Showing posts with label MidCap. Show all posts
Showing posts with label MidCap. Show all posts

Tuesday, May 8, 2007

Equity Index Update

Equity Index UpdateSocialTwist Tell-a-Friend
Brad Sullivan

24 wins and 3 losses over the last 27 sessions for the DJIA as it moved ahead of 13,300…should one dare look to fade this beast? I have enclosed a chart that shows the differential from the current price and the 200 day simple MA in the DJIA. The chart begins on the first day of trading in 2006. As you will see there has been a move to higher ground or “extension” away from the MA. Historically, an extension this large in the DJIA has led to one of two scenarios. A sideways trade that allows the MA to catch the current pricing levels or a fast bout of selling that ends around the -4 to -5% levels.

I have also enclosed a chart on the MIDCAP 400 and its 200 day MA differential. This index is showing similar action to the DJIA, however, it has not extended to new recent highs. Still, it is worth paying close attention to as this index was the first major one to hit all-time highs during the current rally.





This morning, the indices are called lower on global index selling. After the close of trading, CSCO will report its quarterly earnings. This morning, HPQ announced stronger growth forecasts for the next year and the stock is called moderately higher. More importantly is the currency situation which has seen a bid placed in the Yen/Dollar and Yen/Euro. Keep in mind the strong correlation between these pairs and the global index markets…indeed we are inextricably linked.





Given our called to open area of around 1511 in the SPM contract, few zones of support and resistance have changed from the past two updates. 1515 to 1518.50 remains as the first resistance zone and with yesterday’s moderate probe it is becoming even more formidable in the near term. Support is seen from 1511.25 to 1509.50…below this zone we should move towards the key support zone from 1507 to 1504. This zone should be choppy and liquid, leaving plenty of opportunity for short covering. A 30 minute settlement below this zone could lead to increased selling around the close of trading. IF THIS SCENARIO PLAYS OUT it will be due to buyers going hand-in-pocket ahead of the FOMC tomorrow. As I pointed out yesterday, the indices have not been at their highs moving into one of these meetings and a reversal trade is potentially upon us. In the meantime, don’t chase ‘em at areas that are too low as bottom fishers and short covering could provide a lift at any juncture…and keep an eye on the currency pairs.

Monday, April 16, 2007

Equity Index Update

Equity Index UpdateSocialTwist Tell-a-Friend
Brad Sullivan

And the Midcap 400 shall lead them. Was it not just 6 weeks ago that the market suffered from an intense bout of “forced” liquidation? Now, here we are looking at new all-time closing highs in the Midcap 400 Cash index and watching the remainder of the indices get within shouting distance of their 2007 highs. The NDX was helped by comments from the CFO of CSCO when he stated that earnings would be towards the high end of estimates during Friday afternoon. The stock immediately shot from 26 to 27 and provided the lift needed to boost the index market on a quiet Friday afternoon.

This morning the indices are called higher based on several factors. First we had strong rallies in the Asian markets and that has carried into European trading. In addition, Sallie Mae agreed to a private buyout that put a nearly 50% premium on the stock. Finally, earnings from two key banks C and WB were much better than anticipated.

Of course, we cannot forget our old friend the currency market which was given the all clear signal from the G7 over the weekend to continue the “carry” trade with abandon. Indeed, overnight the Euro/Yen continued through its respective all time high and the USD/Yen appears not too far behind. This liquidity driven currency trade has produced one of the key elements for tracing index moves both domestically and abroad. Simply put, comments out of the G7 meeting show just how sensitive the central banks of each nation are when it comes to the carry trade. Given the tremendous growth of funds using this trade over the past several years, it is easy to imagine how ugly a liquidation of this trade would end up being for the global markets. Indeed all one has to do is look at charts from last spring and a few weeks ago when hedgies were forced to liquidate positioning under “margin call, gentlemen” types of situations. Nobody wants that again, and the banks appear both coordinated and committed to ensure that the “carry” will not end the game.

This morning there is a potential early setup on the buy side. Even with are sharply higher open, players have been getting used to selling the open and getting long somewhere in the first hour for a walk the line rally. If players get caught trying this and the dealers come in on the buy side, look for significantly higher pricing in the first hour.

Finally, the final 2 hours of Friday’s session produced a significant volume increase in the SPminis and ER2 contract, when compared to their respective YTD and 5 day averages. Considering we settled on the highs of the session, this week looks potentially quite bullish.

Thursday, February 8, 2007

Equity Index Update

Equity Index UpdateSocialTwist Tell-a-Friend
Brad Sullivan
February 8, 2007

During my quasi sabbatical from writing this update, I kept thinking about volatility and particularly the lack of it in our current index environment. Yesterday’s price action was interesting on a variety of levels. First, there seemed to be a general feeling of “I am throwing in the towel” on the short side of the equation. Second, there appears to be a tremendous “mark ‘em up on the close” type of settlement trade that is usually found towards the tail end of run, not the beginning. The ease in which the SP futures came off their respective high zone yesterday (1456 to 1457.50) should be seen as a near term warning. For those aggressively pushing the long side of the button, marking ‘em higher has earned a strong bit of admiration and defiance from those on the sell side. However, like the guest that stays too long at the party…you don’t want to be the last one to turn out the lights. I suspect that over the next 6 trading sessions, the indices will provide plenty of support to exit from profitable long positions.

The one fly in the ointment that I have uncovered for this scenario is the general lack of overbought levels on the index front. I have enclosed graphs of all 3 indices trading at their respective all-time highs (Midcap, DJIA, Russell 2k). Notice, that only the DJIA is at elevated levels on its 200 day extension, while the Midcap and Russell are at levels below last years highs. For a true reversal in the marketplace, these readings will have to move quite a bit higher – a final melt up if you will – before the odds favor such a happening. In the meantime, I suspect that the post expiration trade will begin a potential correction in the market. However, I would be surprised at anything greater than -3 to -4 % in the SPX.


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