GONE FISHING

The only post of the day as the GONE FISHING sign is back on the door. Be careful out there as trading is bound to be light and some may want to push around the futures as SPX 1280 lurks. RUNNING STOPS TO FAKE YOU OUT.

THE CLOSE

The day wraps up on the highs and the big winners are the usual the suspects, the Oils and the Metals. One good thing is we won't be hearing much more about Enron as the boys will no doubt be going to the pokey for a long long time and I for one am glad about the verdict.

The big clue of the day was the market internals. They spent much of the day over 2k to the green and closed at the highs with over 3,000 more winners than losers. The SMH did not act well and that is a little hiccup for the bulls, but there is always something. GS got jiggy in the last 30 minutes and that is a feather in their cap.

The Volatility indexes cratered so hopefully we begin the big drip lower, and the drip higher for the equity markets.

THE TRADER TAKE

There are lots of folks expecting this market to be sold at the SPX 1280 area and my take is that I will follow the signals. The VIX VXO tandem is now trading nearly 4% below their respective 10 day SMA's and the 2 day RSI of the SPY is back to 80, so a sell signal is not far away.

However, with all those folks looking to fade the 1280 area, is there a chance that some good news appears and the market rips higher and the new shorts all have to cover at once. Just thinking, but I have seen it before from the wrong side. And looking at the chart, I am not sure I understand what is so special about the 1280 area.

SUMMERTIME FUN

Revshark with some talk this afternoon about why he thinks the markets have gone steadily down over the past few weeks. He may be correct:

"About two weeks ago, the major suppliers of earnings estimate data started adjusting their numbers to reflect stock-option expenses. If you have read any earnings reports recently, you know that it is now a requirement that option expenses be accounted for each quarter.
The numbers are not insubstantial. For example, Broadcom (BRCM:Nasdaq) had earnings estimates of $1.47 per share for 2006 and $1.66 for 2007 before option expenses. Reuters and First Call are now including option costs that reduced the estimates for BRCM to 90 cents for 2006 and $1.12 for 2007. There are plenty of other examples of companies where estimates have been similarly reduced. Is it just a coincidence that this change in earnings estimates started to appear right as the market began to break down? I'm not sure there is a direct cause-and-effect relationship, but I would hypothesize that this has helped keep buyers on the sidelines."


And one more quote from the realmoney.com folks. Any guesses as to who penned this gem as the markets closed on Tuesday afternoon as the markets made their bird flu bottom? Yes, correct, Jimmy Cramer wrote this a little after 4:00 eastern time as the markets cratered on the news of the birds in Indonesia. As I have said a few time, you can't make this stuff up.


"Worst of all possible worlds: an afternoon fade out! Oh my, that means we are back to being the worst market in the world!

I kid you not. That's what the U.S. is. We are the place that simply doesn't work. Our tech stocks are awful. Our mineral stocks are second-rate compared to those of Australia and Latin America and Canada. Our drug companies are doing worse than the European drug companies. Our banks can't rate versus theirs. Even our telcos are worse than theirs."

VERDICT GUILTY

The dips are bought and the markets are near the highs of the day and unfortunately for the ENRON crowd, they are not exactly enjoying the rip higher. Oils and Metals are the leaders with the Small guys beating out the large caps. Tradesports.com had the boys at about 70% guilty so that was a good bet. Of course the same betting site has the yankees as the ultimate world series winner this year and I know that isn't going to happen with that collection of hurlers.

I am expecting the markets to go higher off this news, not that it really means anything. Its all psychological as "we got the bad guys." Next up, backdating options and if you think that isn't a problem going forward, well I have some Vonage shares for you.

STAY FOCUSED

My computer problems are keeping me from staying on top of the trading game, and if I would have just looked I would have seen that the SPY opened at the first resistance level of 127 and it was bound to be sold. The Pivot Point for the day is 126 and the support level is 125.

How about that Vonage as it drips down another 14%, talk about customer relationships, yikes. The company says they may never be profitable. Tell me this, why do I want to own a company where management says they may never be profitable? And as a general rule company managements are not that bearish (lol).

The QQQQ and the SMH continue to drip lower but I think they may be setting up for another buy so I am gonna try to put on my trading hat as the internals hold in fairly solidly.

OPENING LOOK

The markets are higher this morning with SPY up .6%, QQQQ +.75% and of course the big winner, yes, IWM +1.4%. I guess the IWM has been underperforming as the markets were going down so it is time for it to outperform as it goes up. My theory is that SPY will outperform if the markets go lower and will underperform if the markets go higher.

The sectors outperforming today are the Small Caps, Metals, Oils and Internets. The market internals show about 3k more winners than losers and if you are nervous that the markets will give up these gains, focus on the recent tells, internals, QQQQ and SMH. Those will give up the gains first.

THE BIRDFLU BOTTOM

The birdflu bottom on Tuesday afternoon (SPY UNDER 125) is looking pretty good this morning as the futures rip higher by 7 points yielding a 20 plus SP point gain for the fearless buyers.

Also note the higher prices this morning for YHOO and EBAY which is helping the HHH move higher by 2%. Just wondering if that ETF can go from almost last to almost first.

ONE OTHER THING

That is one ugly looking chart but if you look real close, maybe real real close, you will see that the SPY closed today at the same level it closed at last Thursday. So with all the talk about way oversold etc., it has flatlined over the last four days on a closing basis. The swings have been erratic to say the least but it does seem like we have stabilized even though it may not feel like it.

Revshark on realmoney.com offers this prescient observation:

"Although the indices closed only slightly positive, it was a productive day. We came back from a midday dip, and actually managed to close not too far off the highs of the day.

Interestingly, volume was the highest of the year, and there was record trading in the Nasdaq 100 Trust (QQQQ:Nasdaq). That isn't a bad pattern for a decent bounce, because the volume indicates a very high level of emotion among market players.

Breadth was still quite negative, and it is obvious that many market participants are feeling shell-shocked after the damage they have suffered recently. So it is going to take more than just a mildly positive finish to suck in some bargain-hunters.

Keep in mind that the market is close to being at a record-oversold level. What is truly spectacular is how we went from hitting new highs a couple of weeks ago to a big pullback in such a short space of time. I have never seen the number of stocks that are above their 40-day moving averages drop so quickly, and that increases the chance of a reflexive bounce.

It is particularly important that you be very clear about time frames in a market like this. Don't let attempts at catching a quick bounce turn into a long-term investment. Make sure your trades stay trades, and that if they don't work, you exit quickly and take your losses.

The big picture is quite ugly, but that doesn't mean we can't find some trades. Just make sure you stay very patient when it comes to building longer-term positions. There is nothing to indicate that the market is likely to do anything but produce an oversold bounce of limited duration."

My comments on the above are that every trader is no doubt looking to short any "decent" bounce. So I am just wondering how that trade will pan out? Just food for thought.

BOOYAH JIM

It looks like a flat close on the SPX and the DJIA but a higher one on the NAZ with the internals red (more than 700 losers than winners). So it looks like stabilization is the name of the game today and I think that is a good thing. Hopefully no one got in on the Vonage IPO as it closed down about 12% from its IPO price. Why someone wants to buy a company with diminishing margins, high marketing costs and tons of competition is well I guess to each their own.

Back to Jimmy, he recommended CVX on TV and COP on his site and I agree. However, I think the way to play is with the XLE ETF. The major components of XLE are:

XOM CVX COP SLB HAL RIG OXY

I think that is a good group to hold for a long time or a spike up in the price of oil due to some unforeseen event.

STOP TRADING NOW

Jimmy is bullish on CVX since every one hates it even with the big stock buyback and the big dividend. Can't disagree. I wish someone would ask Jimmy about the new bull market which he said began on March 17 when the SPY closed at 130.62 after moving up from the bottom in 2002 at 80, yes 80. Since Jim's big bull market began we are down about 50 SPX points. Wonder what happens when he proclaims the dawn of a new bear market? My guess, a home run on the long side (lol).

Sectors doing well today include the bonds, as the 10 year is back down to 5.03%, the homies, the internets led by YHOO, and the semis. My feeling is that when the market bounces, and I am convinced that one day it will bounce, it may be led by the internets who have taken a drubbing this year. The metals are getting crushed by about 4.5% today and our old favorite JOYG is in the green so something might be brewing in that space.

THOUGHTS

Watching this action today, I wonder how many traders are thinking "I know if I short here, it will just rip higher, and if I go long , I know its gonna crash." So what to do, I would scale, as it looks like the triple bottom is now set.

It is certaintly volatile action if not bizarre, and my gut tells me there is opportunity. We are sitting just under the 200 day SMA and it just feels like something is gonna happen to launch us .

The market internals are 2,500 to the red and I wonder what Jimmy will talk about on his STOP TRADING spot. Only money making stuff I bet.

For what it is worth, the broker index XBD is now down 20% from its high. I guess the brokers are in official bear market territory.

RADAR SCREEN

The markets continue to gyrate and frustrate any day trading trend trader today. Captain Charles Kirk has an interesting take and is definitely worth a read.

I just wanted to put this out there and where the heck has the plunge protection team gone? Did they leave town with the ex fed head?

TELLING DAY?

The market internals have flipped to flat and the QQQQ/SMH duo are starting to lose their jig. Is this an instant replay of yesterday's action?

This is a key day in my opinion because if the markets don't hold here it could be ugly going forward as folks will really start to have a lack of confidence in the markets and Big Ben.

If they hold here and start going higher it could have the opposite effect.

SMH/QQQQ

The markets are up and running and unfortunately I have some technical issues so pictures and posts will be limited today.

The market internals are showing 1,500 to the red and on the brighter end of things the SMH and the QQQQ are outperforming (for now). So maybe, just maybe, we get the rally today with a double bottom in and a lift over the 200 day SMA to stay.

If any one is interested, the SPX is now trading at a bit over 14x 2006 estimated earnings of $85, so the market is not expensive, unless of course the earnings start tanking or if something bad happens. Of course the yield is still under 2% so maybe the earnings are not quite what they tell us.

UPDATE

Its 3:00 AM in the east and the SPX futures are higher by 5.5 points. A little different from the 4:30 PM update yesterday afternoon when the futures were tanking on the "bird flu" news. Did not make any sense then and this will not make any sense this afternoon when I am sure this "preopen gap" gets sold down (lol). Well maybe not.

Above is a chart of the SP 500 stocks trading under their 50 day SMA. Most folks go to Worden and use their 40 day SMA chart and convert it to a percentage basis but its all the same as long as its consistent.

Bottom line is that it is way oversold, oops way way oversold and due for a bounce. I am actually thinking that this bird flu thing yesterday afternoon was the final bit of news to get the rally going. A double bottom may be in and finally a lasting rally as all the traders/investors who bought yesterday threw in the towel during the afternoon selloff. One can only hope. Oh and did I also mention that maybe Jimmy might have bottom ticked it with his call about lousy American companies. Has he not been looking at the overseas market? What a joker.

BREAK IN

OK, the markets tanked this afternoon and are tanking after hours on a Bloomberg report of "a possible human to human transmission of the bird flu virus in Indonesia."

Not sure I want to short the market after this news.

DIP CONTINUES

I just dipped in and bought some SPY on the post market close selloff in the 125 area. We are now a bit below the 200 day SMA and yes believe it or not we are oversold, way way oversold.

I also asked around if anyone saw any reason why we were selling off after the close and I got the shrug of no clue.

Why are the U.S. markets so bad lately? Jim Cramer thinks he has the answer with this gem:

"We are the place that simply doesn't work. Our tech stocks are awful. Our mineral stocks are second-rate compared to those of Australia and Latin America and Canada. Our drug companies are doing worse than the European drug companies. Our banks can't rate versus theirs. Even our telcos are worse than theirs."

I think he is wrong, and I continue to believe that the markets act poorly because of a lack of faith in Helicopter Ben. I just wonder how long we will have to wait before Jimmy tells us "you can't trust emerging markets." And how about Jim's strategy of scaling into and out of trades. Just sheer brilliance.

NO BOUNCE

I guess if Dylan and the ladies focus on the DJIA the market is barely lower. Of course if one looks deeper one sees SMH (-2%), QQQQ -(1%), IWM (-.7%), SPY (-.4%), Biotechs red, GS red, and the internals 700 to the red. This is a very disappointing day for the bulls in light of the earlier rip higher. The oils are green but they were a heck of a lot more green earlier in the day.

I just wonder how much of the overall sell off in the equity markets is attributable to a lack of confidence in Big Ben as we again close on the lows.

One of the problems is everyone is excited about the easy trade of buying this "way oversold" market. Well they keep trying and again it becomes more oversold. The good news is that we are back at the SPX 200 day SMA-; so now the question becomes, Is a double bottom in?

RED?

I get back from a little road trip and low and behold the Semis are red, the QQQQ is barely green and much of the morning gains are gone. Whose idea was it to sell the morning strength and are we now setting up for the double bottom?

The market internals appear to have made a round trip as they are now 800 to the green way down from the morning rip. I thought it odd this morning that GS wasn't participating and I decided so sit on my hands and wait it out.

The bottom line is todays rally is none too impressive and many folks who jumped in this morning are having second thoughts. I think this trade was the easy one that didn't work and now the question is what next. I note the Volatility Indexes are all back down 10% or so and they are slowly but surely working off their overbought scenario.

I am going to continue to sit on my hands and all those chattering about looking for new leadership, well its not coming from tech its coming Gold/Commodities/Oil. That also is not going to make a lot of folks happy. Then again the markets rarely make everyone happy at once.

DONE ?

It is interesting just listening to Mark Haines, and now he tells us that the DJIA isn't telling us how strong the market really is in light of strong market internals. Hey Mark, how come when the internals are weak and the DJIA is strong you never mention it? So much for bubblevision anchors.

The market internals are a nicely bullish 2,600 to the green which is nice, but don't forget that during the big downdrafts last week there were 4,000 more losers than winners. Just adding a little perspective.


Anyhow, check this out, the SPY is +1.05%, QQQQ+.92% and IWM +1.36%. So of course the small caps are outperforming once again. My bet and you will never hear it on tv is that IWM outperforms on the way up and SPY does less worse on the way down.

The winners this morning are the techs, brokers, oils and metals; the underperformer is the DRG group. Another question- Is it a coincidence that the commodities are up and the markets are up. Don't the talking heads (Pisani) get confounded when the commodities trade lower and the equity markets also trade lower. When will they realize that generally when the oils/metals/commodities do well, equity markets also do well.

DIVERGENCES?

Everyone and I mean everyone is looking for a bounce off the "way oversold" levels and it looks like this morning the rally is actually appearing.

What am I going to do? Well my guess is that the first rally will be sold and then it will probably be time to cherry pick. If we rally this morning and then come back down and retest later in the week, we will then have the positive divergence we have been looking for as the indexes will be at their lows and the momentum indicators will be at higher lows. That is how Positive Divergences appear and what true technical traders try to find.

And of course more chatter about a switch to big cap stocks is upon us, at least that is what every bubblevision guest tells us except Bernie Schaeffer. Is there any chance that most of the bubble guests sell large cap stocks as their brokerage staple?

EVER ANY DOUBT?

In the category of "I KNEW IT WOULD HAPPEN" here is Jimmy's latest take on the commodity/metals trade titled "EXIT COMMODITIES ON TRADEABLE RALLY":


If you want to see an exercise in what is going on, hit up some six-month charts on all the commodity names. They all manifest this gently rising slope and then, sometime in the March-April timeframe, they take off on parabolic moves.

Now, those parabolic moves are all obliterated. On every one of these. So now the question becomes: Can they hold the levels they were at before they went parabolic?

History does not look good for these. Very few times have I seen a parabolic move be met with a stabilization back to where the parabola began. Too many people got in higher for me to think that the bottom is now at hand.

What could be at hand, though is a tradeable rally from that parabola's launch.
That could be your chance to get out. It will look very tempting: "The selling's over, the selling's over!"

It will be false, if history dictates.

I think that you now need to sit tight if you are in these stocks and get ready to let some of them go when I suspect they lift Tuesday. I think that Europe and Asia rally and you get a nice bounce, but I think you need to skedaddle from most commodity names on this bounce.
They may just be finished for now. Too much bad money, too much lost money, to rally convincingly back to those levels. "

But then of course back at the top in April he wrote the article called "THE TEN STRONGEST BULL MARKETS" where he said:

"Looking for the bull markets? Let's just recount the strongest so you know where the hunting is best.

1. Gold, plain and simple. Cheapest: still Goldcorp (GG:NYSE) . Most speculative with biggest payoff: Crystallex (KRY:Amex) -- yeah, it's in bed with Chavez, but he needs to put people to work and gold mines do it better than anyone else. Worst: Newmont (NEM:NYSE) . It's running out of gold and seeing higher finding costs, but you know what? It's the worst house in a great neighborhood.

2. Minerals. Go for the supermarkets: BHP Billiton (BHP:NYSE) and Rio Tinto (RTP:NYSE) . Those are still good. I have sold some BHP from Action Alerts PLUS, felt like a pig. Don't forget copper, where I just sold some Southern Copper (PCU:NYSE) 'cause I couldn't take the vertigo. I would get back in it down $10. Aluminum: Alcan (AL:NYSE) . Nickel: Inco (N:NYSE) . Don't outthink this stuff; go for the branded products. You can go down to Northgate (NXG:NYSE) , but it is a stretch to me."

Yes, I know, you can't make this stuff up. Is there any chance he will want to get you back in higher?

TURNAROUND MONDAY? NO

The markets tried to rally in the last hour but again the sellers overwhelmed the dippers and back down we went. Yes, the OIH took off from where I shorted it this morning but if you want volatility that is one place to find it.

The internals never came around as there were almost 2,200 more losers than winners (generally the best tell) and I love the CNBC commentary as they find the bright side of anything. It is interesting how they now declare victory when the markets are higher than they were earlier in the day.

We also have some news out of one of the more famous fed heads as revshark of realmoney.com fame notes:

"This time it's Dallas Fed President Richard Fisher who says inflation is too high for his comfort, and that there is a lot to learn form the data that will be released prior to the next Fed meeting.

Keep in mind that this is the same guy who almost exactly a year ago said we are "clearly in the eighth inning of a tightening cycle. We have the ninth inning coming up at the end of June." Unfortunately that was June 2005. Fisher also said last year, "(It) may go into extra innings." So I guess we are in about the 18th inning now.

I can't help but wonder why the Fed doesn't have some sort of policy restricting those comments. If the Fed members want to confuse people into thinking they are doing a good job, wouldn't it be helpful to speak with a single voice rather than constantly make conflicting and confusing statements? "


I do wonder if the markets would be selling off this hard if Greenspan were still the top fed head, not that it matters.

TRUST

The markets seem to be getting a 2:00 jig as the SPX is lower by 5 after being lower earlier today by 13. I caution though that the market internals have yet to confirm as there are still 2,700 more losers than winners.


The 200 day SMA of the SPX is still in play as the markets continue to bounce off that level. The old saying the more times it gets tested the greater the probability of it being broken is clearly on every traders radar and we wait and we watch.

The NAZ COMP is still down over 1% and until we see that one get off the mat we are not going to see a meaningful rally.

THE ODDS ARE?

Since I am doing very little today, I thought it would be an interesting time to look at some of the upcoming odds of future events based on tradesports.com:

How about this, Jeff and Kenny at 75% probability of conviction on at least 16 charges for Jeff and 4 for Ken. I think most of Wall Street would not be unhappy to see those numbers come to fruition.

Hillary still at 45% probability of winning Dem nomination and Dem is at 48% chance of victory in 2008.

McCain is at 38% chance of nomination and Rep candidate is at 49% probability of 2008 victory.

The GOP is down to 46% chance of maintaining majority in House in 2006 elections. What ever happened to I hate all of congress except my congress person?

The Pistons are 47% probability of being NBA champs. That may be one to fade.

The Yankees and the White Sox are World Series favorites. Yanks definitely a fade.

There is currently no contract for hurricanes although I think all the chatter about big hurricane season starting today is a fade.

And just like last year, the Colts and the Pats are the favs for Feb 07 Super Bowl.

NOON LOOK

The markets continue to trade at the lows of the day and our pal at realmoney.com, Jim Cramer, seems as gloomy as ever. Hey Jim, What happened to the new Bull Market?

The 200 day SMA continues to be a battleground and every time the market goes to it - it bounces right back- temporarily.

As I said this morning, I am sitting this action out as I wait for either stabilization, to buy a big whoosh down, or short on a nice bounce above the 200 SMA.

The market internals are still ugly at 2,800 more losers than winners and the brokers/ techs continue to trade poorly. I was hoping for a turnaround in the brokers but so far its not happening. GS, our guys favorite broker, has gone straight down from 170 to the 145 area and that was because it was cheap at 170. And when do I get my $600 on GOOG.

TO THE POINT

I didn't mention the Pivot Points this morning but the SPY pivot support is 126.1 and the pivot point is 126.8. I bring it up because the SPY bounced right at support this morning. The 200 day SMA is under the 126 level at around 125.8 so interesting watching for now. My strategy is going to be to sell any bounce that over the 200 day SMA and go from there.

UGLIER

The markets have opened and it gets uglier as I watch. The Oils, metals, brokers and Small Caps are being hit the hardest, with the banks and consumer stocks/drugs being the only green.

Market internals are very ugly with about 3,000 more losers than winners and the Volatility indexes are again ramping higher with the VIX and VXO both higher by about 9%. Seems as they make new highs every day and the low volatility days may be over for a while.

I am sitting and watching and have no plan to buy the dip this morning although I have sold short some OIH against my short puts and long oil stocks.

BACK TO IT

Back at it this morning, yes, looks like the SPX 200 day SMA is right back in play this morning as the futures look to open substantially lower (-5 as I type).

On Friday, when the SPX touched its 200 SMA it bounced and rallied higher. I am not so sure that will be the reaction today and if the SPX starts to churn and hang out under the 200 day SMA the selling will no doubt increase.