Brad Sullivan's Morning Commentary

[Hamzei_Analytics]

Posted 08:25 CST

Equity Index Update
Friday February 24, 2006

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

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:05 CST

Equity Index Update
Monday February 27, 2006

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:30 CST

Equity Index Update
Tuesday February 28, 2006

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:25 CST

Equity Index Update
Wednesday March 1, 2006

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

- Steve Earle

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Note from Fari -- I just noticed we forgot to post this -- mea culpa
__________________________________________________

Posted 08:40 CST

Equity Index Update
Thursday March 2, 2006

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

Posted 08:10 CST

Equity Index Update
Monday March 6, 2006

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

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

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

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

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

Good Trading to all,

Brad

 

[Hamzei_Analytics]

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

 

[Hamzei_Analytics]

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

 

[Hamzei_Analytics]

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

 

[Hamzei_Analytics]

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

 

[Hamzei_Analytics]

Posted 08:30 CST

Equity Index Update
Monday March 12, 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

 

[Hamzei_Analytics]

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

 

[Hamzei_Analytics]

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

 

[Hamzei_Analytics]

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

 

[kriesau]

What happened to Brads daily commentary ?
Nothing posted now for more than a week.
Perhaps he is on vacation.
Hope he is back soon !"

 

[Hamzei_Analytics]

What happened to Brads daily commentary ?
Nothing posted now for more than a week.
Perhaps he is on vacation.
Hope he is back soon !"

GM Kriesau,

On March 21st, Brad and his wife, had their first baby boy, Cullen Crawford Sullivan. All is well with Mom and Cullen.

I will pass on your good wishes.

Fari Hamzei

 

[kriesau]

GM Kriesau,

On March 21st, Brad and his wife, had their first baby boy, Cullen Crawford Sullivan. All is well with Mom and Cullen.

I will pass on your good wishes.

Fari Hamzei

Please do so - it is one of life's most happy events.

 

[Hamzei_Analytics]

Posted 08:15 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

 

[Hamzei_Analytics]

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

 

[kriesau]

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

Brad - interesting analysis but what is the SPM Index ? Obviously it is a derivative of the S & P - is it the June Future ?