liquidation.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:55 CST

Equity Index Update
Wednesday April 26, 2006

The index markets continued their recent downdraft yesterday as the indices focused on the sharp rise in long dated treasury yields. All told, the large caps felt the brunt of the pain, while a large buy program near the close of trading brought unchanged readings for the Russell 2000 and Midcap 400. Today's action should be dominated by the current downdraft in the long end of the curve after a much stronger than anticipated reading in March Durable Goods orders. The reading sent the bonds significantly lower...even after a bounce back from the trading lows, the 10 year and 30 year are trading at yields above yesterday's highs. In addition, the market will look at New Home Sales, the DOE stats and at 1:00cst the Beige Book.

The indices clearly seem to be at a crossroads given their recent divergences. The NDX is barely holding above 1700 and has been unable to gain any ground back from Friday's vicious selling. On the flip side...the large caps remain below Friday's highs, but, have been able to hold their bid at lower trading levels. Seemingly there has been some rotation out of the small caps over the past couple of sessions. Yet, it remains unclear as to whether that money is being put to work elsewhere or is moving to the sidelines. The answer to this question will determine our next leg in this market.

The breadth over the past two sessions has been bad...not as bad as a quick glance at the NYSE UP/Down readings would have you believe due to the amount of fixed income issues that are listed on the exchange. That being said, we have seen moderate deterioration in the operating company only breadth readings - however, nothing to be overly concerned about given our current levels. As I wrote earlier...crosscurrents.

At current levels, it appears to me that the market is ready to make another move to the upside into the end of April...however I have lots of lingering doubts and the simple fact is this - this has not been much of a dip to get long into, which begs the question - can we go lower and produce a better entry? The answer of course is yes or who knows...but, it seems to me that at current levels, the crowd is behind the market and looking for more upside. It seems hard to fight liquidity and when you factor in all the negative headline news over the past few sessions the market remains firm.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:50 CST

Equity Index Update
Thursday April 27, 2006

The index markets were unable to build on a strong opening bid and settled mostly around the unchanged levels. The lone exception was the DJIA, which finished higher by +0.6% at 11,354, establishing a new closing high for 2006. The key question regarding the industrials is this...are we witnessing the peak of the earnings cycle? The answer of course will be unveiled in the future, but, it is worth considering that historically the DJIA's best performing month is April.

This morning the index markets are called to open below the weekly trading low in each index, save the DJIA. The earnings front appears to be a bit light in terms of some of the oil issues, most notably XOM. In addition, the markets were dealt another blow when China raised its benchmark interest rate by 25 basis points overnight. Certainly, this adds to the global yield pressure that the markets are beginning to see as a potential negative. Domestically, the long end of the U.S. interest rate market remains soft and trading near the high yields of yesterday's session. Obviously all of this could change in a flash with FED Chair Bernanke's testimony before congress this morning. The chair will discuss the economic outlook and should once again give a hint as to the end of this current rate cycle. At this point it is clear that the equity market and fixed income market are trading at different view points on the economic front, today's testimony should give clues as to which side has pegged the future correctly.

As with all event trading days, I would expect some quick and volatile action in the immediate response to the headline release of Bernanke's testimony. The market should slow down once we move into the Q&A portion, finishing up with a busy afternoon once the testimony is complete. The key for the index markets will be for the SPM to HOLD ITS SHARP RALLY DAY WITNESSED LAST TUESDAY. Any settlement in SPM below 1295 is a sharp negative and should produce long liquidation at lower levels over the next couple of weeks.

Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:30 CST

Equity Index Update
Monday May 15, 2006

The index markets suffered through another day of liquidation on Friday. The Midcap and small caps were hit the hardest as momentum players bailed out of these issues. Large cap technology remained for sale as the NDX settled in negative territory for the year and a fraction above its intra day low for 2006. The 2 day market plunge has been discussed at length by many over the weekend, some blame inflation fears, others put the onus on the FOMC. In my opinion, the action has been dictated by expectations in the marketplace. In other words, the indices were bid higher on expectations of the FED putting to rest the current rate cycle. As that chance became data dependent, instead of carved in stone, players liquidated their long positions. When will the liquidation stop? That is the question at hand...given the global decline, these things have a way of carrying farther than one usually imagines...no sense in catching the knife at these levels.

Overnight action was absolutely crazy as volatility seems to be reintroducing itself to the one way street party we have traded with for so long. The dollar opened sharply lower, only to reverse all of those losses and is now trading substantially higher - particularly against the European currencies. On the commodity front, the markets are getting hammered as the metals are trading sharply lower, with Gold below 700. In addition, Crude Oil is trading lower by -2.7% at 70.05. As for the index markets they opened soft and have remained on the defensive, with the exception of the high prints made after the European open. The overnight range for the SPM contract is 1296 to 1285.40...that is substantial given our current low volatility environment. What does it all mean for today? Quite simply, expect a sharp increase in price discovery with a severe drop in the number of contracts being bid and offered at the tick. The reason is simple, many of the trading programs that have flourished over the past few years are predicated on mean reversal type of trading. This trading does extremely well in low volatility trading sessions, due to their nature of soaking up the order flow then driving the market back a few ticks. These programs will step away when volatility trades at or above a certain level...accordingly volume at the tick will be a bit lighter and price discovery a bit wider.

I have included a chart the shows the differentials between the 20 and 200 day moving averages in each major cash index. As you will be able to see, the sharp decline in the differentials we have witnessed over the past few sessions has clearly put the ball of worry into the buyers court. Historically, when we move from elevated levels in the extensions the trend continues. In other words, the odds are for lower index prices over the next few weeks.



Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 07:00 CST

Equity Index Update
Tuesday May 16, 2006

The index markets staged a late session recovery to settle moderately higher in the large cap contracts - SP and DJIA. The ND, Midcap and Russell 2000 finished with moderate losses as sellers continue to focus on selling the momentum issues. It is worth noting that in the past three trading sessions, the Midcap 400 and Russell 2000 futures contracts have both dropped around -4.8%. Typically such velocity based selling runs dry over the next few sessions as players digest the move...I would normally anticipate this pattern to continue - however, given the release of PPI today and CPI tomorrow, there is a pretty good chance that these markets will not find stability until sometime next week.

The breadth readings improved yesterday in the SPX and NDX, particularly in their top weighted issues. Yet, the damage that was done from the previous two sessions remains overhead and yesterday acted like nothing more than a quiet short covering bounce off the trading lows. Over the past three years we have seen this pattern of a sharp index sell off, followed by a consolidation, then a rally to new highs. Is this time different? Only time will tell, however, with the breakdown in the NDX and the nervousness in the momentum sectors it certainly seems as though the longs are fearful of losing profits at this juncture. Typically, these type of situations have a way of snowballing into something larger...remember, since this bull move began in spring of 2003, the Russell 2000 has had a -10% correction each year. Another -5% from the current levels would produce what some would say is needed for continued longer term advancement.

I have listed 2 charts today, one of the NDX cumulative breadth for 2006, the other for the SPX's top 20 weighted issues cumulative breadth. Interestingly, the top 20 SPX issues have held serve thus far above the yearly lows...is it enough to produce a solid bounce?






Good Trading to all,

Brad

[HamzeiAnalytics]

Posted 08:45 CST

Equity Index Update
Thursday May 18, 2006

The index markets were so thoroughly battered yesterday that there is nothing substantive I could possibly add in terms of color. The fact were simple as breadth and volume figures were in line with those of a "puke" in nature. The job at hand now is what to make of the carnage and how to profit from it. Players continue to discuss this move as a correction and a healthy one at that...only time will tell if this is correct or something greater.

Given the decline over the past few sessions, a bounce higher seems to be the play at hand...typically though, in this type of environment, when everybody is looking for something, it usually does not happen. I would be extremely cautious over the next couple of sessions from the long side...my feeling is this : if you are looking to get long, wait until the close on Friday. With expiration two days away, lots of things can happen if somebody's hand gets forced. What I mean by that rather cryptic line is that the market has had a very difficult time with expirations.

This morning will bring plenty of FED speak, from Bernanke to Lacker, Guynn and Poole...in addition we have LEI and Philly Fed. As for the indices, the SPM closed at a substantial discount to fair value yesterday at 1269.50...expect a rebound in the early trade, but 1280 to 1283 is tough resistance. In addition, there appears to be a flight to quality bid in the long end of the curve this morning and the dollar is back on the defensive.

I have included a few charts, specifically looking at MA differentials. These charts show just how far we have moved in the past few sessions.







Good trading to all,

Brad

[HamzeiAnalytics]

Posted 08:45 CST

Equity Index Update
Friday May 19, 2006

The index markets took another tumble yesterday as final hour selling grew aggressive and any resting buy orders were seemingly pulled on the institutional end, leading to a meltdown by the close of trading. However, after the close, the brutalized large cap technology sector received better than expected news from DELL and AMD...of course, with the AMD rally comes an INTC decline, so as far as the NDX is concerned it may not be the best situation.

This morning, the indices are pointed higher, with the SPM trading up 7.50 at 1270.50 ahead of option expiration. Yesterday's action was stale at best until the final hour of trading...this morning I would expect more volatility in the first hour, followed by a lull. The final hour will once again be critical for the marketplace.

In terms of overall activity...I continue to recommend waiting for any long trades until the dust has cleared today. There is a chance, particularly with it being expiration the market could get ugly once again.











Good trading to all,

Brad

[HamzeiAnalytics]

Posted 10:05 CST

Equity Index Update
Wednesday May 24, 2006

"One minute you're up half-a-million in soybeans, the next they've repossessed your Bentley and your kids can't go to college." So was the tale for those long the index markets yesterday afternoon. For the second session in a row a seller out of Mlynch's desk hit the SPM aggressively in the final hour of trading. This time, there were no takers as players pulled bids and ran in front of the selling all the way down. When the dust had settled the markets were devastated by the lack of early follow to the upside and a whiplash settlement on the lows of the day.

In my opinion, this feels very "margin callish" to create my own term...Having traded through similar periods of hedge fund problems - from last springs GLG issue, to the Long Term Capital situation, this market has the same feeling. We will never know - until its too late - who is stuck...all a trader not in the know can do is stay in the flow and operate under the assumption that something very unusual is at play in the domestic equity markets.

Overnight action was wide as the SPM traded as low as 1247 and as high as 1259...expect potential outlier trades on both sides of that range by the time the dust clears today. In addition, keep a close eye on the bond market. The USM contract has been the place of safe haven during this equity decline...it will be a reinforcement indicator throughout the trading today. In other words...if USM is ticking lower, players are taking risk premium out of the index market, which should allow for higher pricing. Finally, with the severity of the breakdown yesterday afternoon, keep a close eye on the 1265 to 1268 level. I would treat this zone as a GAP trade. In other words, the selling was so severe that the logical move is to test this resistance zone and treat it as a gap fill if we get towards the top end of the zone. Typical, that will be the spot to fade any updraft.

Good trading to all,

Brad

[HamzeiAnalytics]

Posted 08:30 CST

Equity Index Update
Tuesday May 30, 2006

The index markets produced decent gains on shallow volume during Friday's pre-holiday session. Institutional activity was bordering on non-existent after 10:00cst. This morning, the indices are called to open lower with the SPM trading at 1277, down -5.75 on the session. European markets are lower by nearly -1% across the board, in addition these markets had moderate declines in Monday's session, during our holiday. Further issues this morning stem from Chicago Fed President Moskow discussing inflation on CNBC this morning. He took the stance that inflation is at the high end of the FED's comfort zone. This comment puts two events this week on everybody's radar screen. The first event will be tomorrow's release of the FOMC minutes, followed by Friday's employment report. In between we will get readings from the ISM, so keep a close eye on the prices paid index.

As far as the equity market is concerned, the data flow this week will be critical in moving forward. Clearly, if inflation figures remain on the strong side, the markets could be in for some difficult trading. In addition, we are here at month end over the next two sessions...typically, particularly in a month that has been sharply one direction, the markets will move with that direction into the final trading session for that period. All told... the indices will need some good news on the inflation front this week to help build on the recent two day updraft.

In other events this morning...Treasury Secretary Snow is being replaced by Henry Paulson from Goldman Sachs...in addition Kinder Morgan is offering to take itself public at a premium of nearly 20% to Friday's close...this could be very strong news for the entire energy sector. Given the significant weight of these issues in the indices, it could in fact spark higher pricing from our opening levels.

Good trading to all,

Brad

[HamzeiAnalytics]

Posted 07:20 CST

Equity Index Update
Monday June 19, 2006

The index markets gave back a significant portion of their outsized gains from Thursday's rally. The early tone was set from St. Louis Fed President Poole's hawkish tones on the inflation front. Accordingly, buyers never really materialized and prices drifted lower...however, there was net little damage in the SPX and DJIA as bids are beginning to underpin these issues ahead of the end of a painful Q2. The selling in the NDX and Russell 2000 was more aggressive, with both indices giving back essentially 50% of their gains from Thursday. Could this be an indicator of things to come in the last two weeks of this quarter? Long large caps, short small caps?

European markets are higher, particularly the DAX as Siemens and Nokia have agreed to a merger. Siemens is up around +8% and Nokia around +4%...this merger has placed a solid bid across the Eurozone indices and has helped push the U.S. overnight market to its sessions highs. Currently, the SPU is trading at 1265.50, up 5.50 on the session. Keep a close eye on this opening...normally if the bid is based on "fluff" - in this case the Euro merger news - then we should see an early test of the opening higher gap with a trade towards the unchanged level.

This week should provide lighter volume ahead of next week's fireworks. We have little in the way of economic and earnings data to spark a move during the upcoming 5 sessions, however, next week brings earnings, the FOMC meeting and the end of Q2. Suffice it to say that the volume will flow during those events...in the meantime, keep the powder dry.


Good trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan Daily Market Commentary

Posted 08:35 CST

Equity Index Update
Thursday June 22, 2006

The index markets rallied sharply through the late morning into early afternoon trading hours yesterday, however, late session selling produced some questions as to the move's durability. On the plus side, a strong move higher in commodity related issues helped underpin a bid in the midcap and small cap issues, two indices that have been suffering during this trading decline. That being said, neither the Midcap 400 or the Russell 2000 could push into positive territory for the week...seemingly there continues to be a liquidation of these issues at higher levels ahead of next week's ending of Q2. The beneficiaries, so far, of this selling seems to be the DJIA and SPX. The DJIA took our its recent bounce highs from last Thursday on yesterday's close as money continues to flow into these issues. The key question is this : is it enough to stop the downside bleeding? Or is it simply a case of minor rotation that will have no lasting impact on the trade?

This morning the indices are called to open lower as early buying in Europe has evaporated...keep a close eye on the Russell and Midcap indices today as they should provide the most interesting trade due to the end of the quarter and Russell rebalancing over the next week.


Good trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan Daily Market Commentary

Posted 07:50 CST

Equity Index Update
Wednesday July 5, 2006

The index markets continued to build upon the Bernanke led rally from last Thursday's FOMC statement during Monday's abbreviated trading session. Volume flows were very light with the 4th of July holiday keeping most players away from their screens. The ISM survey was the one key piece of economic news for the session. The headline rate came in on the low side of expectations at 53.8, however, the jump in new orders to 57.9 offset the potential weakness of the report. In the release, it is interesting to note the ISM chair's view of the report, "Manufacturing growth continued in June, and although the rate of growth slowed slightly, renewed strength in June's New Orders Index provides encouragement for the third quarter. The sector is benefiting from the weaker dollar and business investment...our members generally see their business in a continued growth mode."

The index markets now stand slightly above their respective 50% retracement levels from their 2006 highs to our June trading lows. This week will bring the employment report, while next week brings the beginning of earnings season and more economic releases. Considering the FOMC language is - in my opinion - a relatively worthless task for any trader. The key is understanding how the marketplace will respond to any subtle change in the language. After Thursday's release, many major participants produced notes saying the FED was done, however, the bond market never really bought into that theory and currently resides just a bit lower in yields than it was on Thursday before the FOMC announcement. Equities, the dollar and certain metals have had the sharpest directional moves since the release...the question is pretty simple, was Thursday's FOMC statement a trigger that leads to a sustained one way street in these markets? Or are we smack in the middle of a suckers rally that will get awfully painful once the buying subsides? This last statement reminds me of a quote that George Soros said once in regards to speculation - and I am paraphrasing here - "the trick to successful speculation is to ride the false trend and get off before everybody else."


Good trading to all,

Brad

[HamzeiAnalytics]

Brad Sullivan Daily Market Commentary

Posted 08:25 CST

Equity Index Update
Friday July 7, 2006

The index markets received the news the bulls were looking for this morning with the employment reading coming in at +121k verus consensus estimates of +175,000. Initially, the SPU surged to 1290, up +7.00 from the close, however, a closer inspection of the report started to get players a bit nervous as the average hourly earnings component moved sharply above expectations to +3.9% year over year. As the index began to dip from the initial post-report trading highs, individual equity related news had a negative impact on the trade. First, JPM upgraded shares of MMM, however, a few minutes later MMM cut their earnings forecast sharply for the near term...the stock is called to open -4.00. Confused?

In my opinion, this reading is about as bad a scenario as one could have dreamed up. The reason is simple, slowing job creation with inflationary pressures being felt in the actual labor arena. The actual report is not that bad, but, the report continues the confusion that is gripping the equity market. That confusion is what is a sharp negative for equities. Essentially it boils down to this...why add to longs at the current index levels? We have had a sharp bounce off the June lows and earnings season - as well as all the negative surprises (see MMM) - are waiting. In other words, you need to have some CLEAR economic reports to drive the buyers back into the game at these levels. This report failed to accomplish that task.

At its core, the current trading environment is being moved by anticipatory decisions. Those that bought near or around the June lows are plenty happy and see no reason to lever in at these levels. In contrast, those that are short or looking to add to shorts view this report as another opportunity to sell at a reasonable zone. Why? Because there is no clarity from a report that most were hoping would provide some. Remember this...when it comes to speculating, you have to focus on what the market is focusing on at the current time. As I pointed out in yesterday's update - and I may be proven incorrect on this scenario - I felt lower pricing was in store for the indices over the next couple of weeks. The reasons are multiple, but, it really boils down to a 50% bounce from the 2006 lows and the belief that no employment reading would work for the market given the current environment. I still hold to this view.

Good trading to all,

Brad