Brad Sullivan's Morning Commentary

[Hamzei_Analytics]

Posted 08:00 CST

Equity Index Update
Friday November 18, 2005

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

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

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

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

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

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:25 CST

Equity Index Update
Monday November 21, 2005

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

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

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

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:10 CST

Equity Index Update
Tuesday November 22, 2005

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

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

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

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 07:45 CST

Equity Index Update
Monday November 28, 2005

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

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

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

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

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

Good Trading to All,

Brad

 

[Hamzei_Analytics]

Posted 08:20 CST

Equity Index Update
Tuesday November 29, 2005

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

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

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

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

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

Good Trading to all,

Brad

 

[fudgestain]

Brad, how do ya think ya doin' on your commentaries?

 

[Hamzei_Analytics]

Posted 09:15 CST

Equity Index Update
Thursday December 1, 2005

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:35 CST

Equity Index Update
Friday December 2, 2005

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 07:55 CST

Equity Index Update
Monday December 5, 2005

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

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 07:55 CST

Equity Index Update
Tuesday December 6, 2005

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 09:15 CST

Equity Index Update
Wednesday December 7, 2005

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

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

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

Good Trading to all,

Brad

 

[fudgestain]

Brad, how do ya think ya doin' on your commentaries?

Commentaries can be such useless tripe.
Brad, I think your little efforts are good stuff.

 

[Hamzei_Analytics]

Posted 08:10 CST

Equity Index Update
Thursday December 8, 2005

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

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:35 CST

Equity Index Update
Friday December 9, 2005

The index markets participated in a volatile trading session yesterday that produced little net change in the majority of the indices. The NDX and DJIA were the worst performers, while the Midcap 400 and Russell 2000 actually finished slightly higher on the session. Today's trading should be based on reaction to Intel’s (INTC) mid-quarter update and any news from Merck (MRK) and their current trial. The University of Michigan Consumer Sentiment reading will have a minor impact on the session.

Yesterday's volatility deserves some attention as the market melted up on rumors of an error trade at the CME that left a brokerage group scrambling to buy 500 SPH contracts during the price acceleration from 1265 to 1272. Then, negative news hit the Semiconductors during the lunch hour and produced a volatile sell-off across the board. The ER2 broke nearly -2% from its intraday high, and the SP, DJIA and NDX all fell around -1%. However, buying came in the final 30 minutes of trading, alleviating some of the decline.

Natural gas and Crude Oil received much of the attention as to the reasons for the downdraft. More likely, the decline was lead by the Semiconductor issues and their collective response to mid-quarter update season. In classic buy the rumor, sell the news fashion, the sector was pounded as fast money -- which had been pouring into the sector at the start of the month -- ran for the exits. This action disturbs me for one big reason. That reason is that the trading action in the Semi's over the past few weeks is similar to what we have seen over the past couple of years. In other words, a big push one way followed by unsustainable buying/selling in the direction of the initial surge. The Semiconductors are more than just another sector. They are a closely followed indicator for a number of traders, economists and analysts. For this rally to continue more than just a couple of more weeks, the Semi's need to return this shot for a winner. If not, I think this may be the first nail in the upside coffin.

With respect to Natural Gas and its dramatic rise of nearly 10% yesterday, I think the equity market may have over-thought the potential outcome in regards to any selling associated with the commodities rise. I cannot imagine that the rise in NG will have any material impact on holiday shopping and spending. The fact is the consumer will not be hit with the bills from this cold snap until after the holiday. That being said, the movements in commodities, particularly Gas, the metals, meats and grains illustrate some tremendous trading opportunities while equities chop around the Mendoza-line of performance.

As far as the indices are concerned, the trading range theme I have been outlining over the past week appears to be playing out its hand. I would assume this theme will play out through next week's expiration followed by a spirited holiday trading rally into year-end. After that, all bets are off.

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 07:30 CST

Equity Index Update
Monday December 12, 2005

The index markets participated in a quiet session that finished with moderate gains. The DJIA was able to crawl back above the unchanged level on the year, while the Russell 2000 and Midcap 400 continued holding ground just below all-time trading highs. The SPX and NDX settled marginally higher, with the NDX settling near the session high on the closing bell. Volume flows were light ahead of Tuesday's FOMC meeting as players continue to hold the indices within their respective trading ranges.

This morning, market action will focus on the buyout talks between ConocoPhillips (“COP”) and Burlington Resources (“BR”) as well as a significant dollar decline overnight and another leg higher in the metals markets. Crude Oil is back above $60 per barrel and the index markets are trading higher, but off of the best levels of the overnight session.

Tomorrow's FOMC meeting should bring another 25 basis point rate hike, the fourteenth such increase during this FED campaign of policy neutrality. Given the current Fed Funds Futures market, another 25 basis point hike is fully anticipated, which suggests a muted potential reaction to the event. However, there still is risk that there will be changes within the language of the policy statement. The interpretation of these possible changes will be critical to the fixed income market's short end, the dollar and the equity market. Let us not forget that a key supporting theory of this current equity rally is the belief that the FED is almost finished.

A couple of week's ago, I discussed at length the extended nature of the index markets. A number of indicators I employ were signaling for a short-term consolidation beneath the recent high price levels. Interestingly, the markets behaved in a similar fashion LAST NOVEMBER AND EARLY DECEMBER. In fact, the lows for the indices, on a whole, were made on December 9th 2004. The SPX tacked on another +2.6% into the year end. I am not a huge analog believer; however, the pullbacks from highs in the main indices (SPX, DJI, NDX) have been similar to '04. Further, the gyrations within a trading range also represent similar action to '04. All told, I have maintained longs throughout the past several weeks with an eye towards an expiration rally. I think this rally will continue through Christmas and the indices are likely to settle '05 near or at the highs for the year. Accordingly, I have added to my current longs on the DJI (using DOW futures, DJH6) and the SPH6 for the next few weeks. My feeling is that even if I am dead wrong, and the market declines below 1245 SPX and 10600 DJI, the risk/reward is too favorable to pass up on this trade.

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 09:55 CST

Editor's Note: Brad's commentary was delayed a bit this morning due to his active overnight currency trading.

Equity Index Update
Wednesday December 14, 2005

"Accomodation" – this is the key word that can move markets across the globe, and did just that yesterday. The FOMC removed this word from its language, leading to a sharp index rally as players took the cue that the FED is near completion in the rate hike cycle. The trading was violent from 1:20 to 1:25 CST as the SPH rallied from 1272 to 1280. The Emini SP contract traded nearly 80,000 contracts during that 5 minute period, easily passing the largest 5 minute volume bar since the contract’s inception. However, the SPX was unable to move above its intraday or closing high for 2005, throwing some cold water on the parade.

Overnight, the Nikkei hit the skids on a weaker than anticipated Tankan Survey, which in turn led to a sharp rise in the YEN vs. the dollar. That rise has continued as the trade deficit report widened more than expected. The YEN is up nearly 2% vs. the dollar and the European currencies are rising as well. The domestic bond market is higher, ahead of tomorrow's CPI report and on the heels of the FOMC language change.

The index markets now find themselves in a tricky position, that is, not only a position of testing the trading highs for the year, but also the high end of the recent trading range I have outlined the past few weeks. The market's action yesterday, particularly in the 5 minute zone I outlined above, leads me to speculate that the next leg is likely higher. Only a settlement below 1272 in the SPH would lead me to believe we will not break above the current trading range and head to new highs for the year. That being said, the spark may come from CPI or the typically bullish Thursday before expiration session, but I am suspect that the indices will be able to make much headway today. The NDX is due to open soft on an Apple (“AAPL”) downgrade and unless all cylinders are firing, I fail to see much progress today.

As I wrote a few commentaries ago, I added to my core long positions in the DJI and SP futures. I still think that on relative value, the upside potential in the DJIA is the best odds play. I would anticipate this index to play some potential "catch-up" before the year is out. As for today's session, keep it close to the vest as far as day trading is concerned. I am expecting choppy trading with a retest of yesterday's highs, but most likely a failure and minor push back towards the lower end of yesterday afternoon's session.

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 07:30 CST

Equity Index Update
Thursday December 15, 2005

The index markets held a moderate bid throughout the trading session yesterday and produced new high closes for 2005 in the Midcap 400 and the SP 500. The NDX, Russell 2000 and DJIA lie just below their respective trading highs for the year. Volume flows were tame, but the inability for the SPH to push towards Tuesday afternoon's low end of the acceleration zone (1272 to 1275) shows how firm the institutional buyers were yesterday.

Overall the index markets have been stagnant for nearly 3 trading weeks. Yesterday's breakout in the SPX will likely signal follow-through for the upside, most likely towards the 1290 level, with a possible chance at 1300 by year end. The difficulty many traders have in this type of environment stems from the lack of two-way trading as we move higher. Volatility has plummeted over the past few weeks, and it does not appear as though it will return anytime soon. From a day trading perspective, a range-bound market provides plenty of opportunity. However, we now find ourselves with two indices at new high ground, while three remain just below. In other words, the picture appears to be changing as we venture into new price levels.

Today's action should be focused on the economic data we receive from CPI to Industrial Production to Philly Fed. Further, the historicals behind Thursday's pre-December expiration are strong. Do not be surprised if today is a grind it up session with some heavy program trading within tight zones. In the SPH, support rests between 1280.50 and 1278.50, and below this 1275 to 1272 is CRITICAL. Any settlement below this zone could lead to potentially sharp selling over the next couple of sessions. On the upside, I anticipate resistance points at 1283, 1284.50 to 1285.50, 1288.50 and 1291.

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:25 CST

Equity Index Update
Tuesday December 20, 2005

The index markets settled lower across the board yesterday as late afternoon selling overwhelmed the moderate size of resting bids. The NDX took the brunt of the selling as the index moved below a key support point at 1675 and settled around 1664. This settlement is in a key support zone that rests between 1650 and 1665. Any settlement below this zone, followed by a failed rally attempt around 1700 could lead to a significant decline in early January. Keep in mind that this is only one potential scenario.

Interestingly, each major index now resides below its respective 20 day MA and only 1 index (the SPX) is making even relative headway to the positive side this month. In fact, examining the monthly performance of the indices, the Midcap and DJIA are essentially Unchanged, the NDX and Russell 2000 are lower by less than -1% and the SPX is higher by less than 1%. The reasons behind this seem to be clear and it points to something I discussed a few weeks ago as the markets reached significant extension stages after the strong rally from our October lows. The NDX, Russell and Midcap reached extremely advanced stages in terms of distance from their respective 200 day MA's. These distances continue to be worked off as the NDX has gone from a 10% extension above its 200 day MA to less than 5%. Typically, the indices will probe slightly lower before finding a support point from which a decent rally ensues. IF THIS PATTERN IS DIFFERENT AND THE INDICES TAKE OUT KEY SUPPORT POINTS BEFORE THE HOLIDAY ON A CLOSING BASIS, IT SHOULD SET UP A SHORTING OPPORTUNITY IN EARLY JANUARY.

Overnight, MWD reported solid earnings and is called a bit higher, the dollar is firm against all currencies, gold and silver are up moderately, the fixed income market is slightly lower, and PPI came in softer than anticipated on both the headline and core rate, though it is having little net impact on the equity trade. A large factor in today's equity trade could be the strike in NYC leaving commuters in a bit of a lurch.

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:10 CST

Equity Index Update
Wednesday December 21, 2005

The index markets participated in a back and forth session with volume flows running around -20% lighter than average. Between the NYC transit strike and the upcoming holiday, few players felt the need to get any business done. One segment of the global markets that continues to shine is the performance of the Nikkei which crossed 16,000 briefly last night. The U.S. markets have been helped by this development and are trading near yesterday's highs.

The action yesterday had all the makings of a reversal rally session. However, the indices could not seem to generate any buyside activity at their respective highs. Accordingly, sellers came into the market during the afternoon marking prices a bit lower. The DJIA struggled as it settled just above the key UNCHANGED level for 2005. GM hitting a multiyear low was a psychological blow for the index. It will be interesting to see if the market is able to shrug this off during today's session or if it will continue to be an overhang, providing resistance.

There were not any noticeable changes in the technical index readings after yesterday's performance. The NDX held key support between 1650 and 1665, and the Russell 2000 held firm after a near -4% drop from recent highs. Considering that these two indices have been the leaders in terms of price change and volume during the recent rally (the Midcap 400 continues to be a lightly-traded futures contract), I expect these markets to show the next leg into year-end. My opinion and positioning remains long with exit plans around the last day of trading for 2005.

Good Trading to all,

Brad

 

[Gap Man]

Just a quickie to say I enjoy reading these - thanks...