2-27-02

Charts:  Yesterday  we said:

" Backing and filling  is normal behavior during counter-trend moves, which we believe the current one is. Unless it gets derailed by some external event, the move should last another 1-2 trading days. If it lasts longer, then several of our indicators will turn positive. We do not have any evidence to suspect that it may happen. So, for the time being we are sitting tight and we are waiting to see how the market behaves passed Wednesday. If the rally peters out, we will go short, and if it gathers strength we will open some long positions. "

Today the markets turned down as soon as they reached overhead resistance. That is also normal for counter-trend moves. However, usually markets make more than just one attempt to overcome  resistance -unless they are extremely weak. One, can certainly make that argument for NASDAQ, but we can't make that argument for the DJIA, and with regards to the SP500 one can make an argument equally for weakness and strength! Bottom line: we have  a very tricky market, one that does not pay to make large bets in "anticipation" of a move Wait until the market move starts and then make your move. That is why we said: "So, for the time being we are sitting tight and we are waiting to see how the market behaves passed Wednesday."

 BE PATIENT AND DO NOT TRY TO OUTSMART THE MARKET!

For tomorrow we should pay close attention to the 1090-1092 support level for the SP500 and the 1728-1730 for NASDAQ. The downside momentum from today, if continued overnight  in GLOBEX trading, it will carry thru early in the morning. In such case, if the markets  fall further at the opening, the levels we just mentioned should provide support.

SPDRs/Sectors:  Networking issues continue to lose ground as it becomes evident that the troubles in Telecom land are far from over.

2-26-02

Charts:  This morning in the "Before The Bell" report we said:

"For today, we believe there is a good chance  that the market will pull back early in the day, and then it will re-accelerate in the afternoon. In that case the SP500 should find support around the 1100 level, and NASDAQ should find support around the 1750 level."

For those of you who follow the market on an intra-day basis, then you already that our prediction was right on the money. The indexes fell early in the morning to the levels we suggested, spent most of the day "backing and filling" and re-accelerated the last hour. This is normal behavior during counter-trend moves, which we believe the current one is. Unless it gets derailed by some external event, the move should last another 1-2 trading days. If it lasts longer, then several of our indicators will turn positive. We do not have any evidence to suspect that it may happen. So, for the time being we are sitting tight and we are waiting to see how the market behaves passed Wednesday. If the rally peters out, we will go short, and if it gathers strength we will open some long positions.   

SPDRs/Sectors:  Today rumors about Iraq drove gold and gold stocks higher, we would like to see what the XAU does tomorrow.

2-25-02

Charts:  We concluded our weekly report by saying:

"...This coming week, based upon the readings that we get from our indicators, we should be on the "look-out" for another bounce. The only question is when we are going to get it, not if we are going to get it..."

Today's bounce then should not come as a surprise to any of our subscribers. The only negative is that it is occurring within a larger downtrend,  our indicators are still in negative territory, and the Volatility Indexes are near their lows, thus, we must conclude that this bounce won't last for too long. Of course flexibility is the key to surviving in this business. If the downtrend was broken, and  if our indicators turned positive then we would change our opinion, unfortunately neither has taken place yet.

SPDRs/Sectors:  Today we saw money coming out of defensive issues such as gold and health care, and going into technology. 

2-21-02

Charts:  

Yesterday we said: 

"Thus, today's advance fits perfectly into our scenario. We do expect more follow thru, but at this point we also believe that the rally will turn out to be a head fake. We are not rushing to open long positions as long as the trend indicators are pointing down, and the rest of our indicators are still in negative territory."

Today's reversal underscores our position. Actions like today's usually -but not always- result in a "spike-down" followed by a tradeable and decent rally.  Thus, if the sell-off continues we should be looking for a decent bounce by Tuesday. However, one thing that really has our attention is the current levels of our indicators. If these levels are decisively violated, the implication for the markets will be that they are in "free-fall" mode.

SPDRs/Sectors:  Technology (XLK) and Utilities (XLU) continue to be the worst performers.

2-20-02

Charts:  

Yesterday we said: 

"However, given that most of our indicators are at levels from where bounces begin, and given that we have several minor positive divergences, we must stick with the prediction we made in our weekly report of weakness in the early part of the week, followed by an advance arising from oversold levels during the last part of the week. "

Thus, today's advance fits perfectly into our scenario. We do expect more follow thru, but at this point we also believe that the rally will turn out to be a head fake. We are not rushing to open long positions as long as the trend indicators are pointing down, and the rest of our indicators are still in negative territory.

SPDRs/Sectors:  We have mentioned several times that we expected gold stocks (XAU) to retreat to the 60-61 level.  The XAU continued to retreat today, so, we placed our buy limit orders for the gold stocks we want to add to our long-term portfolio, if and when the XAU declines to the 60-61 level.

2-19-02

Charts:  

In "Monday's Extra" we concluded by saying: 

"...We view the action in the markets this week as rather important and crucial. We urge you to pay attention and stay alert. Subjectively, based upon our own experience, observations and knowledge of the market, we think it is probably headed lower into some sort of an intermediate bottom that will be in place by early March."

And  we concluded the "Weekly Report" by saying:

"The evidence overwhelmingly is pointing that the path of least resistance should be down. Thus, we are looking foe more weakness early in the week, and a possible advance from oversold levels- at the end of the week."

The market did fall further today, and the action in the quantifiers suggests that the overall decline is not over yet, it will probably has more to go both in terms of price and duration. However, given that most of our indicators are at levels from where bounces begin, and given that we have several minor positive divergences, we must stick with the prediction we made in our weekly report of weakness in the early part of the week, followed by an advance arising from oversold levels during the last part of the week. UNLESS an exogenous event turns everything upside down.

SPDRs/Sectors:  We have mentioned several times that we expected gold stocks (XAU) to retreat to the 60-61 level. One more day of a decline like today's and they will be there.

2-14-02

Yesterday we said: 

"Indeed the markets moved higher today, which in itself is a positive development. At the same time the volatility Indexes are back down where they were when the decline started, and the volume that has accompanied the rally has been meager. Thus we view its prospects with skepticism. The action in the Volatility Indexes shows how fast people are to become bullish, usually that kind of bullishness is not what fuels and sustains rallies."

Today we got a minor pull-back in the price, but a near multi-month low in the volatility indexes. At the same time, most indicators continue to be in down trends, and volume has dried up. When we try to put it all together, we conclude that the markets want to push a bit higher, however, given that the technicals are not confirming the current rally we will be inclined to probe the short side in the next few days.  In addition, gold's refusal to pull back meaningfully -in spite the huge recent run up- implies that some serious  money is buying gold stocks relentlessly. There is no explanation for this, unless someone is expecting some sort of a melt-down somewhere. We continue to monitor the action in gold stocks with anxiety.

SPDRs/Sectors:  A couple of days ago we pointed out that we view the rally in biotech stocks with suspicion. Today, biotech stocks had a rather rough day, and we believe that if the markets pull down in earnest, shorting biotech stocks such as BVF, AFFX, IDPH, will be rather rewarding.

2-13-02

Charts:  

Yesterday we said: 

"... our observation of the markets over the years, leads us to believe that today's action implies that market may try to move a bit higher tomorrow. "

Indeed the markets moved higher today, which in itself is a positive development. At the same time the volatility Indexes are back down where they were when the decline started, and the volume that has accompanied the rally has been meager. Thus we view its prospects with skepticism. The action in the Volatility Indexes shows how fast people are to become bullish, usually that kind of bullishness is not what fuels and sustains rallies.

SPDRs/Sectors:   The Semiconductor sector continues to fuel the gains in  NASDAQ.

2-12-02

Charts: 

Today the markets found resistance at the levels we predicted yesterday, so, today's "pause" should not come as a surprise to anyone who is reading our daily reports. Obviously everyone wants to know whether today's pause, was a pause before the markets take a turn for the better, or for the worse. Almost all the indicators are still below zero, which means the path of least resistance should be on the downside.  We are also bothered by the action in the VIX and the VXN (see next page) They are back at the bottom of their range implying that investors are too quick to turn bullish. Usually, rallies do not start when everyone is bullish. At the same time, we see signs that imply further improvement may lie ahead. When you put the two together we get a "mixed" picture! In our book, when the picture is not clear, there is no reason to risk our money, or, our clients' money.  At the moment we wish to be neither short, nor, long.  We remain mostly in cash in our trading account -after closing all but two of our short positions, and  we are fully hedged in our investment account (see portfolio holdings) Having said that, our observation of the markets over the years, leads us to believe that today's action implies that market may try to move a bit higher tomorrow. 

SPDRs/Sectors:    We find the strong rally in biotech over the past two days highly suspect. There has been  no  development that implies a change in any of the fundamentals in the companies that have had the biggest advances over the last two days. If we decide to go short, biotech socks -at this moment- are on the top of our "hit list" We will start with AFFX, BVF, IDPH.

2-11-02

Charts: The markets rallied for the second trading day after all of our indicators reached  levels that always provide -at the very minimum- a short term support. However, the larger picture stills remains murky at best. Most of our indicators are still below zero, and the trend indicators are still pointing down. Therefore one can not be all that confident in the current rally. If the indicators turn positive we will turn positive, at the moment we wish to be neither short, nor, long.  We remain mostly in cash in our trading account -after closing all but two of our short positions, and  we are fully hedged in our investment account. (see portfolio holdings)

SPDRs/Sectors:    As we had expected gold stocks retreated sharply, we would add to our positions if the XAU revisits the 60-61 level.

2-6-02

Charts:  Yesterday we said:  

"Today, we had  further erosion in the internal condition of the markets. The charts, and the indicators are telling us that we should expect the markets to find support from lower levels. (More likely the 1770-1780 for NASDAQ and the 1045-1055 for the SP500) However, given the deterioration that has  taken place, we believe that any rally that develops in the near term,  will fail.  "

Today, we saw all the indicators at levels from which we get  "reflex" rallies, while at the same time all the major averages are sitting precariously at support levels. Thus it would not take a whole a lot to get a bounce. However, if the markets  open on the weak side, we could see a sharp acceleration on the downside taking the SP500 to the 1050 level, and NASDAQ below 1750 before we see a reversal towards the end of the day. If such scenario took place, we would be buyers.

SPDRs/Sectors:   Yesterday we said: "The  XAU has gone "parabolic" and it is subject to a sharp pull back. We would not be buying gold stocks at these levels." Today we saw a sharp pullback in the XAU,  and a continuous erosion in the financials. We believe the recent spike in gold stocks, combined with weakness in the financial sector, implies that the market is sensing that there will be  more financial distress going forward.

2-5-02

Charts:  Today, we had  further erosion in the internal condition of the markets. The charts, and the indicators are telling us that we should expect the markets to find support from lower levels. (More likely the 1770-1780 for NASDAQ and the 1045-1055 for the SP500) However, given the deterioration that has  taken place, we believe that any rally that develops in the near term,  will fail.  

SPDRs/Sectors:   The  XAU has gone "parabolic" and it is subject to a sharp pull back. We would not be buying gold stocks at these levels

2-4-02

Charts:  The charts, and the indicators are telling us that we should expect the markets to find support from lower levels. (More likely the 1770-1780 for NASDAQ and the 1045-1055 for the SP500) We should see a reflex rally as early as tomorrow, or, Wednesday. However, if it is not accompanied by a an improvement in the internal condition of the market, it will not last more than a couple of days. The markets are under pressure, and unless some exogenous event causes them to regain confidence, the bias will remain on the downside. It is very troubling that many high profile stocks are near their September lows, or they have actually violated them already. It is also troubling that the financials are leading the decline, implying that there are systemic problems in the financial system. 

SPDRs/Sectors:   The only sector that rallied today was the XAU. We believe that the strong action in the XAU, coupled with the weak action in the Financials, may mean that there is a confidence crisis brewing.