Charts:    Last week the markets continued their  erratic behavior frustrating both the bears and the bulls. They did not break support, and they neither broke thru resistance, they simply gyrated between support and resistance while maintaining the short term uptrend. Both the charts and the indicators are illustrating that the markets are in the process of either completing another top, or, they are in the middle of a bullish consolidation which should be completed shortly. We strongly suggest you write down the support and resistance levels we mentioned on page 1 and 2, and keep them handy. Without doubt the past 15 trading days have been rather frustrating and dramatic. Dramatic in terms of the magnitude of the moves, frustrating in terms of the market's inability to move in the same direction more than two consecutive days. Such action is usually seen prior to turning points, and we are strongly convinced that the current situation is no exception. Turning points can be for the better, or, for the worse, at the moment the odds are almost even. However, since the quantifiers are  below zero the bias is slightly negative. We believe that traders/investors should be prepared for either scenario by having a strategic plan with regards to what they will buy long, if the resolution is on the upside, and what they will sell short, if the resolution is on the downside. Those who do not wish to sell short, they should review their current holdings and  determine  which stocks are showing poor relative strength and stand to lose the most value in the case of a decline. These stocks should have tight stops, therefore they will be quickly liquidated before they cause devastating  losses. For next week we  have the following support and resistance levels that we need to watch carefully. 

SPDRs/Sectors:   The XAU was again the best performing sector, while the Semis had the honor of being the worst. The weakness in the Semis is something investors/traders  need to pay attention to. As goes the SOX Index, so goes the NASDAQ. We suggest investors place the SOX index in their "Watch List" and monitor it carefully in the next few trading days. 

Charts:    From a short-term point of view, the market looks promising. By all accounts they have had a respectable week. They appear to be consolidating in a "bullish manner" without violating support. Remarkably, even the 21 day moving average held on the hourly charts. In a vacuum, if one wanted to find reasons to be bullish, last week gave plenty to be optimistic about a  bullish resolution of this week's consolidation,  going into next week.  However, we also need to be cognizant of the fact that we are still in a bear market as demonstrated  by the charts for all major indices. Heck, they are still  below their 200 day  moving average, and the averages themselves are still declining. In that context we ought to be cautious. Bear market rallies are the best looking ones, because their job is to convince us that they are the real thing, when in fact  they are not! We do not believe long-term investors have any business being long the market, yet. However, short and intermediate term traders, could very well benefit from a a continuation of the current advance. We want to see  the markets either pulling back and filing the open gaps from last Tuesday, as we pointed out on Thursday (see charts below)  or, an outright break-out of the resistance levels shown on the charts. If  the markets just  continue marginally higher over the next 2-3 days, we will seize to be optimistic about the short-term prospects of the market.

Charts:    

Given the increased volatility that we experienced the past week, it is important that we stay focused on what the indicators are telling us. Without any exception, they all point out to an acceleration of the current decline. Are lower prices a certainty? Of course not. Nothing is certain about the market. We are dealing with odds, and the oddsfavor lower prices going forward. How much lower? Our target for NASDAQ is 1490-1510, and for the SP500 1020-990.  We have said for the past five-six  weeks that risk-averse investors ought to be either in cash, or, in hedged positions,   we have seen no evidence to make us change our position. What will it take to indicate a turn for the better? A close above Wednesday's highs.

SPDRs/Sectors:   Pay attention to gold stocks, the XAU gives the appearance of an Index that is about to go vertical.

Charts:    For the past three weeks we have repeatedly advocated that risk averse investors should be in cash, or, in hedged positions, and under no circumstances they should be net long. (See  portfolio holdings, which show how our managed accounts have fared so far this year, for a full appreciation of following a strategy focused on "risk aversion") Last week's events underscore our convictions. Two weeks ago we put up the three charts below and we noted that scenarios #2 and #3 were the most likely.

  For this coming week, all the charts show that the markets are at critical support levels, but  the technical indicators we follow show that there is more room on the downside.  Thus, in the absence of external events that push the markets over the cliff, we see two possible scenarios for next week: 

 A) A sharp decline on Monday down to the 9500 level for the Dow, the 1145 level for the SP500, and the 1600-1620 for NASDAQ, followed by a tradeable rally lasting thru-out the week. B) An immediate bounce on Monday, which will not last more than a couple of days. We would like to reiterate what we said on Thursday: 

 "Risk averse investors should be concerned with whether market conditions are positive, or negative, they should not be concerned with "bottom fishing." Trying to pick the "bottom" by judging how negative things are, is the wrong approach in a bear market. Things can always get worse in a bear market. The notion that "things are so bad, they can't get any worse" is silly, and it is advocated by those who have no appreciation, or, clear understanding of market risk. As long as, the trend indicators are declining, the quantifiers are in negative territory, and the BSEs are also in negative territory, the market conditions are unfavorable. "

Charts:    All the indicators are in near neutral territory, while the charts indicate that all major indexes are right below the support level they violated two weeks ago, and now they are trying to overcome. Given that virtually every indicator is near the zero line (neutral reading) it is nearly impossible to make any inferences -based on quantitative analysis-  with regards to the short-term move of the major indexes. The odds are nearly even, therefore, Investors ought to have different plans in place, in order to be able to take advantage of whatever scenario unfolds in the coming days.  

SPDRs/Sectors:    The gold stocks performed rather well last week, however, we want to point out again, that if the XAU, or the HUI, fail to make new highs this week, it may be time to take some chips off the table, by reducing exposure to gold stocks by 30% to 50%.

Charts:   The markets are at a critical juncture as we clearly demonstrated in great detail on page 1. They're at the point where, either the bullish trend will re-assert itself, or, the bearish trend will take over. Our forecasting models (see market timing) continue to give equal odds to both outcomes (assuming we take out of the equation event risk) However, what makes the situation really complicated is the situation in the Middle East. Positive developments on that front, will help the markets immensely, and can provide the catalyst for the bullish trend to re-establish itself. Obviously, negative developments will have the opposite impact. It is impossible to predict what may happen in the Middle East, and thus it is impossible to forecast  with any degree of certainty, the market's outcome. There is a time to be in the market, and there is a time to be out. We strongly believe that risk averse investors should be either in cash, or, in fully hedged positions, until the  current uncertainties surrounding the market clear up.

SPDRs/Sectors:   Internet and Telecom stocks were the worst performers of the week. We believe  that they should be shorted in any bounce.