(8-2-04)The indices overcame channel resistance while most technical indicators are very near their respective zero lines. If the price action of the past five days represents the beginning of a 3-5 week rally, then we ought to see acceleration to the upside over the next couple of days, and a close above the first upside targets.  However, if the price action of the past five days, represents nothing more but a dead cat bounce, then we'll see the indices stalling within their respective resistance zones, and by week's end, they will roll over to the downside.  First sign of weakness, and trouble would be a close below today's intra-day lows. 

(7-28-04) Today's action revealed once again the deep bifurcation in the market. The Dow is attempting to lead the market higher, while NASDAQ is attempting to lead the markets lower. Obviously these two possibilities are mutually exclusive, and there can be only one winner in this battle -although only a temporary one. If the indices stall again tomorrow, expect no turn-around until Monday, or, Tuesday.

(7-26-04)The indices continued their way lower, and they are now in their respective support zones. At the same time, we have in place the positive divergences between price, and several technical indicators that in a bullish environment, always have lead to a respectable rally. In addition,  the trading indexes (see the 20 day below) are also at the level from where we usually get a rally. Consequently, if the bull cycle that started in March of 2003, is still alive, we ought to get a rally with minimum magnitude of 4%-5%, without  violating the second downside targets (see table below) We don't have much more to add today to the scenarios and trading strategies we mentioned in great detail, in the Weekly Report.

(7-22-04) Today's price action  is consistent with  a "double reversal"  pattern, which usually  results to either scenario#1, or, scenario#2. If the indices rally up to channel resistance (see charts on page 1) and they are able to overcome it and close above it, then in all likelihood, scenario#1 is playing out. On the other hand, if the indices rally up to channel resistance and they reverse -once again- to the downside, then the odds will be better than even that  scenario#2 is playing out. In that case, we would expect lower lows by the end of next week. However, next week's lows should provide  a low risk entry point for a 4%-6% move to the upside.

(7-21-04) The indices were up about 0.8% this morning when the VIX reached a low of 13.91, and the put/call ratio reached 0.38, illustrating  investors'  extreme bullish convictions despite poor technicals, and poor price action. Under these circumstances, it should be no surprise that the indices reversed to the downside as soon as they made contact with channel resistance (see charts on page 1)  Today's reversal was ugly -no doubt- however keep in mind, that we have seen similar action in the past, and in fact it has preceded rallies with magnitude between 4%-6%. Consequently, over the next 3-5 trading days, the odds are better than even, that one of the three scenarios shown below will take place. 

1. A gap to the downside in the morning, and an additional decline between 0.5% to 0.7% during the first 2-3 hours of trading, to be followed by a reversal to the upside, and a positive close. The indices make a minor double bottom and they go on to rally  4%-6% over the next two weeks.

2. The indices rally  back up near today's highs over the next 1-2 days, and then, they reverse again to the downside, and  they make new lows for the year.

3. A minor panic sets in, which brings in heavy selling causing the  indices to go straight down for approximately another 4%-5%, before a relief rally takes place.

We believe that the first two scenarios are more probable than the third one. In any case, we will be looking for the type of price action that is consistent with one of these three scenarios for short-term trading opportunities.  One thing that we would like to mention -although it is way too early to tell if this will be the intermediate term outcome- is the possibility that an intermediate term top is in place, and the indices will be in a declining for the next 2-4 months. If that is the case, then the price action for NASDAQ over the next 2-4 months could very well resemble the graph in chart #4.  

(7-20-04) The bounce is on and it started with increasing volume, which ought to give it some legs to challenge resistance (see table below) It will take a close above resistance to turn the daily trend from down to up. Notice that on an hourly basis both the SP, and NASDAQ, have broken their declining tops line, and thus the hourly trend has turned from down to up, and both indices are targeting resistance. However, given the current put/call ratios, and Volatility levels we continue to believe that the odds are better than even that today's rally has only another 1%-2% on the upside.

(7-19-04)  The 10 day trading Oscillator for NASDAQ is at the bottom of its range, in addition, NASDAQ is not all that far away from its previous low on May 17th. The SP500, and the Dow are at minor support. Consequently a dead cat bounce can take place at any time. Why do we believe it's going to be a dead cat bounce? Because of sentiment. Look at the put/call ratio, at 0.70, pretty much everyone is betting on a bounce. 

Special note on HUI: It closed above support, but it is acting poorly. 

(7-14-04)  The indices gapped down at the opening, but selling pressure dried up quickly which enabled the bulls keep the indices above support, and in fact to even close them above their lows for the day. Are the markets ready to turn higher? Maybe, but not in any meaningful way. In our view, any bounce from current levels, will be nothing but a short-lived affair. There are five charts that we would like you to keep in mind going forward:

1. The first chart is the the SPX/VIX ratio. Notice that the current ratio has put a lid on the SPX every time -but one- since its inception. More recently, the ratio at 80, has stopped the SP five times since early January of 2004. Usually, when an indicator keeps bumping persistently against extreme levels within a short period of time, it eventually goes thru it, briefly, and then it reverts back to the mean. Consequently, if the SP rallies from current levels, and the ratio exceeds 80 -like it did in August of 2000- it could very well mark the  "spike" associated with major changes in trend.

2. The two charts below, are the Thrust Oscillators fro NASDAQ, and the SP500. Notice that the rallies off the March, and May lows, were preceded by a short 2-3 day bounce which failed resulting in a lower low for price, but a higher low for the Thrust Oscillator. If the pattern repeats itself, we may get a bounce over the next 2-3 trading days, but it will be followed by lower lows next week, before a tradeable rally takes place.

3. The last two charts, are the chart of the U.S. dollar, and oil. Both these charts reveal the possibility -not certainty- of some real unsettling developments over the next few weeks. The U.S. dollar may be forming a "Head & Shoulders" pattern, which if it is completed, it would set off a downside target of 84 in the dollar index, and perhaps 82. Conversely,  oil may be forming an "Inverse Head & Shoulders" pattern, which if it is completed, it would set off an upside target of $47-$48.

(7-13-04)  Technically speaking, nothing changed today. Investors  marked time waiting for   Intel's results to provide the catalyst that would move the market. After the close, Intel disappointed and the futures for NASDAQ  traded down 15 points, but by 4:30 PM PST, they had  recovered from their lows. The sideways action of the past three days is one of consolidation, and usually -but not always-  it results in continuation. Since the consolidation took place within a downtrend, more than likely the resolution will be on the downside. However, keep in mind that there has been total lack of selling pressure in the markets, and thus, if we get a burst of selling in the morning, with no follow thru, the bulls will be able to take control and rally the market later in the day.

(7-12-04) The SP500, and the Dow bounced from minor support, at the same time, NASDAQ's indicators indicate that tech stocks are oversold enough  to get a choppy bounce, but not oversold enough to generate a real rally. In other words, as long as today's lows continue to hold, we can expect a further bounce up to resistance (see table below) going into options expiration this Friday. However, keep in mind that if today's lows are taken out on a closing basis, then an additional 2.5%-3.0% decline from current levels, will be highly likely.

(7-8-04) We don't have much to add today, prices continued to erode, while the internals experienced a bigger deterioration that prices themselves. Although  possible short-covering ahead of the weekend may give the markets another lift, the odds for a  further decline tomorrow are better then even, given the break of support, and the deterioration in the internals. 

(7-7-04) The indices bounced as we had suspected, and mentioned in yesterday's commentary but the internals don't look very promising. NASDAQ ended the day with negative breadth, and flat up/down volume, while the NYSE had positive 2:1 breadth, and almost flat up/down volume (7:5) In other words, today's bounce didn't look to be anything more than just a bounce. Given that the indices are not even oversold yet (see McClellan Oscillators) such poor internals suggest that the decline is not over yet.

(7-6-04)  The indices continued lower, as we indicated in the monthly report, while all indicators turned negative implying that further price erosion is highly probable. For the next few days there are two things to keep in mind:

a) A penetration of the zero line by many indicators usually brings a bounce, which means that tomorrow we could get one.

b) All indicators are far from oversold, most are in neutral territory, which means, if the decline continues until the indicators reach oversold levels we ought to see an additional loss of 2.5%-3.0% -at the very least." 

(7-1-04) The SP was able to rally as high as 1144, the Dow rallied as high as 10471, and NASDAQ rallied as high as 2055, but today, they all succumbed to disappointing news on the fundamental front. Warnings from tech darlings, 3 consecutive weeks of fillings for unemployment above 350,000, poor sales from Walmart, Target, and GM,  disappointing ISM report, 10% increase in oil prices in just two days, and the customary  news of  misconduct with regards to earnings recognition practices by another recent  Street darling like Cardinal Health!  There are two points that in our view investors need to come away with from today's action. The signs are unmistakable that the much advertised "robust" recovery isn't so robust after all. However, hope  and hot air are two items  that the Street is never  short of, thus, the equity markets may prolong their levitation until the Q3-04 earnings come out, which will be in late September- early October. The second point which actually is more relevant to the short-term direction of the markets, is this; all the signs point lower HOWEVER, the indices are still above critical support, and we have seen over and over a total lack of sustainable selling pressure which means the bulls can still pull a rabbit out of the hat. Unless the indices break support on increasing volume, don't get too "beared up."