(6-9-04)The indices pulled back unable to move higher without alleviating the overbought condition, which is quite normal. Notice that all indices are still within rising channels, and holding above declining tops line they overcame a  couple of days ago. Consequently, it would be a bit premature to expect, and to bet, that the rally is over. It may be, but it isn't, as long as the indices are still within rising channels, and holding above support, which happens to be the case at the present time. For tomorrow, and for next week, the key level to pay attention to, is 1113-1110 for the SP. We ought to  be bullish above it, and bearish below it.

(6-8-04) Despite the early gap to the downside, most of the indices  held their ground,  moved higher later in the day, and finally managed to end the day unchanged, or, with minor gains. There was little desire to sell, which means investors are confident that the market is  going higher, thus, there is no need to sell  prematurely, and end up living money on the table. It also means, that as long as sellers are not in a hurry to sell,  a few buyers can push the markets higher on low volume. Having said that, we don't think the indices can overcome  the upcoming resistance and move on to the next upside target without alleviating some of the existing overbought condition. 

(6-7-04)The indices closed marginally above resistance,  on low volume. Is it for real? As long as today's lows are not violated in the coming days, the move is valid by definition. However, given that the McClellan Oscillators are at the top of their range, in all likelihood, the most we can expect for the near term is making contact with  the next resistance targets (see table below) PLEASE READ THE WEEKLY REPORT

(5-27-04) The indices broke above resistance, thus, we got to expect that they will rally to the first upside targets. At the same time, the 5 day trading Oscillator is at the top of its range. Consequently, we would expect a pullback to take place as the indices approach the first upside targets.

(5-25-04) The indices rallied up to channel resistance while the McClellan Oscillators are at the top of their range.  Hypothetically speaking if the indices were to break out tomorrow and continue on to challenge resistance without any consolidation, assuming that breadth remained equally robust, by the time the indices got to the next channel resistance, the Oscillator will be in the +325 to +375 zone, which will probably be a new all time high for the Oscillator, at the same time,  it will have traveled  between 650 to 725 total points in a matter  of 15 trading days, which has never happened before. That  doesn't mean  it cannot happen, or, it won't happen, it simply tells you how extraordinary it would be, especially when you consider that the SP, and the Dow, will still be below their April highs! Never-the-less, technically speaking if the indices close above channel resistance (red channel) it would imply that they could  rally further to challenge the longer term channel resistance (black channel) Those who are willing to accept the risk, they may very well take some longs on any print, or, close above  the short-term channel resistance levels which are the first upside targets (see table below) If such action is taken, you got to have stops at today's lows, or, yesterday's highs.  One last thought, if we had one more day like today, the SPX/VIX ratio will rise back up to the 80 level, which has been a tough barrier to get thru, it has done so only once in its history, and it marked the  top  of 2000.  How much of your portfolio are  you willing   to bet that a) the 80 level will be overcome? and b) it will mark the beginning of another leg to the upside, opposed to a top?  Reality check: Let's assume an investor -not a trader-  is already 100% long, or, decides to go 100% long  because he/she doesn't want to miss out on an intermediate term rally, that means, he/she is  betting 100% of his/her money on an event that a) it has only happened once in 20plus years, and b) it has never marked the beginning of a rally, it has always marked the end of it,  what are the odds that such a bet will pay off, and how rational would it for someone to bet 100% of his/her money on those odds? 

(5-24-04)Another day of  gapping to the upside at the opening,  only to give up the gains later in the day, and finally in the last hour saving by recapturing some of those gains back. Although the behavior of the market seems to be random and non-sensical, the charts are very clear, the longer trend is down, while the shorter  trend is up (see charts below) and the indices haven't even challenged channel resistance within the short term trend. Consequently, they do have a bit more room to move higher. However, look at the McClellan Oscillator, on 5/10/04 the NYSE closed at 6253, and the McClellan Oscillator was at -363.89. Today, the NYSE closed at 6334, and the Oscillator is at 181.78! In other words, the Oscillator gained almost 545 points, while the NYSE managed to gain just 81 points. We have total alleviation of the oversold condition with virtually NO gain in price. This is a technical phenomenon known as "magnitude failure" and 80% of the time, it results in a bearish resolution, if not immediately, within 3-5 trading days.   The danger  at this point, is that the indices rally up to the short-term channel resistance, which is only 1%-1.5% higher, and then, they roll over again.  In other words, the potential reward  currently availed by the indices for being long, doesn't provide adequate compensation for the risk that is taken.  Of course, different investors, have different return-to-risk criteria, and some may be perfectly happy with what the market has to offer. There is more room to the upside, but in our opinion, given the direction of the larger trend, combined with poor internals, it makes more sense to be looking for an entry point to go short, rather than agonizing over finding an entry point to go long. 

(5-20-04) Today was a "nothing day"  with little, or, no change in terms of both price and indicators. We don't have much more to add to yesterday's commentary, other than the "magnitude failure" we described yesterday,  it got even more pronounced with today's action, the NYSE lost ground, but the Oscillator gained another 40 points. Given that the Quantifiers have remained unchanged for three consecutive days we ought to expect within the next 2-3 trading days  a move in excess of 1.5% in the SP, and in excess of 2% in NASDAQ. Therefore, today's "nothing day" represents the calm before the storm, which the market may be saving for after options' expiration.

(5-20-04) The indices gapped up at the opening rallied up to the 21 DMA rolled over and finish the day at their lows! Although it is not unusual for the markets to come down and close a gap before they move higher, today's action adds to our apprehension with regards to the markets' ability to mount a sustained move to the upside. The action by the McClellan Oscillator is equally troubling, on 5/10/04 the NYSE closed at 6253, and the McClellan Oscillator was at -363.89. Today, the NYSE closed at 6287, and the Oscillator is at 14.59! In other words, the Oscillator gained almost 380 points, while the NYSE managed to gain just 34 points. We have total alleviation of the oversold condition with virtually NO gain in price. This is a technical phenomenon known as "magnitude failure" and 80% of the time, it results in a bearish resolution, if not immediately, within 3-5 trading days. Is anything that is positive about the market? YES! Sentiment as expressed by put/call, and assets in the RYDEX bear funds, has gotten to levels that in the past have marked short, or intermediate term bottoms. Thus, the markets could very well be near one, but it may be from lower levels. 

(5-18-04) Although the indices just managed to close the gap from yesterday, today's action may be the beginning of the rally we were expecting to start no later than Wednesday. However, the overall action today showed technically  more weakness than strength, and that makes us rather apprehensive. If the markets fail to follow thru tomorrow on the upside, then we need to seriously consider the possibility that the decline of the past few weeks will accelerate.

(5-13-04)  The indices put on a so-so day, saving the drama for tomorrow, when the CPI report comes out. We do not have much more to add to what we said  yesterday, except that today's highs/lows should  provide the clues with regards to the short-term direction of the indices. If they trade above the highs, we should  see  continuation to the upside, conversely, if the indices trade below today's lows, we should see a test  of support (see table below)

(5-12-04)  The indices spent most of the day in negative territory. In the last hour of trading buy programs kicked in as the indices made contact with support. Subsequently, short sellers run for cover pushing the indices even higher and ending up at  the highs of the day! Was today a key reversal? The price action certainly had the looks of a reversal, however, despite the huge rally both the a/d and the up/down volume for NASDAQ, finished in favor of the declining issues, and for the NYSE they were flat. In addition, the chart pattern for NASDAQ has the looks of a bearish flag. For the bearish flag to be negated we would need a daily close above 1945, until that happens the bulls can't open the champagne bottle. If price turns back down and the bearish flag  comes to conclusion, the downside target is 1800. 

(5-11-04)  We got the bounce we talked about, but we have some doubts with regards to whether today's act was indeed the  beginning of a rally, similar to the one from the March lows. Volume was again light, the Dow, the SP, and the NYSE, had inside days and narrow ranges, only NASDAQ managed to put on a respectable day, up 1.8%.  As long as today's lows hold, we'll give the market the benefit of the doubt, and  re-evaluate once we see how the major indices negotiate their respective resistance levels. keep in mind, that unless they overcome  the upcoming   resistance levels, even the short-term trend remains negative.

Yesterday (5-11-04) we  said: "The indices broke support amid increasing volume and extremely negative breadth. This shameful combination of acts committed by Mr. Market, suggests that his ultimate intentions are not of the honorable kind! However, with McClellan Oscillator readings at -363.89 for the NYSE, and at -221.27 for NASDAQ, the odds favor a rally starting within 1-2 trading days, unless,  there is a crash coming, which we have no way of forecasting with any degree of reasonable certainty, due to the fact that crashes are so extreme outlier events, that we only had two in the U.S. during the entire previous century. Two incidents in 100 years  can only be classified as very low probability events, and thus, the odds of accurately forecasting one are equally low. The odds based on the current oversold levels favor a bounce within 1-2 trading days. However,  one thing that we know about crashes, is that they always happen from deeply oversold levels. When a market gets very oversold, but it can't muster a rally, investors at some point they lose faith, and they  give up "en masse" which causes a massive exodus, and thus the crash! Over the next couple of days, we will be looking for  the most probable outcome, which is a  bounce from the first downside targets. However, if the markets can't rally despite  how oversold they are, then, anything can happen-  including a crash during an election year! Notice that the Volatility Indexes broke above resistance  negating their 14 month downtrend, and telegraphing  another significant change in the overall market environment."

(5-6-04)  NASDAQ broke channel support and it proceeded to test the 1923 level, which held firm (today's low was just a hair above it at 1923.30) The rest of the major indices also acted in a similar fashion, while  breadth was rather horrific across the board. The Dow had 5 advancers, the SP-500  had 108, the NDX  had 20, and  the MID-400 had 80, in other words, we had 5 decliners for every one issue that managed to go up. Up/down volume ratios were just as bad, registering 1:3 for NASDAQ, and 1:5 for the NYSE.  Today's action does suggest continuation  to the downside, but the action by the Thrust Oscillators and the Quantifiers  is telling us to be alert for  a whipsaw lasting about two trading days. Notice that the Quantifier had once again a large one day move to the downside, while the Thrust Oscillator turned up. Based upon 20 years of data,  72% of the time when this combination has occurred, we got a sharp counter-trend  price move ranging between 2% to 5% which lasted one-two trading days. In other words, although the internals suggest a continuation to the downside, we got a 72%  probability of a sharp rally lasting two trading days.

(5-5-04)  The indices managed to grind their way higher on yet lower volume (take a look at the volume for the QQQ, and the SPY on the next page) Over the course of the past three days the most important development is that selling pressure has been abating, which has enabled the indices to stabilize. However, buying interest has not picked up -which is the reason for the diminishing volume. Under these circumstances, the indices can continue to chop around with an upwards bias for approximately another 2-3 trading days. If buying interest doesn't pick up over the same period, then the indices will turn back down under their own weight. Lack of selling pressure can only  aid the indices for a limited time,   buyers need to step in and start bidding prices higher on a sustained basis in order for the market to begin  a  new up-trend, and be able to maintain it. Going forward, pay attention to the support and resistance levels indicated  on the table below. A close above resistance on increasing volume would suggest a further advance to the first upside targets, while a close below support on increasing volume, would suggest a further decline to the first downside targets.  

Specifically for tomorrow's trading,  we suggest that traders  use the intra-day action in NASDAQ, for clues with regards to the market's direction over the next 2-3 trading days, and   for entering/exiting positions  accordingly. Notice on the hourly chart that we have a well defined rising channel ( see blue channel on the chart below)  Channel support is at 1950, if that level is violated, then look for a further decline to 1923, and below that to 1900. On the other hand, if NASDAQ can overcome resistance at 1975, then we got to expect a further advance to channel resistance at 2000. If it can break above 2000, then the next upside target is 2045.  In summary, if  tomorrow NASDAQ trades above 1975, the intra-day  trend will remain positive,  and the odds would favor a positive close for the day, as well. If NASDAQ trades below 1950, the intra-day trend will turn negative, and the odds would favor a negative close for the day, as well.

(5-4-04)  Today's action was "text book" behavior following an FOMC meeting; a rally early in the session, a pullback minutes before the announcement, followed by a rally after the announcement, followed by a pullback into the close! The real news -in our view- was the continuous slide in bond prices, and the continuous rise in oil prices. If the trend of lower bond prices/higher oil prices continues, we don't see how equity prices can avoid a revisit of their March lows. For tomorrow's trading the area to pay attention to is today's highs and lows on all three major indices -although NASDAQ will in all likelihood be the leader of the move-  A penetration of today's lows would imply a further decline to support, while a penetration of today's highs, would imply a further rally to resistance and perhaps to the first upside targets