(12-4-02) The popular indices found support at their 20 day SMA, while the McClellan Volume Oscillator is near support, the VXN made contact with its 20 day SMA, and several of our indicators are near the zero line. The expectation based on the combination of these four observations, is that we should see a bounce lasting 2-3 days that will take the SP up to 940, and NASDAQ up to 1470-80, perhaps higher. However, with the TOs, and BSEs pointing down, we expect the bounce to be followed by yet more weakness that will take the indices  to the second downside targets over the next 10-15 trading days.  Since the indices came close to our downside targets but did not make contact with them, we suspect that it can happen early tomorrow morning, followed by another upside reversal by mid-day.  In any case, whether we saw a low today, or, we will see it tomorrow, we still expect a bounce, followed by another decline. Thus, traders may take a small long position (30%-35%) expecting to sell it within  2-3 trading days, and then re-establish short positions next week.

 (12-3-02) Price broke down today while all the indicators accelerated to the downside, suggesting that the downside targets listed below will be met. However, something that we want to bring to our subscribers' attention is the similarities in price action between now and last year, prior to the final top. Notice that last year, NASDAQ was on the verge of forming a top, and then we got two days of sharp upside movement on low volume, and that marked the termination of the rally from the September lows. As you know from our weekly report, we are looking for a 6%-7% decline, and  for  "split price action" this week, meaning we are looking for a reversal of the prevailing move by mid-week. Thus, if support holds, we may see another sharp movement on the upside by the end of the week.That scenario will be negated if the first downside targets are violated, and the bulk of our indicators go below zero. The key thing to keep in mind, is that we should be on alert for a possible top, but now is not the time to be heavily short (no more than 30%-40%) The time to pile up on shorts will be when we get a rally from support levels, which fails to make new highs, OR, after the market violates support, comes back to test it as resistance and fails. 

For tomorrow we should look for a possible reversal to the upside after the indices make contact with our downside targets.

(12-2-02) The markets reversed as they approached significant resistance levels. However, they did not violated support, in fact they closed right above it. By definition, as long as support is not violated the trend is up, given that most of the indicators turned down -BSE, Thrust Oscillators, McClellan Oscillators, SI25s- the expectation is that price will break support. However, the Quantifiers turned up, suggesting another run towards the highs.  Given the dichotomy we continue to believe that we are going to end up with  "split action" this week, meaning we should see a reversal by mid-week of the trend that has prevailed during the first part of the week.  In addition, we want to emphasize that such non confirmation between price vs indicators, and indicators vs other indicators which usually confirm each other is a sign of increased market risk, which is not being reflected in the price action. It should be noted also, that 20% of our guests have now turned "neutral." This is an unusual high percentage of people who normally have a very strong opinion about the markets. It has been our observation in the past, that when such a high percentage of our guests are non-committal to the markets, usually the markets are near a turning point. 

(11-27-02) Today's reversal should not come as a surprise, as we pointed out to its possibility both yesterday and this morning. Today's advance brought  NASDAQ  one point away from resistance, and if it breaks above it we would expect a run to the 1536 level. Whether we  have a continuation on the upside, or, yet another reversal tomorrow, it is difficult to call, given a short day, characterized by low volume. One thing that is certain, is  given the low volume and short trading, the market can be easily pushed around in either direction.  The expectation is to see a run towards resistance. An important level  to keep in mind is the 938-942 level in the SP. It needs to get above that intra-day resistance before it gets to 950.

 (11-26-02)  The market sold off  which is not surprising given the divergences and the stalling we mentioned yesterday. However, if the decline had  come from levels near the upside targets, we would be much more confident to conclude that today's decline  was not a "one day" event, and it would continue for several days.  Notice that the Thrust oscillators had a negative cross-over, suggesting that the decline should continue. However, with Thanksgiving Day coming up, several distortions can take place. We can have another  sell-off tomorrow, as traders decide to book profits before a long weekend. By the same token, we can have a short covering rally, as short-sellers take profits from today's decline,  before the long weekend.  We should be on the alert for  more weakness, but we should not count on it.

(11-25-02) Most of our indicators have diverged, and now they are beginning to stall, as evidenced by the BSEs, the TIs, and the Thrust Oscillators (see below)  Since the markets are very close to channel resistance -which usually acts as a magnet- we would expect  an attempt towards sometime tomorrow. However, the stalled Thrust Oscillators suggest that the  markets  will not be able to get thru. We believe that we will see a reversal near the first upside targets, and then a 5%-7% decline in the next few days.  Those who are long, may want to take some profits near the upside targets, while those who wish to go short, may  take "pilot" positions if NASDAQ trades between 1520 and 1530.  As we mentioned in the monthly newsletter, a pullback from resistance, that is contained at the 895 level for the SP, would suggest that another leg of the rally will follow, which should be of near equal magnitude. The 895-905 zone  should give us a low-risk entry.

(11-21-02)   Today's break-out suggests that the blow-off move is indeed taking place.  We would expect our upside targets to be met.  Whether we have a third consecutive day of gains, or, a one day pullback, followed by  continuation on Monday, we can't tell, although usually that is the case. Given the market's momentum, one would expect a third day of gains. For the next few days the tone remains solidly bullish.   Something to keep in mind, is the fact that according to the Investors' Intelligence report, and the latest AAII numbers, the percentage of bears (below 25%) has fallen to levels that in the past have marked the end of rallies. The article form the TIME magazine (see below) suggests that people mortgage their house and use the proceeds to buy stocks. Such bullish sentiment should raise eyebrows, and in our view, it highlights the  risk that is being carried by the market, which is not evident just by looking at price.  If price alone could tell "market risk" then everyone would have known to sell on March 10th, of 2000. Price can point to the moon, or, to the center of the earth, it is the environment in which price moves that reveals the picture.  We do not think it is very bullish for the intermediate term to be long stocks, when the environment is such that  major magazines suggest that people mortgage their home to buy stocks. Never-the-less, for the next few days -at least- we should be looking at Dow 9050-9250, SP 955-975, and NASDAQ 1490-1535.

(11-20-02)  Today -right from the start- the indices rallied sharply from support up to resistance, as shown in all the charts on page one)  It appears that the indices are "coiling" preparing for a break. After today's action our short-term model has moved to neutral giving a 51.1% probability for an upside resolution, and a 48.12% probability for a downside resolution. (Coincidentally, our Analysts' Consensus, has also turned neutral with 14 Bulls, 14 Bears, and 3 Neutral)  We have discussed several times the past 3 weeks that the divergences that have taken place, when accompanied by price strength, usually, the result is a blow-off move of about 6%-6.5%, in the SP, and about 7%-7.5% in NASDAQ.  (see weekly report) The tricky part, is to avoid a false break-out. For short-term trading, the way we will be positioned for a possible upside break-out is this: Using the QQQ as the proxy we will buy a 10% position above 27.1, add 20% above 27.3,  and another 20% above 27.6, with stops at the previous entry. We would that contemplating a move to 29.75-30.2. (Please notice that the above strategy fits our own risk/reward criteria, and it is does not mean that it is appropriate for everyone) On the other hand, if the indices broke on the downside -below today's lows- we would be 50% net short. Judging from the chart pattern, it wouldn't be surprising at all, to have a down day tomorrow, erasing about 1/3 to 1/2 of today's gains, before it actually breaks out.  The key thing here, is for traders to be aware of both outcomes, and devise a trading strategy -tailored to one's return to risk criteria- to take advantage of either. 

(11-19-02) we said: "Given all the divergences, and the fact that the markets are still overbought, the odds favor a resolution of the current impasse to the downside. However, there are still several money managers who feel that the train left without them, and they are ready to jump in at the first hint that the market is resuming its uptrend. Thus, the real surprise may be that the markets make a quick run towards the upside targets listed in the table below. According to our short term model, the probability of such outcome is 29.25%, which is low, but it is not zero! Investors/traders should keep that in mind, in the event that the market does the unexpected.  One thing though that we can be rather certain about is this: if the markets are going to avoid visiting our downside targets, they must start rallying tomorrow right from the opening. If they continue to slide -below- support, then we would expect selling pressure to intensify, eventually taking the indices to the downside targets  listed below."

(11-18-02) The SP was unable to overcome resistance at 915, and after Walmart issued a bleak report, coupled with  oil prices rising 4.7%, to close at $26.71 per barrel, the equity markets weakened, and hey closed near the lows of the day. We have pointed out several times, that given the steep divergences that have taken place over the past 4 weeks, it will be rather difficult for the markets to continue their advance un-interrupted.  It should be noted that the daily trend has not been broken yet by any of the indices, but the divergences suggest that it will. Assuming  that it does, we expect the three major indices to achieve the first downside targets.  For tomorrow's trading  we need to watch out for what usually follows a reversal day: a rally early in the morning that fails at today's mid-point. If that happen, then the odds favoring downside break will increase dramatically .

(MID-POINTS> DOW:8561, SP:908, NASDAQ: 1410)

(11-14-02) The markets rallied strongly today, and it appears that are on track for  a 6% advance from yesterday's levels. We should expect this move to last into early Monday, unless tomorrow's economic news reverse today's euphoria. We want to emphasize that its is highly unlikely that the indices can exceed the second target by more than 1%, thus if the indices approach these levels, investors/traders should be prepared to take profits. Our good friend, and one of the finest analysts we know of, noted today that the    NASDAQ 30 day open ARMS finished at  .7612. The last time the 30 day open ARMS index was at that level, it was on 12-5-01, which marked the top for NASDAQ coming off the September '01 lows. For tomorrow's trading pay attention to  the 915 level in the SP500. If it can't get above it, we could have a reversal. Notice that the PUT/CALL ratio ended the day a .58, a reading close to the readings we have seen near  every major top in the past 3 years (see next page)

(11-13-02)We can't recall a time when the indices were able to hold up, while the Quantifiers, the BSEs and the Thrust Oscillators were all moving down. Another way to look at it, is  perhaps that is the reason why the indices are  having such a tough time making progress on the upside -all the internals are pointing down. Today's action didn't do anything to clear up the picture, the indices remain stuck in a trading range.   We continue to expect a break worth trading, and we want to emphasize one again that it can be in either direction, on one hand we have weak internals, on the other we have all those who feel that they missed the "bottom" of a new bull market, and they are ready to jump in at the slightest hint that the market is going higher. Be patient until the market makes up its mind. As of today's close our short term model gives a 46.34% probability of an advance between 4% and 6%, and a 48.57% probability of a decline between 4% and 6% in the next 3-5 trading days

(11-12-02) An early rally was aborted in the DJIA, and the SP courtesy of disappointing news from Phillip Morris, and courtesy of the dollar which gave up all of its gains for the day taking down the major indices. As we pointed out yesterday, we are getting conflicting signals which means  that the markets are at a turning point, thus,  we should be on the verge of a 4% to 6% move within the next 3-5 days. As pointed out on page one, all the indices have broken down from "rising wedges" it is rather usual for an index to rally back up towards the apex of the wedge. At the same time the BSEs, and the Thrust Oscillators are pointing decisively down, thus we could also see a decline. Given today's data it is a toss-up which way the markets will go over the next 3-5 days. However,  the  conflicting signals indicate that the markets are at a turning point, and we should expect an overall  4%-6% move in either direction. 

(11-11-02)The action today has left us with both positives and negatives. The Thrust Oscillators, the SI25s, and the BSEs ague for lower prices, but the McClellan Oscillators -at zero- and support levels coming within a few points argue for a bounce. The most logical development would be to see lower prices  tomorrow, and then a bounce from support/oversold condition into options expiration on Friday.  If the markets found support we would be willing to take a long position of about 20% of our trading capital for a 2-3 day bounce.  In any case, we strongly urge you to keep an eye on oil prices and the dollar, any bounce can be easily aborted, if oil and the dollar misbehave. 

(11-7-02) There are three facts that we believe investors need to keep in mind about today's action: a) the dollar is breaking down b) the uptrend  -as we showed on page one- is still intact c) if the major indices break down tomorrow, then we will have a break-down from a wedge formation with a technical downside objective of the October lows. Thus, with regards to tomorrow's trading investors need to pay attention to support levels for both the dollar and equities. If they hold, the bulls can breathe easier, if they do not, the bears can have something to celebrate for over the weekend.

On another note, we have mentioned several times that divergences convey information. Take a look at the yield of the 10 year note, and the NYSE. As you can see, the higher prices in equities, were not confirmed by lower bond prices, as  has been the case thru-out the last 3 years. The implication is that bond investors expected higher bond prices, which means lower equity prices, if the inverse relationship continues to hold.

(11-6-02)Today it became clear that the markets got what they wanted: a Republican victory and a larger than expected cut in interest rates. Does that mean the rally is going to accelerate from here? In our view the answer lies with the price of oil and the U.S. dollar. The commentary across Europe today was unanimous that "Americans voted for war." If this perception persists in the coming days, then investors will drive oil prices higher. At the same time, the U.S. dollar was marginally lower today, reflecting investors' hesitation to believe that the U.S. economy will recover in the near future. After the close, Cisco confirmed investors' disbelief in the recovery scenario by offering a rather grim assessment going forward, causing the NDX futures to lose 10 points in GLOBEX trading.  In our view, it is important that investors keep in mind that the last time the FED lowered rates, was a year ago in December. Thus, after 12 months of rates at 40 year lows, and numerous re-assurances by Mr. Greenspan that the economy is on its way to recovery, the reality is, the economy has NOT recovered. We remain doubtful that it will, as long as, the overcapacity -that has been a drag to corporate profits- is still present. The market has chosen to ignore the facts over the past few weeks, and it may continue to do so a bit longer, if oil and the dollar cooperate. Unfortunately, the price action of neither, is under the control of U.S. investors.   Aggressive traders may wish to play a "blow-off" type of move if the indices begin to move above the resistance levels we mentioned on page one, however, we remain categorically convinced that risk-averse investors will get a point of entry with a favorable return to risk ratio, if they are patient and willing to wait for a market pullback, after the current crosscurrents play out. If the current rally is of intermediate term, it should last at least 3-4 months, if not longer. If the 4 year cycle has indeed occurred, the ensuing rally should last at least a year, if not longer! We are astonished to see how how quickly investors are willing to forget "downside risk" it's almost as if the devastating bear market of the last two and a half years, never took place! (Take a good look at the possible wedge formation that is shown on the next page)

(11-5-02)The markets rallied up to resistance and then pulled back.  You probably recall our report on 10-15-02, in which we identified the 895-925 zone, as an area that will give the SP some serious trouble.  Today's action does have the looks of a "blow-off"  move, but there is no confirmation yet. For tomorrow's trading we would pay attention to the gap that was left open from this morning. If the gap gets filled and the market resumes its upside, then it should close tomorrow, at today's highs. If the gap gets filled but the markets do not turn back up again, then look for support at the 868 level for the SP, and at the 1350 level for NASDAQ. In any case, trading over the next 2 days should be rather volatile and subject to events whose outcome is rather uncertain. In our opinion, intermediate -even short term- traders and investors can avoid un-necessary risk by remaining either mostly hedged, or in cash for the next couple of days."

(11-4-02) The markets moved in a narrow range without much conviction. Tomorrow, we will know -hopefully- the results of the elections, and we'll get the much anticipated rate cut by the FED. After these two events are out of the way we'll have a much more clear picture. It is an exercise in futility to make any predictions for tomorrow, considering the potential event risk. We do know from the Quantifiers to expect within the next 1-3 trading days we should expect a move in excess of 1.5% in the SP, and in excess of 2% in NASDAQ. The move could be in either direction.  As we discussed on page one, keep in mind that the markets are close to support and they may break down, however, the chart pattern suggests that the markets can go vertical on the upside.