(4-4-03) All of of the indicators that we use are in positive territory, thus, "by definition" we ought to expect higher prices. The real question is how high can those higher prices be? Given that the 21 DMA of the put/call ratio is near its bottom, and the volatility indexes are near the bottom of their recent respective ranges, we must conclude that the upside potential is less than 5%, unless we are on the brink of a major break-out that will render the recent ranges invalid. On Thursday, we showed the chart of the ratio between the NDX and the VXN. We would like to elaborate on the subject, courtesy of our good friend, and  superb technician Mr. Frank Barbera. Frank likes to use 200 day volatility bands as a way of determining relative tops and bottoms. The chart below, is the NDX/VXN ratio going back 6 years, with 200 day volatility bands. Notice that even during the bull market, every time this ratio got up to the upper 200 day volatility band, we got a pullback. As of Friday, the ratio finished  right at the upper 200 day volatility band. Last time we had  a similar case, was in April of 2002, and in December of 2002, both instances marked a top of significance. Thus, once again we want to reiterate, that unless the markets are on the brink of a major upside break-out that will change the overall trend of the market, we can't be expecting anything more than 5% on the upside from current levels.  Therefore, going into next week, we should be looking for  modestly higher prices, supported by the still positive indicators, but also, we should be looking for the development of some type of top by Friday. If the markets are down on Monday, longs can be added  if support levels holds. All bets are off if support is broken.

(3-28-03)The overall technical condition of the market remains tenuously positive, given that all the indicators are still positive. However, we are beginning to see the first warning signs that the rally may be over. We have double tops in all the indicators, the BSEs are already in negative territory, the Volatility indexes are at the bottom of their most recent range, and the 21 DMA of the put/call ratio is also near the bottom of its range. In addition, the prospect of having to take  a city of 5 million people -like Baghdad- neighborhood by neighborhood, can be very unsettling for the markets. In our view, the markets are quite vulnerable at this point, and unless they are quickly aided by positive developments on the war front, ten days down the road will be lower than where they are now.  For next week we consider the 839-850 level in the SP, the 1325-1350 level in NASDAQ, and the 7900-7950 level in the Dow, as the line in the sand. If the indices break below those levels, they are in danger of falling all the way back down to the bottom of their respective ranges as we pointed on page 1.  We see no evidence that the markets are capable of advancing above their most recent highs, without  outside help, which may not come. In our view, we are looking at the potential of a 3%-5% advance, versus the potential 10%-15% decline. 

(3-14-03) Last week, just when the dollar was about to go into the abyss- the BOJ intervened, which caught many who were short the dollar- resulting in a massive short-squeeze. In a chain reaction, the sharp rally in the dollar drove equity prices sharply higher as well. The question is, can the rally go higher? Usually rallies that are fueled by intervention, and short-covering do not last very long. However, they create a temporary "pause" in the short term trend, which may last from a few days to a few weeks. As we noted on page one, all the major indices simply rallied from the lower end of their down-trending channels, and nothing precludes them from rallying further to the upper end of the channel, without  interrupting the intermediate trend. While cognizant of the fact that the intermediate trend is still negative, is there a trade on the long side? Yes, if the SP can close above 840, and NASDAQ can close above 1360, as we noted in the daily report for Thursday 3-13-03. Having said, we also want to remind you of a couple of comments we made in the last two weeks. We have commented on the fact that a) the Quantifiers had a double top which meant that the rally from the low on 2-13-03 was over, and b) the structure of the price and the indicators over the past three weeks, usually leads to a "false break" which is usually reversed within a day, or so. On 3-6-03 we said specifically:

"...One thing that we want to share with you -from our years of experience in the business- is that the extreme choppiness which has characterized the market the past 10 trading days, frequently results in a false break. In other words, the first break out of the consolidation is false, and the market reverses in the opposite direction the day after. Therefore, if you are waiting for a "break-down" or, a "break-out" to take position, take  a small position on the first day of the break, and then add to it the next day, if the market continues in the same direction..." (see daily reports)

Therefore, there is a possibility, that Thursday's rally was the "false-break" that usually accompanies the price behavior we have witnessed the past three weeks.  For now, the short-term trend is positive for NASDAQ, neutral for the SP, and we will know within the first 1-2 trading days of the upcoming week, whether the rally has more fuel in it.  If the Quantifiers went positive and the SP closed above 840, NASDAQ above 1360, we will re-open long positions as we mentioned on Thursday's daily report (DO NOT CONFUSE THIS MOVE WITH  THE INTERMEDIATE TERM MODELS, SHOWN ON THE MARKET TIMING PAGE, THOSE ARE STILL ON A SELL SIGNAL)  

(3-7-03)Last week  we continued to see the same type of manic depressive action that has  dominated the price in the markets since mid-February.  The reason in our view is quite simple, the markets have been dominated by floor traders who tend to want to go home flat for the day, even under the best of circumstances, let alone in an environment of high risk, due to increased geopolitical uncertainty. The continuous gyrations without  much  net change, give the appearance that price is holding up well.  However, the technicals have been deteriorating -on Friday, despite the reversal, the Quantifiers fell- and the fundamentals have surprised the "experts" to the downside. The hope for the bulls is that if price  continues to hold, and the developments on the geopolitical front are positive, buyers will eventually come out of the sidelines and push the market higher. That may turn out to be the case -and that will be the best case scenario- however, even if that turns out to be the case in the short-term, the market still has to deal with worsening fundamentals in the intermediate term.  It should be noted that every piece of fundamental data that has come out the last two weeks has shown an acceleration on the downside, starting with auto sales, and ending with the un-employment report. The un-employment report especially showed a widespread weakness, even among those sectors that up to now had held up well, such as the service sector. Consequently, there is the risk that instead of price holding up and luring buyers into the market, price will follow the technicals and the fundamentals to the downside, even if the geopolitical developments turn out to be positive.  Intermediate term all of our indicators are solidly negative, however, in the short-term they are rather neutral hovering slightly above, or, below the zero line. For next week we believe that we will continue to see the same type of choppiness, with rallies going nowhere, and declines taking  out support, but only  marginally. Of particular interest will be the action on Monday, due to the fact that on Friday the market shrugged off the negative economic reports, and instead chose to rally on the news that two of Osama's sons had been captured. Over the weekend, it was confirmed that such development did not happen, thus, we may very well see a reversal on Monday. We continue to believe that intermediate term investors ought to be in cash, or, hedged, while nimble traders can use the 50 hour moving average as an entry/exit point for intra-day trading, long when price penetrates the 50 hour SMA on the upside, and short, when price penetrates the 50 hour SMA on the downside (see chart below)

(2-28-03) The markets "coiled" thru-out the entire week, while most of the indicators ended up back up against resistance. The markets are being held hostage to geopolitical developments, which make it nearly impossible to make any type of a forecast that bears a reasonable degree of certainty. Any kind of "good" or  "bad" development can send the market higher, or lower. However, a break above resistance, or, below support should provide an entry point for those who are looking to enter the market one-sided (only long, or, only  short) In the mean time, cash, or, a hedged position is probably the best place to be. Having said all that, for next week we need to watch out for a particular development, which is slightly higher prices on Monday and Tuesday -no higher than 1.5%-2% from Friday's close- with a reversal on Wednesday. If  such development takes place, it will be consistent with the action at termination points for reflex rallies. We can't calculate the probability of such development taking place at this point, but we can tell you, that if it does take place, the probability -based upon  15 years of data- of the rally having being terminated will exceed 80%. 

(2-14-03) As the short term indicators, and the positive divergences were suggesting, we got late in the week the reflex rally we had suspected. The question is obviously this: is the advance just another reflex rally, form an oversold condition destined to fizzle out within a few days, OR, is it the beginning  of something bigger? With all the Intermediate term indicators below zero, and the indices below the "neckline"  we are inclined to believe the first case. However, if the indices were to close back above the neckline while our indicators turn positive, then we will turn positive as well.  For now we remain defensive, but open minded. In the absence of a negative geopolitical development, we are expecting the rally to last into at least mid-week taking the indices to resistance at the neckline. 

(2-7-03) The markets were unable to get above the "bearish thresholds" we mentioned last week, and thus they continued lower, violating support in the process. Consequently, our expectation is that we should see further follow thru to the downside, and contact with the next support levels listed in the table below. However, the BSEs, TOs, and the McClellan Oscillators, have all formed steep positive divergences, which suggests a reflex rally should not be that far away. Ideally, we should get downside follow thru during the first part of the week, and then a reversal later on, having said that, keep in mind that the market seldom acts "ideally!" The real important thing to pay attention to, is this: if the markets despite the positive divergences, and despite their oversold condition, can't bounce, then, they are in deep trouble, and on the verge of going off  the cliff. 

(1-31-03) Last week's comment is quite appropriate for this week as well, nothing has really changed! The markets are bouncing from an oversold level, while all the intermediate term indicators are pointing down. More ominously, the dollar and the equities markets are threatening to complete a head and shoulders formation, with a downside target 8%-10% below current levels. Complicating the situation is geopolitical tensions which can -and will- exaggerate the markets' own gyrations both on the upside and on the downside. So, we'll try to keep it easy! For next week this is what we have:

(1-24-03)All of our  short-term indicators are near levels from where we get 1-3 day bounces. However, all of our intermediate term indicators are not even close to the levels from where we get sustainable rallies. Thus, we must conclude that although we should see another short-term bounce  this week, we are only in the early stages of an intermediate term decline. Consequently, any rally resulting from the current oversold condition should be sold short, not bought into. Having said that, we want to remind you that developments in the geopolitical arena can exaggerate market moves both on the upside and on the downside, thus, be flexible and keep the net percentage of your portfolio -short, or, long- small.  Intermediate term investors should be mostly in cash ( we have  our  own investment/intermediate term accounts under management  nearly 60% in cash, see portfolio holdings)

(1-10-03)All of our indicators are above zero, but close to resistance. At the same time the indices -price wise- are near resistance as well. Given that the indicators are positive, the odds favor further gains. However, since both the indicators, and the indices -price wise- are near resistance, a reversal can take place at any time. Thus, if you are long, keep tight stops under Wednesday's lows.

(1-3-03) The SP came within 4.5 points from the upper end of our downside target, and NASDAQ came within 9 points  from the upper end of our downside target, and then they bounced strongly on Thursday on low volume, with buyers interpreting the ISM report as confirmation that the economy is recovering. So, we would like to elaborate a bit on the report itself.