Charts:  If you paid close attention to the indicator charts thru-out this week's report you probably noticed that  the intermediate term ones are showing signs of a top in the making, but the short-term ones like the BSEs and the McClellan Oscillators are suggesting higher prices for the very near term (1-2 weeks). Therefore, we expect next week to be a positive one -overall- unless the market is sabotaged by negative external developments. 

SPDRs/Sectors:     Gold was the clear and undisputed winner. If the XAU stalls around 73-74, short-term traders should take some chips off the table.

Charts:  The markets are in a transformation period.  It still unclear whether the markets are "consolidating" or "topping out." One thing that we are certain of is that this coming week will be marked by whipsaw action, which is normal during "transformation" periods, regardless of the type of transformation that is taking place. Either we will see a decline into Tuesday or Wednesday followed by a reversal to the upside, or a rally into Tuesday-Wednesday followed by a downside reversal. The first scenario is the most likely and here are the reasons why:

1) The quantifiers and the BSEs suggest continuation of the decline

However, if we saw an additional decline for two days, then the 10 day Summation Indexes plus the McClellan Oscillators will reach the area from which we get a bounce (blue line) hence a rally into the remaining of the week.

 Could it happen the other way around? Yes, but the odds favor what we just suggested, for the reasons we suggested it. Bottom line: Whatever happens during the early part of the week, should be reversed later in the week, therefore be prepared to change trading  positions by Wednesday.

SPDRs/Sectors:   Gold is flying, there is nothing else to say! Look at our positions in our portfolio holdings. We believe it is headed to the 75-77 level.

Charts:   Two weeks when our daily indicators not only  broke above their downtrends, but also, they broke  into positive territory, thus rendered a "buy" signal. We also said that if it is for real, then the rally should last several weeks,  and  we would act on the "buy" signal after we see how well the markets hold during a pullback.  Last week only NASDAQ had the equivalent of a "pullback." Neither the DJIA, nor, the SP500 gave up any ground. In the short-term this is positive, but given that the rally has not been confirmed by the weekly ROCs, we are becoming cautious. Also, NASDAQ looks to us rather dicey.  We are convinced that a sharper pullback will take place, although it may take place from a bit higher levels. For this coming week we continue to look for resistance at the 1950-1980 area for the NASDAQ and 185-1195 for the SP500. The 1800-1820 area should provide support for NASDAQ, and the 1135-1145 area should provide support for the SP500. If the indexes fall to these levels anytime during the week while the daily quantifiers remain in positive territory, that will be a sign to initiate/add long positions. Conversely, if the Indexes rally to resistance areas during the first part of the week while the daily indicators make lower highs, that will be a sign  that a  much larger pull back will  take place in the coming weeks. The reason behind this, is because not only the weekly ROCs will have failed to confirm the rally, but also the daily indicators will have failed to confirm the second leg up.

Charts:   Notice that defensive issues such as "Hospitals" have performed well this week, while technology issues have lost ground.

Charts:  In our daily report for Thursday 2-28-02 we pointed out with regards to the 3-day decline from Tuesday to Thursday: 

'... However, the decline has lacked conviction, and that may turn out to be an  important development, because it demonstrates that -at least the past few days- people have been looking for an excuse to buy, instead for an excuse to sell."

On Friday the "excuse to buy" drove the markets substantially higher, but only  up to resistance. In order for a "bottom" to be in, the markets must be able to overcome resistance, otherwise they are still in downtrends, and thus the bottoming process has not been completed. At first glance, it appears that Friday's strength should carry into Monday, and perhaps Tuesday. The real question is whether the markets can hold on to the gains, consolidate for 2-3 days and then blast thru resistance, if that happens, then we would have a rather strong buy signal, because all of our indicators would be confirming the break-out. Furthermore, we would expect such rally to carry NASDAQ back towards the 2150-2250 level, and the SP500 towards the 1250-1270 level. So, there is no point to agonize over what to do, the market will show us. One thing we do not want to do, is open positions without confirmation by the market. If you have any doubts about the wisdom and usefulness of such approach, just look at how many one and two day wonder rallies have fizzled away in just one, or, two days! 

The markets look good, but appearances can be deceiving.  Thus we are not acting upon the current weak buy signal, until we have a break-out, a pullback, or more indicators support the signal. Risk averse investors/traders who do not want to wait for a pullback, may wait until the indexes break above the downtrend, and then it makes sense to act upon the signal and go long.

SPDRs/Sectors:  Given the strength in the semiconductor sector, should NASDAQ break out, then here some names we will be buying; NSM, ALTR, KLAC, ADI. 

Charts:  Last week  we said:

"At the moment, the trend indicators are pointing down, the majority of the rest of our indicators are pointing down as well, the McClellan Summation Indexes are pointing down, and the quantifiers are still well below zero. The evidence overwhelmingly is pointing that the path of least resistance should be down. Thus, we are looking foe more weakness early in the week, and a possible advance from oversold levels- at the end of the week."

We had both the decline early in the week and the advance on Friday, from oversold levels. This coming week, based upon the readings that we get from our indicators, we should be on the "look-out" for another bounce. The only question is when we are going to get it, not if we are going to get it. If the markets tank on Monday and Tuesday, we should see a bounce immediately after. On the other hand, if  the "bottom-fishing" and the "hopeful" souls  jump in first thing on Monday morning, then the bounce may not last to the end of the week.  Moreover, one thing that really has our attention, is the current levels of our NASDAQ indicators. If these levels are decisively violated, the implication for that market  will be that it is   in "free-fall" mode, and it should bring down both the DJIA and the SP500.

SPDRs/Sectors:  As we predicted  last week, gold stocks were among the worst performers this week. We do not believe the pull back is over yet. Gold stocks have further to go on the downside, unless geopolitical events  take a turn for the worse.

Charts:  The DJIA continued to outperform the rest of the market as investors took cover in cyclical stocks. We see it as a negative when a handful of stocks (30 to be exact) are leading the market without much follow by the rest. At the moment, the trend indicators are pointing down, the majority of the rest of our indicators are pointing down as well, the McClellan Summation Indexes are pointing down, and the quantifiers are still well below zero. The evidence overwhelmingly is pointing that the path of least resistance should be down. Thus, we are looking foe more weakness early in the week, and a possible advance from oversold levels- at the end of the week.

SPDRs/Sectors:   Six weeks ago in our January newsletter titled "Can The Market Be Both Right And Wrong At The Same Time?" we took issue with the disparity between Telecom stocks and Networking stocks. We pointed out that Telecom stock were making new lows while Networking stocks were making new recovery highs., and we opined that it was impossible for the makers of networking gear to do well, while the buyers of such gear (Sprint, Quest, Worldcom, etc.) were doing lousy.  The past two weeks we have seen Networking stocks catching up with reality as the condition of telecom companies  continues to deteriorate. At this point one should ask: is Cisco worth 100 times earnings?

Charts/Indicators:  All the major Indexes bounced off their 10 week lower volatility band, which always acts as the first serious support level. Our own indicators -going into last week- also had reached levels that initially we always see support. So, there should be no surprise that the markets made an attempt to stabilize and move higher. The question is this: 

Are we seeing the beginning of another multi-week rally, or, just a "reflex rally from an oversold condition, and thus the markets will turn back down again?

As long as the trend indicators are pointing down, and as long as the McClellan Oscillators and our own proprietary indicators remain below zero, the answer favor the later. Can the markets turn around? Sure they can. The point is they must do it fast. If the markets do not gather strength, we will see selling from skittish investors who wish to protect their  gains  from the advance from the September lows. If that happens, you can bet on hedge funds jumping in to sell the market short, placing additional pressure, and in that case  the markets can literally fall apart. We are not predicting that this is certainly what is going happen. We are bringing to your attention, a scenario that can easily materialize and as an investor you need to be prepared for, by making contingency plans.

SPDRs/Sectors:   Oil Service stocks rallied almost 12% for the week, making it the best performing sector. 

Charts:  This week we had 3 important developments:

1. The short-term indicators reached levels that in the past have provided support for both short-term and intermediate term rallies.

2. The intermediate term indicators have fallen below zero, implying that the intermediate term trend is at risk.

3. The trend indicators have simultaneously turned down,  also  implying that the intermediate term trend is at risk.

Therefore, we should be expecting some rally attempt this week. If the rally only lasts 3-5 days and then the market turns down, then we will have confirmation that the intermediate trend has been reversed from UP to DOWN. Thus, we urge traders/investors to pay close attention to how the markets act over the next 5-10 trading days.

SPDRs/Sectors:  Thru-out the week we saw a rotation out of technology stocks and into defensive issues such as Hospitals, Reits. In the past 18 months such rotation has preceded all important tops in the tech sector. On another note,  pay attention to the Biotech sector, if the market turns down, the biotech sector could easily go down 15% to 20% from current levels.