WED. (9:00am E.T.) 9-29-99

What is far more important -in our view- than bounching from a "support" level like the 200mavg (as the Dow did again yesterday) is if there is any follow thru, and the quality of it. Repeated tests of major "support" levels without follow-thru only increase the probability of eventual breakdown. So, what happens today is far more important than yesterday's late recovery. Our model shows a 57.92% probability of a modest follow-thru.

WED. (9:50am E.T.) 9-29-99

We bought GBLX @26.375 & VERT @35.25

WED. (4:30pm E.T.) 9-29-99

(last update for today) Today's action does not bode well at all. If the market continues on the same note tomorrow, our indicators will turn definetely negative, and we will change our position from "neutral" back to "sell"

TUESDAY (9:00am E.T.) 9-28-99

Our model is neutral to slightly bearish (57.22% probability for decline, 42.78% probability for advance)Thus, a retesting today of last week's lows can't be ruled out.

MONDAY (9:00am E.T.) 9-27-99

As of the market opening we are upgrading our position on the market from "sell" to "neutral"

For Week Ending 9-24-99 Market Update

On 8-3 (see updates below)we said that the "break-out" was more likely a "classic bull trap",on 8-6 we declared than we wouldn't hold any long positions more than three days because many of the readings from our indicators were suggesting a possible transition from a bull to a bear market, and finally on 8-27 we outlined several negatives that "hang" over the market. Has this relentless bull turned into a bear market? We would not declare that yet, however the deterioration at the present time is a lot worse than it was on 8-6!What we find really troublesome, is the fact that the most grossly overbought and overvalued segment of the market (Hi-Tech) is still overbought and overvalued! We would like to pose this question to everyone "If the man-Steve Balmer- who runs the day-to-day operations of the world's largest software company -Microsoft- declares that his OWN company is overvalued, then who knows better? who can valuate Microsoft better than its own C.E.O., and he's saying the company is overvalued!" If this is just a steep correction and the bull is still alive and well, then hi-tech and internet stocks would have to correct for real before any meaningful and sustainable rally begins.(MSFT, INTC and CSCO account for 30% of Nasdaq, the avg. P/E of these three darlings is 60!) We are not "investors" we are "traders" so we do not really care about fundamentals, however we are cognizant of the fact that it is the intermediate and long term investors who fuel sustainable advances by commiting their funds to the market. Traders and speculators can only move the market for a very short period.We can not think of any investor who is sane and risk-averse, who would want to commit his money for the long term on a company that trades currently at 60-80-100 or infinite P/E ratios!

THUR. 9-23-99(10:00am E.T.)

The market won't hold. We're on a "sell" signal. We bought OEX OCT. 665 puts(OEYVM) at 6.5 and NDX OCT. 2400 puts (NDZVT) at 42)

WED 9-22-99(after the close)

The market tried to stabilize today. Tomorrow Thursday our indicators show that the markets should move in excess of 2.0%, however the odds are 50/50 which way it will go. Either way it should be a thrilling ride!

TUESDAY 9-21-99

The SP500 arrested its decline at its 200 day mavg. Although it may try to find some support it seems unlikely. On Friday we said that the rally that begun on Thur. "was not anything important!" and it would continue up to Tuesday. Today was the end of it. Obviously today's action puts on an "unconfirmed" sell signal

MONDAY 9-20-99

We sold IMNX at 52.5, VERT at 38, and we bought an OEX out of the money straddle consisting of the OCT. 725 calls(OEZJE) at 6.875 and the OCT. 685 puts(OEYVQ) at 8.75 for a TOTAL DEBIT of 15.625

For Week Ending 9-17-99 Market Update

Friday's triple witching expiration contributed quite a bit to the volatility we experienced this week. Last Friday we indicated that there was a 50.22% probability that the market will fall fot the first two days and advance the following three. Actually, it fell for 3 1/2 days and it has been in recovery for 1 1/2. We believe the advance will last into next week (the probabilities are 68.23% for sp500/sp100 and 71.87% for Nasdaq.)We would like to wait until Monday before we issue a "short-term buy" signal on the market. It is quite usual for the market to experience an one-day reversal after "triple-witching" expiration. There are several stocks that in the short-term we like much better than the market! We bought VERT and IMNX, and we are planning more buys on Monday if our trading criteria are met. We strongly believe that this rally won't amount to anything more than just another "trading rally" it is not the beggining of anything important!

THUR. 9-16-99

AT 12:00 noon, E.T> with the SP500 at 1300, SP100 at 685 and NASDAQ at 2760 we upgrade our position from "sell" to "neutral"(Our short-term forecasting model indicates a 71.23% probability of re-testing today's lows tomorrow) We also bought (again) IMNX at 46 5/8.

WED. 9-15-99

As we said yesterday, today's decline triggered a "short-term" sell signal according to our indicators.(Click on However, it is our experience that trading signals generated 2-3 days prior to "triple-witching" expiration days, tend to be reversed rather quickly. On another note, we bought IMNX at 49.75 and sold at 51.5.

TUESDAY 9-14-99

Today's and yesterday's action were in line with the prediction we made in our "end of the week market update" on Saturday.However, if the decline continues tomorrow (due to an unfavorable CPI report)it will triger a short-term sell signal.

For Week Ending 9-10-99 Market Update

All week long our short-term forecasting models have been giving us neutral to slightly bullish readings (a probability between 40% to 60% are considered by us as neutral, 40%-50% neutral with bearish bias, and 50%-60% neutral with bullish bias)However, according to our methodology we do not take a trading position one way or another when we have readings like that. For the coming week our model is predicting a)that there is a 50.22% probability that the market will fall the first two days and will turn up again the last three,b)a 46.72% probability that the market will continue to rise the first two days of the week, and it will fall during the last three days, and c) a 3.06% probability that the market will do otherwise. Therefore we do not plan to take any positions on the market ( as a whole) the first two days. Meanwhile there are several stocks we might buy (a complete list will be e-mailed to all of our subscribers as always). On a different note, we will like to mention that 71 out of the 82 high tech stocks and 21 out of the 22 biotech stocks, we follow are giving us unconfirmed "sell signals" which tells us, that another short-term (and maybe intermediate) top is in the works for Nasdaq.

For Week Ending 9-3-99 Market Update

On Wed. we mentioned that the XCI was poised to make new highs,we also mentioned that the probabilities for the SP500/SP100 and Nasdaq to rally into Friday were 71.43% and 76.89% respectively (although with a rather limited upside target,further more, on Thursday, in our "end of the day" update we mentioned that our indicators showed several divergences with bullish implications. Specifically we were reffering to our proprietary options pricing valuation model. Our model -near the close on Thur.- indicated that OEX puts (which indicate bearish sentiment- were selling on an average of 2 1/2 times above their intrinsic value, in addition, the premium on puts was -on the average- twice as much than the premium on equally out of the money calls. Over the past 10 years, every time we have gotten these readings a sharp rally has taken place. However, only 58% of the time the rally was the beginning of a prolonged advance in the market. 42% of the time the rally served the purpose of washing out and capitulating the negative sentiment, and then a more severe decline followed. Our intermediate forecasting model still shows neutral readings, which indicates that we are still in a trading range. The fact that the rally on Friday started at he middle of the range may mean that it only has another 2-3% on the upside. However, the internals of the market on Friday were the best since October of 1998, which should not be taken litely. Given, that the uncertainties we mentioned last week are still with us, we felt that waiting one more day to gauge the market won't hurt.Patience and prudence never result in losses! In addition, even if we don't buy the market as a whole thru the RYDEX funds, we would buy a few select stocks (a list of which will be e-mailed to our subscribers )Conclusion: How the market acts on Tuesday will be more telling of its future direction. The current probabilities for continuation of the rally are 66.12% for Sp500/SP100 and 69.76% for Nasdaq.

THUR. 9-2-99

6:30 A.M. E.T., Today's decline should not be a surprise! Friday in our "end of the week" update we said that the "final word is not in yet", and on Wed. we said that our price model shows only a 30.11% probability that yesterday's rally will exceed 2.5%! If this leg of the decline is not interupted tomorrow, the Dow has support at 10335, the SP500 at 1270, the SP100 at 660, and the NASDAQ at 2600. If we get to these levels then the probability for a tradable rally will exceed 90%. Right now we are 100% in cash.(this morning all markets "gapped down" which means it is likely that sometime today the markets may rally back up to yesterday's levels to close the gap, but then they will probably turn down again, today is a good day to just watch the show instead of being in it!) (For THUR. 9-1-99, second update-end of the day) The high-techs held up rather well.Inded the XCI closed at 1080.9 only 8pts below its previous high of 1088.9! However, if the decline continues into tomorrow and next week the high tech and the internet stocks will also feel the heat. Our indicators are showing several divergences (with bullish implications).Our price model indicates a 58.43% probability for the SP500/SP100 and 48.63% probability for NASDAQ that the decline will continue.(We would hope that it does, because it will provide us with a low risk entry point)As of today's close,we remain short and intermediate term neutral.

WED. 9-1-99

There is a 71.43% probability for the SP500/SP100 and 76.89% for the NASDAQ that they will rally into Friday with the XCI making a new high. However, our pricing model also indicates only a 30.11% probability that the rally in the SP500/SP100 and NASDAQ will exceed 2.5%. Therefore , we are upgading our short-term market outlook to "NEUTRAL"

TUE. 8-31-99

As we said yesterday, today we closed the OEX SEP. 730 PUTS (OEZUF) at 40 1/2. Tomorrow, in all likelihood we will upgrade our short-term market position from "trading-sell" to "neutral" (our intermediate-term position is also neutral)

MON. 8-30-99

The OEX SEP. 730 PUTS(OEZUF) closed at 35, we will probably close the position tomorrow, nevertheless we moved our "sell stop" to 32. There is a 64.63% probability that the OEX will find support at 689 and it will reverse course, if it goes thru the next support level is around the 660-665 level.

FOR WEEK ENDING 8-27-99

Since The early part of June the market has been confined in a trading range (1285 to 1420 for the SP500 and 2415 to 2865 for the Nasdaq) In the early part of June the market declined because supposedly "investors" were afraid of a rate hike. Then the Fed did hike rates -while proclaiming to have adopted a "neutral bias"- and jubilant "investors" pushed the market to the upper ceiling of the range. Then the same "investors" started to worry about another rate hike, and the market declined. The Fed raised rates again-while proclaiming to have adopted a "neutral bias!" and jubilant "investors" drove the market up again! Let's examine the facts pragmatically, critically and un-emotionally. A)the Fed does want a slower economy. b)a slower economy should mean lower corporate profits, (the Commerce Dept. on Thur. reported a decrease of 11B in corporate profits for the 2nd Q) c)if the economy does not slow down then another rate hike is in the horizon d)the growth of our economy is fueled by consumer confidence and heavy spending, both of which are fueled by rising stock prices!, e)consequently, the economy can not possibly slow down with the equity markets rising at the rate they have been. (the Dow is up 22% this year)This is not lost with the Fed. In fact, the Fed. Chairman on Friday specifically mentioned that equity prices must be taken into consideration when interest rate policy is debated by the Federal Reserve Governors. Which means, they are well aware of the fact that in order to slow down the economy they have to slow down the stock market.The Fed's own equity valuation model shows the market to be overvalued by 42%! In conclusion, what looms ahead is either slower economy and lower corporate profits, or higher rates. Conventional wisdom dictates that neither of these two scenarios can be very friendly for the market. However, the market has defied conventional wisdom, and who's to say it won't do it again. However, this uncertainty has not been lost among astute professional investors who have pulled out of the market since the beginning of the summer and have remained on the side lines until the picture becomes more clear. This is evidenced by the decrease in trading volume over the past 6 weeks. We too have remained non-commital and neutral since 6-28-99. We concluded in June, that given the substantial gains we have in our portfolios, the wise and responsible thing to do, would be, to move out of the market and wait until the picture becane more clear, in the mean time we would use 20%-30% of our capital for individual trades on some stocks and options, this investment policy/directive still remains in effect. We do believe that the probability of another 15%-20% advance over the next 6-8 weeks is unlikely, on the other hand a much better buying opportunity( for the market as a whole) in the September- October time frame is rather likely. All the above is supported by our quantitative models as well. Our intermediate forecasting model -since June- has been indicating no substantial change in price levels, while our short-term forecasting models have been forecasting frequent changes in direction (if you read our updates, we have been forecasting the daily flactuation of the markets with an accuracy of roughly 90%) When the intermediate -term model indicates no substantial change, while the short-term model indicates high daily volatility, it means we are in a range-which according to our methodology- requires us to maintain an intermediate neutral stance. In conclusion, we feel that the picture is not clear enough for investors to be commiting 100% of their capital. Investors with substantial gains to protect, will be better off commiting only 20%-30% of their capital on some short-term trades, while waiting for a more clear picture to emerge, and a posibly much better risk/reward ratio sometime within the next 6-8 weeks. The final word is not in yet.
On a different note we would like to make another comment. Microsoft rallied 8.75 pts in two days, after an announcement that a Federal appeals panel threw out a preliminary injuction that prevented Microsoft from shipping its own favored version of Java. However, more importantly, the same panel ruled that Sun Microsystems is likely to win its underlying case against Microsoft!, furthermore Microsoft itself has announced that it does not plan to return to distributing just its own version as a result of the rulling! Why did "investors" cheered on Microsoft on a ruling that clearly stated more likely the company is going to lose its court case?! So, much for common sense. How many astute investors do you think bought the stock as a result of this ruling?
On another note, the OEX SEP. 730 puts (OEZUF) closed on Friday at 21.75, so, we moved our "sell stop" to 19.5 There is a 52.81% probability for the SP500/SP100 and a 54.76% probability for NASDAQ that they will reverse course on Monday.
If you have any comments of your own, or questions please e-mail us.

In

FOR THUR. 8-26-99

Like we mentioned yesterday, as of today's opening we are on a "trading sell" signal. We bought OEX SEP 730 PUTS at 16 (they close at 19 1/8, we have placed a "trailing" "sell stop" at 17 1/2) There is a 38.65% probability for the SP500, SP100 and a 46.87% probability for NASDAQ, that they will rebound tomorrow with a small follow thru on Monday. If that happens we will get "stopped out" of our OEX puts with a small profit, and we will re-establish our position at a higher level.

FOR WED. 8-25-99

Within the next 2-3 trading days we expect to issue a "trading sell" signal accompanied with the purchase of puts in OEX, XMI, and NDX.

FOR WEEK ENDING 8-20-99

In last Friday's commentary we forecasted that the market will retreat early this week and basically it will go nowhere fast. With today's closing, the week to week gain for the Dow was 1.16%, for the SP500 .7%, and for the NASDAQ .4%, basically nothing to write home about! Our short-term forecasting model for the next 3-5 days, indicates the following: a 61.10% probability for an advance in excess of 2.5%, a 32.40% probability for a decline in excess of 2.5% and a 6.5% probability that the market will remain within a plus or minus 1.0% of today's price levels.(Our model assumptions include a rate increase of .25%) Based upon these probabilities, our position remains neutral. However, we do expect a change in our outlook once the FED's bias becomes known on Tuesday. A rate increase is already priced into the market, it is the future bias of the FED that will make a difference.

MONDAY 8-16-99

Today we closed our last three open positions(TEVIY @49, NETM @2 6/16 and TMAR @8 1/4) and we are 100% in cash.
For week ending 8-13-99
The market opened sharply higher(100+ pts on the Dow, 40+ pts on the NASDAQ) then it traded in its upper range for all day and then finished on a high and happy note! What does that mean for individual stocks? Well, just look at the table below. These stocks represent just an example, you can check any stock, and you will pretty much see a similar pattern.
We start with yesterday's closing price, todays's opening price, the trading range thru-out the day ,the avg. price in the trading range that investors were paying to buy the stock, the closing price, and the difference betwen the closing price and the avg. price in the  trading range.

At the end of the day if you bought into this rally you have miniscule profits( and if you bought at the top of the range you probably lost a little!) even though the Dow was up 180 pts. and NASDAQ was up 82 pts.! What happened? NYSE specialists and NASD dealers opened up stock prices sharply higher creating artificial demand in order to unload to the public stock they accumulated for their accounts on Tue. and Wed. Please note that during the first 5 minutes of trading-when the Dow opened 100 pts. up, and the NASADQ 40 pts up,the volume on both exchanges was under 10m shares, which means there was no extrordinary demand on behalf of investors driving prices up! NYSE specialists and NASD dealers were opening prices sharply up in order to create demand!This was not a rally for the average investor to make money, this was a rally for NYSE specialists and NASDAQ dealers to make money. If you bought today, you're left with a few pennies profit,(if you were lucky) hoping that Monday the market continues to advance!Professional traders do not trade on hope, they trade on science and experience. Today we had a "price driven demand" market, professional traders buy into "demand driven price" markets. So, what's next? More likely we'll have an increase in volatility over the next 5-10 trading days. Now that exchange insiders have unloaded their inventory, we got to see if real demand comes in next week. More likely, we will retreat early next week and we will attempt to rally again later on.