(6-26-03)  All the indices rallied from channel support which is positive, but we need more follow thru over the next couple of trading day. We view the overall picture as neutral, but  the price action ought to be viewed as constructive  as long as channel support holds. Furthermore, if the indices rallied above their 20 DMAs tomorrow, we would expect more buyers to come in. There are many who want to buy the dip, which in the short term can provide the market with support and fuel. We noted this morning that the AAII numbers released today showed 71.43% bulls, and 8.57% bears. Our colleague Mike Drakulich (WaveSignals) pointed out  that this is an ALL TIME extreme for AAII "Bears minus Bulls", and that only 2 times in history has AAII Bears-Bulls been near levels this extreme. Those two times were Jan. 6 2000, which was the all-time high for the Dow, and Aug. 21 1987, which was very near the high prior to the Crash. However, the all time high bullish level for this index was on 1/1/2000 at 75%, and yes the Dow dropped 10% immediately after, but NASDAQ rallied another 30% before topping out on 3-10-2003. In our view,  the key thing here is to be flexible in your thinking,    understand that something significant is underway, and keep an open mind in order to take advantage of it as it unfolds.

(6-25-03) The markets did not seem -at least today- to like the decision by the FED to cut interest rates by just 25 basis points, "psychologically" the market was prepared for 50. Despite the reversal and loss of the day's gains, the indices still managed to hold at support, but given today's additional deterioration in the internals, it shouldn't be surprising to see a further decline to the first downside targets. In our view, as long as the indices remain below today's highs, we ought to be expecting a trip to our first downside targets.   It should be noted that as of today we have two of our models on a "sell" signal, and two on a "neutral" signal. Just a week ago, three were on a "buy" and only the intermediate term model was on a "sell." That is a rather quick deterioration. If the market can't get it together over the next few days, in all likelihood, they'll all turn negative. 

(6-24-03) The indices appeared to stabilize at the bottom of their rising channels, which also coincides with their 20 DMA. At the same time, the markets -as measured by the McClellan Oscillator- are quite oversold, thus, the odds do favor a bounce and unless the FED disappoints we should get it, and it that case we would expect the indices to challenge resistance, and perhaps the first upside targets. If by any chance the market does not like what the FED does, or, its remarks we would expect a further decline to the first downside targets. Keep in mind that although the odds do favor a bounce, with so many -ourselves included- expecting it, we should allow for the possibility that the market will not oblige!

(6-23-03) The indices found support at their 20DMAs while the McClellan Oscillators made new multi-month lows. Twice last week, three times in the monthly report, and twice today in this report -for a total of seven times- we have mentioned the significant importance of the disparity between price and the McClellan Oscillator. For the reasons we have mentioned so many times the disparity between the two could  mean that the market is quite strong, and it correct internally without giving up much of its gains, or, it could mean that the recent action by the Oscillator is the "down-thrust" the "opening salvo" of another leg down. This is not the time to approach the market with any preconceived biases, let the market show the way. For the short-term we do expect a bounce over the next few days given the oversold levels of the Oscillator, but so does everyone else, and that bothers us quite a bit. If the markets can't gain strength, do not be surprised if it takes a fall to the 940-950 zone in the SP, and 1525-1535 zone in NASDAQ, before we actually do get a tradeable bounce.

(6-19-03) On Monday the excuse for rallying the markets was that the strong data from the New York manufacturing Index suggested that the Philadelphia Index would come in "higher than expected." Today, the darn thing came lower than expected, and the market sold off, that tells you how much the market really knows, and how seriously you can take the "reasons" behind the market's short term gyrations. The important thing is to carefully, and objectively,  examine the picture which has emerged. On one hand, we have bullish price patterns, on the other, we have the McClellan Oscillator in negative territory. So, is the market topping, or, it is about to blast off? If the market is topping, this is what we would expect to see: further decline to the first downside targets, a rally back up to the recent highs while the Oscillator fails to get above the zero line, or it does so marginally, and then it turns back down again. (see chart on the left)."

(6-18-03) Today's action strictly from a "price point of view" appears to be one of continuous consolidation, and suggests that investors ought to be thinking bullish, as long as, support is not violated.  Such notion is supported by the fact that the Thrust Oscillator -which is reflective of price strength/weakness only- turned up. However, the action by the McClellan Oscillators warrants some second guessing.  The bears can point to the -62 reading in the Oscillator and point out that it is making new 3 week lows, while the NYSE is making new 3 week highs, and conclude that the market internals do not support higher prices. On the other hand, the bulls can point out to the same reading, and conclude that the market is mildly oversold, and thus we should have another rally from here. If the bears are right, then the bullish price action, is actually a "bull trap." On the other hand, if the bulls are right, the market can go parabolic from here. Either way, by taking a rigid "anticipatory" position, investors can find themselves in front of a freight train, so, it's a good idea to let the market show the way. 

(6-17-03)  Investors  got economic news that cancelled each other out, the CPI was unchanged, but the core rate rose higher than expected. Industrial production rose slightly higher than expected, but capacity utilization remained unchanged at 74.4%. The indices moved in narrow ranges indicating consolidation. This is also supported by the fact that the Thrust Oscillators turned up (no buy signal yet from this indicator, unless there is follow thru on the SECOND day by price) and the Quantifiers had a minor change. Price action still remains positive and suggests that the the first upside targets still have a reasonable good chance of being achieved. However, a huge shift this morning by speculators  from bearish RYDEX funds to bullish ones, low volume and the steep divergence in the McClellan Oscillators suggest that the market may be reaching its limits. At this point we got to go with the odds, which  favor yet higher prices, unless the indices close below the support levels indicated below.  Specifically for tomorrow's trading pay attention to the 9290 level in the Dow. If it is violated on an intra-day basis, the alarm bell should go  off.

(6-16-03) As price action suggested on Thursday, today - exactly two trading days later- resistance was taken out by the Dow and the SP, while NASDAQ is being held back by weakness in the SOX index. With no doubt, price action continues to be bullish and strong. At the same time, volume has contracted, the McClellan Oscillators, and the Quantifiers have not confirmed it, thus, some caution is warranted as the indices approach the next upside targets. In addition, we mentioned in the weekly report that unless price actually breaks down, there is  no reason to get too bearish, especially because this week  happens to be quadruple-witching Friday, and the bias tends to be on the bullish side going into options expiration. So, for now we are looking for further advance up to the first upside targets, but if volume continues to contract we would expect a reversal if not at the first upside targets, at most within 2%-2.5% from those targets

(6-12-03) The indices continued to flirt with resistance, and from strictly a "price action point of view" the intra-day behavior suggests that resistance will be taken out over the next couple of days. The Thrust Oscillator has flattened and it has moved from  "SELL" to "NEUTRAL" reflecting the positive price action. On the other hand we are getting some signs of weakness, for example the net difference between up and down issues for NASDAQ has been narrowing as NASDAQ moved higher the past three days (Tuesday: 909, Wednesday: 568, Friday: 136) All in all, the intermediate environment remains positive, while the short term picture warrants some caution.  If the indices fail to move higher immediately and pull back, we will look for another advance to begin by mid-week,  going into options expiration next Friday.  For tomorrow pay attention to resistance, above it, the indices  are going higher, if the indices stall, they are going back down to test support. One cautionary note: be mindful of a false break-out gap at the opening.

(6-11-03) The indices came back to life, the Dow took out resistance and finished near the first upside target, while NASDAQ and the SP finished at resistance. If today's price action is any guide for tomorrow's trading, we would expect the SP and NASDAQ to take out resistance, and then exceed their first upside targets on their way to meet the second upside targets by Friday, or, Monday. A point of concern with this scenario is the fact that neither the McClellan Oscillator, nor, the Quantifier for NASDAQ supported today's price action, and the BSEs are showing a good amount of distribution going on. In addition the Semis were rather weak, and if the SOX can't get above 388 it would be rather negative. Never-the-less, both the Quantifiers, and the TIs are still on a BUY signal, so we got to remain bullish -although with increasing cautiousness- until support is violated on increasing volume.

(6-10-03)The indices rallied finishing the day in the middle between the resistance and support listed in the table below. The fact that the indices rallied without the McClellan Oscillator penetrating the zero line should be viewed as a sign of strength, however, volume was mediocre so the picture for the next couple of days remains unclear. The indices do have more room to run on the upside, therefore, for tomorrow we got to pay attention to how the indices negotiate with the resistance levels listed below.  The futures did turn down after the close, with the NDX contract down 5 points as of 5:00 PM PACIFIC time, of course by tomorrow that may change, if it doesn't and the markets continue lower then we should expect selling to accelerate if today's lows are violated.

(6-9-03)The markets continued to lose ground as the Thrust Oscillators suggested with their negative cross-over last week. They have violated their steep up-trend which also suggests a bit lower downside targets. However, the McClellan Oscillators are at +7 for NASDAQ, and at +6 for the NYSE. Usually, the indices rally once the McClellan Oscillators make contact with the zero line. In such case we should expect a test of resistance at 9100 for the Dow, 990-995 for the SP, and 1640-50 for NASDAQ. Whether we get a bounce from the zero line, or, after a penetration of the zero line by the McClellan Oscillators we can't tell with any degree of certainty, the odds in our view are almost even for either case. The important thing is to pay attention to the support and resistance levels listed below. If support is violated the indices are going lower to the next target. We do believe that if the indices continue lower we will get a bounce from the first downside targets.

(6-5-03) The markets were able to overcome early weakness, a sharp drop in the dollar, a sharp increase in gold and oil and like the "Energizer Bunny" moved right on up, to finish on the positive side, and right at resistance. From here we only see two possibilities, they either pullback to support, or, they move on to the next upside targets. Keep in mind that portfolio managers want to show their clients at the end of the quarter that they are fully invested and they did not miss the boat, thus, we should be looking for continuous positive inflows into the market until the end of the month. Therefore, although the market is over-extended, it can still move higher. Moreover, we find it rather odd that the Volatility Indexes have moved notably higher, in the face of an advancing market. Usually, such move in the V.I.s comes after a market decline, and not after a market advance.  The way we see it, is that either option players know something the rest of market participants do not, or, they will be proven wrong and the market's advance will accelerate even further.

(6-4-03) The indices broke above resistance, the SP rallied 1.5%, and NASDAQ rallied 1.9%, thus, we have to  conclude that they will reach the first upside targets listed in the table below. The question is whether they can break thru and go on to reach the second upside targets without pulling back first. The McClellan Oscillators are at levels where pullbacks take place from. In addition, the Thrust Oscillators, and the BSEs continued to stall, which suggest that the likelihood of a pullback is increasing as the indices approach the first upside targets tomorrow. Never-the-less, the technical picture -as measured by the Quantifiers- is as positive as it can get, which suggests that the second upside targets have a reasonable good chance of being achieved in the coming weeks.  Given the recent market action, the bears can only point to the fundamentals to make their case, the bulls have all the technicals on their side.

(6-3-03) The indices tested the previous day's lows and rallied into the close, which is a bullish sign. At the same time, the indices have rallied seven out of the last eight days, so they may be pushing their luck. We have three developments that are worth paying attention to, a) the quantifiers have been unchanged for three consecutive days, which means a tradeable move is imminent, b) the thrust oscillators, and the Buy/Sell Equilibrium Indexes appear to be stalling. Frequently, that is a warning sign that a move is near exhaustion, however, it could also be a sign of consolidation, which means the move will continue in the same direction, c) the Volatility indexes for the QQQ, and the NDX, have had a substantial advance, and they made contact with their 50 DMA. Usually, such move takes place during a market decline, and the contact with the 50 DMA is a sign that the decline is getting overdone and  a bounce is imminent. However, in this case, the markets haven't been declining, in fact they have been advancing! Therefore, the strong advance in the Volatility indexes is rather odd. When we put all these together, we can come up with only one conclusion: we should see within the next 2-3 trading days we get a move in excess of 1.5% in the SP, and in excess of 2% in NASDAQ. With regards to its direction, we will look to the support and resistance levels shown in the table. The direction of the move, should be in the direction of the breach."

(6-2-03)The indices tested resistance earlier in the day, and backed off. However, both breadth and volume were positive, which leaves the possibility open for the indices to test resistance once more. For tomorrow's trading the key level to pay attention to are today's high and low. Above today's highs suggest an upside target of 9050 in the Dow, 1650 in NASDAQ, and 995 in the SP. Below today's lows suggest  test of support at 1550 for NASDAQ, 950 in the SP, and 8700 in the Dow.