1-30-02

Charts:  On Monday we warned that the markets were about to have a "thrilling ride" over the next couple of days.  Thru-out yesterday's report we stressed that today we could get a "counter-trend rally."  Therefore, anyone reading our reports is probably not surprised by the "manic depressive" way the markets have been acting the last two days. In trying to make sense out of all this irrationality, the key point to keep in mind is this: Today's price action was by all means a positive development. However, one day does not make a trend. The trend is still down, the indicators are below zero, the quantifiers are deeply negative, and we have had two "two day wonder rallies" in the past 2 months that went nowhere. So, although this time may be different, it's too early to make that determination . 

SPDRs/Sectors:   Internet and Telecom issues continued to lose ground, although the rest of the market recovered.

1-29-02

Charts:  The technical weakness that has prevailed over the past few weeks  finally culminated in a sharp decline, giving further evidence that the intermediate term trend has changed from positive to negative. Given today's sharp acceleration, one would expect further price erosion. Although the President's State Of The Union Address, may provide the market for an excuse for a counter-trend rally tomorrow, the issues that are pressuring the market will not go away easy. The market finally has to deal with what many professionals have been saying for several years: the reported earnings by many of America's top companies have been artificially inflated for years, and now the time of reckoning has come. 

SPDRs/Sectors:   Gold continues to rally providing -along with bonds- the only safe heaven for now. 

1-28-02

Charts:  Last Thursday we said: 

 'We believe investors should be prepared for both scenarios( advance, or, decline) That's the reason in our trading accounts we have taken both short and long positions, positioning  ourselves for either  scenario."

Nothing has changed since then, to make us change our mind, and/or position. The market has neither improved, nor, deteriorated. At the same time, we have plenty of evidence from the quantifiers -and the rest of our indicators-  pointing to sharp move coming up shortly. Since the quantifiers are deeply below zero -indicating a weak technical condition- we ought to be bearish, but we have been in this business long enough to know that the end of the month, combined with an FOMC meeting can bring surprises. We are neutral for the very short-term, and thus we have constructed a "market neutral" strategy that we believe will allow us to benefit from either move. (see portfolio holdings)

SPDRs/Sectors:   Last Thursday we said: 

"We believe that Biotech is in trouble, and the BTK Index can easily tank another 15% to 20%from current levels." 

Today Biotech continued to lose ground, and if the markets tanks, biotech will be leading the way. If you own biotech, you may want to consider some defensive measures.

1-24-02

Charts:  Today's rally did not do anything to improve the technical condition of the market. All the indicators are still below zero, the trend indicators are pointing down, and the quantifiers did not even change! Bottom line: the rally so far has no "punch" no conviction and thus no staying power. That does not mean, things can't change for the better, they can. Our point is simply that they must  change in order for the rally to survive.  We believe if the market gathers some strength, it will give people confidence to come back in ,thus accelerating the advance. By the same token, if the market can't get it together, investors  with gains from the  advance from the September lows, will begin to take them, out of fear that the market will take them back, thus pushing the market lower. In that case, short sellers will jump on the wagon as well. We believe investors should be prepared for both scenarios. That's the reason in our trading accounts we have taken both short and long positions, positioning  ourselves for either  scenario. Having said all that, we want to point out that we are really bothered by the optimism among investors. Take a look at the put/call ratio. The chart speaks for itself. 

SPDRs/Sectors:   We believe that Biotech is in trouble, and the BTK Index can easily tank another 15% to 20%from current levels.

1-22-02

Charts:  All major indexes (DJIA, SP500, NASDAQ) are near short-term support levels. At the same time most indicators are at levels that in the past, they have provided relief. Thus, over the next 2-3 trading days we do not see more than 5% downside risk. Assuming that no external event takes place that will negatively affect the market, we would be buyers in the event the markets fell another 5%. 

SPDRs/Sectors:  Today we saw -again- money leaving technology and moving into defensive issues. This is a trend investors must pay attention to.

1-17-02

Charts:  In yesterday's  review of the McClellan Oscillators we said the following: 

"Today we saw the oscillators reaching levels that previously have provided support for the market. Thus, we should see a rally starting, as early as, tomorrow. However, since the Summation Indexes have turned down, we can't expect the rally to be anything more than just a "reflex" one, without much of a staying power."

Today we saw a rebound from the levels one would have expected a rebound to come from. However, it is not enough to conclude that it is all "green lights" from here on. The quantifiers are still deeply in negative territory, and the major averages are still below the support levels they broke down from. For tomorrow investors  need to keep an eye on these two levels:  SP500>1147, NASDAQ>2012. If the indexes trade above these levels, and more importantly, they close above these levels, then the picture will turn more positive, otherwise it will remain "murky" at best. 

SPDRs/Sectors:  Today we saw money leaving some of the defensive issues, and going back into the "high octane" ones such the Internet and Computer Hardware sector. 

1-16-02

Charts:  Yesterday we said:  

"We believe today's positive action was purely technical in nature, and it is in line with what we predicted yesterday. However, it was weaker than what we had expected, and we think in highly likely that tomorrow we will see another reversal."

Today we got the reversal, and from it we can draw two important clues:

1) The markets may be in the process of changing character and trend for the intermediate term.

2) The markets may have further to go, before they stage a "reflex" rally. If the markets do fall further, the most probable  downside targets  for the near term are:   DJIA 9550-9250, SP500: 1075-1085, NASDAQ: 1850-1875.  

SPDRs/Sectors:   Defensive sectors such as Gold and Hospitals continued to rise. We have pointed out that in the last 24 months, every major decline in tech has been  preceded by positive action in defensive issues.

1-15-02

Charts:  Yesterday we said:  

"Given that the markets have been declining for the past 5-6 days, we would expect a temporary arrest of the decline to occur by sometime Wednesday, followed by a rally into options expirations, and resuming the downside sometime next week. It would be very unusual for the  markets to continue down for another 4 consecutive days. The DJIA has already been down for 6 consecutive days, so, if it continues to lose ground all the way into options expiration, it will have experienced 10 consecutive down days. It is possible, but not highly probable.  "

We believe today's positive action was purely technical in nature, and it is in line with what we predicted yesterday. However, it was weaker than what we had expected, and we think in highly likely that tomorrow we will see another reversal.

SPDRs/Sectors:   Airlines rallied sharply due to investors' apparent euphoria over lower oil prices. No significant message was given today by the action in the individual sectors, they were a "mixed bag" which is indicative of a turning point, for the better, or, the worse.

1-14-02

Charts:  Even those who are flat-out bullish on the market could not deny today's deterioration in both the price and the technicals. Given that the markets have declining for the past 5-6 days, we would expect a temporary arrest of the decline to occur by sometime Wednesday, followed by a rally into options expirations, and resuming the downside sometime next week. It would be very unusual for the  markets to continue down for another 4 consecutive days. The DJIA has already been down for 6 consecutive days, so, if it continues to lose ground all the way into options expiration, it will have experienced 10 consecutive down days. It is possible, but not highly probable.  We would be looking to take profits in our shorts over the next couple of days, and open some new longs as well.

SPDRs/Sectors:   Today -just like last Thursday- we saw investors moving into defensive issues such as Healthcare and Reits. Keep in mind that we have seen the exact same behavior by investors prior to all tops in tech the past two years. 

1-10-02

Charts:  As we pointed out the charts and the indicators are giving "warning signs" However the fact remains, that those signs have been around for the past seven weeks, but the markets have refused to give in to them, the trend is still up.  The quantifiers are telling us that we should see a move in excess of 5% within 3-5 trading days. As far as we are concerned the move can be in either direction.

SPDRs/Sectors:   Today we saw investors moving into defensive issues such as Healthcare and Reits. One day though does not make a trnd.

1-9-02

Charts:  We have repeatedly indicated that the trend is up, but the risk of a trend reversal is rather high and it can happen at any time. Today's market action demonstrates the overall market climate rather well.  Because we have warned of the risk that we believe exists in the market, we would not be surprised to see further price deterioration. However, as of the close today, the trend indicators remain up. Over the past 2 months the trend has prevailed over everything else, so we would not be surprised either to see yet another advance tomorrow. The thing to keep in mind is this: the market can't chop around forever, either it will make progress or it won't. The indicators are saying that it won't, the trend says it might. If you're long keep it close to the vest. The quantifiers are telling us that we should see a move in excess of 3% within 1-3 trading days.

SPDRs/Sectors:   Gold made real progress today, if the XAU manages to stay above 57-57.5, then the next target will be the 65-67 area.

1-8-02

Charts:  Today's  minor price action -just like yesterday's minor action- does not mean a whole lot. The trend is still up, and the quantifiers are still positive, and the divergences still persist! In other words, nothing has changed! However, the charts are showing potential worrisome signs. Just as we said yesterday: " Those who are long should be holding and remain alert, while those waiting for a better entry point, should be patient. "

Pay attention -on an intra day basis- tomorrow  to these two key levels: NASDAQ 2010 and SP500 1059. If the indexes close three consecutive hours below these levels, one would expect further deterioration. As long as they remain above these levels, intra-day and the daily trend are still up.

SPDRs/Sectors:   The biggest loser today was the computer hardware manufacturing sector, after GTW announced that the computer company will fall short in the 4th quarter. The interesting thing is this: any of you   who watch CNBC, you know that for the past 3 weeks, all the "talking heads" have been saying that the PC sector had a  "better than expected" 4th quarter, one of those talking heads forgot to tell Gateway!

1-2-02

Charts:  The picture -in our view- continues to be unclear. On Monday the markets fell on low volume during the last hour of trading. Today, the markets rose on low volume, during the last hour of trading! NASDAQ broke below support, and then it rallied back up to it. The SP500 was up 0.5%, yet the SPY -which is the proxy for the SP500- rallied 1.3%. Why would the SPDR rally twice as much as the index, when they are supposed to track each other identically? In our opinion, there are still seasonal factors that are distorting the real picture. We do not believe Monday's or today's action really mean much. We will get a much better idea over the next 2-5 trading days. Keep an eye on the direction of the market as volume increases over the next few days.  

SPDRs/Sectors:   Biotech issues have come under pressure due to the news from IMCL. However, we believe the BBH (biotech HLDR) will make a decent long at 115-120.