FINAL POST

I AM OUT OF HERE - NICE WEEKEND TO ALL

GAP FILLS

Markets are trading mixed as I pen this post and there is chatter at minyanville.com that if the markets don't get jiggy soon, another selloff may be in the cards as the new holders who called the bottom or heard the bottom called give it up and head to the sidelines.

The opening SP FUTS gap filled and now is trading mixed as the internals have come way off their highs and now show only 200 winners to losers. Better performing sectors today include homies, brokers and biotechs while the downside leaders include drugs and oils. Tech has come down off their highs led lower by the Semi's and the metals have also begun to head lower.

I don't think the bulls are going to give it up this fast although I see flattish action into the end of the day as everyone needs a rest. A new week begins on Monday (lol) and then we will see who is in control.

OPENING SHOCKER

The markets open higher and the shocker is that the IWM is the best performing major market index followed by QQQQ and the SMH up a startling 2% after seeing lots of selling over the past few weeks. The only sectors red on my screens are the drugs and the Volatility Indexes. Precious metal indexes are higher by 1.5% and our old friend GS is back over 151 after hitting bottom in the low 140's.

Market internals showing a bullish posture with more than 1,700 winners to losers. In light of yesterday's wild action, the Pivot Points are wide with resistance at 127 on SPY and the actual pivot at the 125.4 area. My guess is no daily pivot gets hit today.

ONE OTHER THING

As I sift through various ETF charts, the same patterns seem to show over and over. Retest of the prices but much higher lows on the Momentum indicators. The Oil Services Holder ETF chart above has a very similar pattern to the SPX pattern, and yesterday if one were watching the charts closely, the OIH was the first ETF to turn. Noon yesterday, the OIH hit bottom at 136 an climbed in a straight line higher all afternoon finally stopping at the 143 area. This morning it appears to be up another $1.5 so hopefully the pattern continues and the SPY also continues higher. I also stand by the old adage that higher prices in the Oil services sector/Oil yields higher prices in the major market indexes.

MIDNIGHT BLOGGING

Maybe the only time blogger works is in the middle of the night and sorry for the lack of posts but "its now working very well." Hopefully GOOG runs the rest of their businesses a heck of a lot better than they run their blogger. Anyhow, I think that picture above tells quite a story, first of the VIX and its highest point since sometime in early 2004, and then the SPX with its huge positive divergences. I haven't heard many others discuss it but those things are sticking out like a soar thumb.

Closing on the lows on Wednesday after being up in the morning and closing on the highs on Thursday after being way down most of the day. Interesting times and hopefully the double island bottom is now in.

BOTTOMS UP

Wow GOOG continues to rip higher and their blogger continues with bugs everyday. Anyhow looks like the blow off bottom has hit as the VIX hit its highest levels since 2004, TRIN it over 4, and according to one site I follow the down to up volume on the NYSE hit over 10-1 and 15-1 on the NAZ.

The DJIA has turned by about 200 points and the SP FUTS have climbed over 20 from their lows.

More importantly, on the SPX chart above, a distinct BULLISH DIVERGENCE has occurred as the index has made lower lows and the momentum indicators such as MACD Histogram and RATE OF CHANGE have all made higher lows. I have mentioned these before but now it is as crystal clear as it gets.

Also note that the markets turned from their lows as oil and the OIH group turned from their lows. OIH now higher on the day by $1.5 after being lower by about 5 beaners. If anyone thinks that because Zarqawi is dead the end of terror in IRAQ is at hand, well rethink the thesis as a new Zarqawi is probably already in place.

OPENING LOOK

The markets open lower with the NAZ leading lower and the DIA outperforming with 13 of the DJIA stocks higher. The SP futures are trading down 2 or 3 points as I type but the market internals tell a different story with 2,500 more losers than winners. No forecasting today on my part that the low is in because I have not been very good lately and it is time to keep my yap zipped on direction.

The sectors not in the red are drugs, brokers, consumers, retailers and biotechs. Techs, small caps and commodities are all lower. Surprisingly the SMH is only lower by a dime off of the AMD/INTC downgrades so look there and the internals for any reversal clues.

My equity exposure is in the SPY and the DIA as all non ETF trades are off limits in this environment.

ONE FOR THE ROAD

Just wanted to update everyone on one of Jimmy's greatest columns on the gold market from May 9, the beginning of the huge selloff in the gold stocks. If you don't believe me, check the charts and I suggest you check your guru:

"When I got into this business there were, literally, dozens of investible gold mines. The South Africans traded like water. The Canadians were plentiful. The Americans were so plentiful that you never knew which to reach for.

Now you can count the number of truly investible gold companies on one hand. And that's the problem.

Who knows how high Goldcorp (GG:NYSE) , Barrick (ABX:NYSE) and Newmont (NEM:NYSE) could go. There is not only a gold shortage, but more acutely, there is a shortage of gold stocks!
Let's take Goldcorp. Everyone acknowledges this is the best of breed. It isn't hedged out like Barrick and it isn't challenged to find gold like Newmont. Given that's the case, it can go up endlessly as gold goes higher. It is the Occidental (OXY:NYSE) of the group, the one most levered to the underlying commodity. I know I have championed the stock for 20 points.
I keep waiting for IPOs in the group, but there aren't any. I keep waiting for the secondaries, but we don't get them either. Supply of these stocks is as tight as the supply of the precious metal itself, and demand is as strong for the shares as for the bullion in Iran, China and India, the three most voracious gold bugs on earth.

I usually like to say that the bull market will last until all of the equity deals get prices -- that's what happened with pretty much every other bull market in the last 20 years, destroyed by supply. Not going to happen in gold. We just don't have enough of either!"

I don't write this stuff, I just report on who wrote what and when. My question is why does he need to take such strong opinions each and every day. My guess is that he knows many will be wrong and a few will be correct and its the correct ones folks will remember. Well lots of luck with this one.

Interesting facts/information from Jeff Saut, the excellent market strategist at Raymond James who discussed how long selloffs like the one we are going through can typically last. Here is what Jeff says courtesy of Barry's site:

"Like 'buying stampedes,' selling-stampedes typically last 17 - 25 sessions, with only 1 - 3 session counter-trend moves (rallies/pauses), before they exhaust themselves on the downside.

More often than not that downside exhaustion is punctuated with an 'I think I am going to be sick' downside hour or two. It is also worth noting that once you get into one of these downside-skeins, if said stampede surrenders more than 5%, then the waterfall-decline tends to extend into a 10% or greater decline."

I don't know about anyone else but yesterday afternoon's straight down selloff taking the SP futures down from +7 in the morning to -10 in the afternoon caused me a little queasiness.

However, my count beginning with May 11 as day one of this selloff puts us in day twenty, so hopefully by the middle of next week or sooner we will be back on the way up.

UGLY CLOSE

The markets closed on their lows as another fed gov insisted on telling the tales of inflation woes and does anyone think that W is happy with Stock Market Lower Ben. Just what W needs in addition to his unpopular war and low approval ratings is a tanking stock market.

Anyhow, the VIX closed at overbought levels and is giving the 110% of 10 day SMA buy signal and the SPY closed at a 2 day RSI of under 10, not that it means much in a market that is in a strong downtrend. Also, note that the SPY/SPX closed at or just below their respective 200 day SMA, so if these markets are going to be saved, now is the time.

And GOOG, with their blogger down most of the day, and when it was working it wasn't working very well. Probably tooooooooooooooo many bloggers looking for free websites. It works great now at 9:00 at night.

BORING DAY

In light of the "comparatively" boring action in the major market indexes( compared to the last few days), I thought it was time to update Jimmy's January 2006 DJIA predictions for year end 2006 and show the true value of a market guru.

Here goes:

AIG, started the year at 68, Jimmy predicted 90 at year end and now trading at 61.

GM started the year at 19, Jimmy predicted 10 at year end and now trading at 25.

INTC started the year at 25, Jimmy predicted 31 and now trading at 17+.

MO started the year at 75, Jimmy predicted 105 and now trading at 72.

MRK started the year at 32, Jimmy predicted 25 and now trading at 34.

MSFT started the year at 26, Jimmy predicted 32 and now trading at 22.

XOM started the year at 56, Jimmy predicted 64 and now trading at 60.

HON and PFE are two that are trading at his year end targets but if you look at all the numbers you can really see the value of trying to forecast stock prices for the longer term as most are way off and we aren't even 6 months into the year.

And some may say that I just have too much time on my hands during the trading day and maybe they are right.

DRIP UP

The slow drip up continues as the market internals continue to show a bullish posture as there are more than 1,300 winners over losers. The DJIA is also showing bullish with 22 winners to 8 losers. The standouts are DIS UTX MRK BA and AXP while the losers are INTC DD AA MMM and XOM.

The markets ran into a bit of resistance this morning at the initial resistance level of the QQQQ. I suggest that anyone who wants to trade the pivot points have the charts of the DIA QQQQ and SPX/ES/SPY charts up with the pivots.

Leading sectors continue to be brokers, drugs, bios, internets and reits. Losers are oils and metals and how bad is this INTC and how low can it go as it continues to be the worst performing DOW stock. Is there something seriously wrong that the markets are trying to tell us?

Two other things, check this link to Trader Mike and his computer setup and check this link to Ben Bernanke and why the markets are maybe just a bit leery.

MARKET OPENS

The markets open mixed with the QQQQ the outperformer of the first half hour. Market internals showing flattish but improving rapidly and I think I will stick with my bullish posture and tell Pisani to keep waiting for his capitulation trade.

Leading sectors are financials, tech and homies while the laggards are the metals and the oils. Note the oil crop report comes out at 10:30 eastern today.

The Pivot Point today on the SPY is 126.65, which has already been hit and initial resistance is 127.5, so look for that number as the first target.

BIG ARMS ALERT

Dick Arms out now with a column on realmoney.com where he now shares my current views. Here is what he says:

"The last two days of heavy selling have engendered a level of unsustainable bearishness, in my opinion. Yes, we lost 200 Dow points Monday, and then another 100 Tuesday. The Dow broke the support level of two weeks ago, but the Nasdaq and the S&P 500 did not. The rampant bearishness was on heavier volume, but not extreme volume. But bearishness was pervasive.
When investors seem to all be heading in the same direction as a crowd, it's often time to go the other way. On Monday, the Arms Index was a very high 2.83; declining stocks received almost three times their share of the volume. Tuesday it was not quite as intense, but still bearish, and combined with the former data, we now have Arms Index moving averages that are extremely oversold. The 10-day is again in very oversold territory.

It looks as though there is a massive rush for the exits. I am inclined, on a trading basis, to go against the crowd at this point. I believe we are at or very close to a significant rally, one with a profit potential for the nimble. But as I have repeated often recently, a rally here would be within the context of a market that has taken a big technical hit. Yes, we are oversold, and yes, I think there is room for a profit, but I am not calling for putting on long-term positions, just trading positions. "

STILL LOOKING?

Bob Pisani still looking for that perfect setup for the market to bottom. I think there is less liklihood of that bottom then the liklihood that Vito reappears as a Captain on Sunday nights cause it was all a dream.

The markets did manage to close nearer the highs than the lows so maybe a temporary bottom has hit. The SMH closed green (barely) and of course the consumer stocks led the way with bios and drugs also higher. KLAC GOOG and MS also closed on the green side.

I bought some SPY in the middle of the day and am hopeing that I can flip em a few bucks higher in a few days. You know how those perma bulls are right?

STOP TRADING NOW

I guess that growling bear posted earlier was the picture of the day as the markets trade all over the map/chart but look to end the day closer to the lows than the highs. I still think the bottom is near but heck if I know if its today, tomorrow or next week or some other time.

Our old friend the VIX is up another 6% and is now back at the magic 110% of the 10 day SMA level and the VXO is even higher at 113% of the 10 day SMA. So buy signals abound, but this downtrend seems to be fairly relentless as anyone who has tried the longside has been gravely disappointed except of course for our friend Jim who mentioned in one of his columns today that he bought the lows and I quote:

"If I were back at my hedge fund at this moment, I would be scaling slowly of out stocks I bought at the nadir.

I just wish this rally had started later. There's way too much time to sell into it between now and the closing bell.

It is so tempting, isn't it? We will be oversold. We will get many bears in Wednesday's release of Chartcraft's Investors Intelligence survey.

I am glad I picked at stuff at the lows. But I am grateful to be able to get out of some losers and winners into any rally."


He of course doesn't mention that he also bought the highs over and over and over again. And Jim what happened to that bull market that started back on March 17 according to you?

THE PISANI BOTTOM

The markets are very volatile today with the major market indexes all over the charts. The market internals have climbed from a low of 3,500 more losers than winners to only 2,200 more losers than winners. The SMH has been green most of the day and the OIH has turned slightly positive and I expect the next dip this afternoon to be bought by the last of the dippers.

And did Pisani just call the bottom while looking for the blow off that all technicians will recognize and declare as "the bottom is now in." Bob is looking for a high volume blow off that sends the DJIA down 200 points. My guess is that Bob will keep looking but I doubt he finds it. The markets rarely give anyone exactly what it is they are looking to find. By the way, did he notice the DJIA was down 200 yesterday.

Lets look at what we have had though. Yesterday a huge TRIN of almost 3 with fair volume ( a Pisani buyers strike) and a DJIA decline of about 200 points. Today the DJIA was down in the morning by over 120 points and has made a little comeback. I have no idea if we have seen the lows, but I am fairly confident that Bob will never find exactly what it is he is looking for.

THINGS YOU WON'T HERE ON CNBC

For what its worth, this is the year to date returns on various stocks and ETF's:

MSFT -15%
INTC -29%
SPY +1%
QQQQ -5%
HHH -21%
DIA +2.2%
IWM +5%
NAZ COMP -2.2%

OPENING LOOK

Today's markets look surprisingly like yesterday's as the selloff continues. The internals show 2,000 more losers than winners and just about all sectors are trading to the red except for the drugs and the consumers. Metals are getting hammered as are oils, however, note that KLAC in the semi space is higher and that is one stock that generally leads the markets or at least it used to lead. In addition, 17 of the DJIA 30 stocks are trading in the green so maybe, just maybe we can get some of the last sellers out and begin a small rally. And on final note, Bob Pisani hardly seems upset about the recent market behavior, just wondering what that may mean.

FUN INFORMATION

In light of yesterday's off the chart Trin reading(2.82) , I decided to see what information was available regarding these big numbers. John Carter had this in his book Mastering The Trade:

"If the Trin closes above 2.0, the market has an 80% chance of rallying the next day. If the Trin closes below .6, the market has an 80% chance of selling off the next day."

He goes on to say that "if after a 2.0 reading the market's can't rally the next trading day, then the markets are in deep trouble and are setting up for a major slide."

He notes a July 1, 2004 Trin reading of 2.8 and how the markets tried to rally the next day but failed and the DJIA went on to lose 673 points before bottoming in August of 2004. Also on January 3, 2005, the TRIN closed at 2.53 and the markets could not rally and ultimately slid 410 DJIA points into the end of January.

I guess the lesson is if the markets can't get some kind of rally going today, it could be an ugly few weeks.

THE CLOSE

No need to talk about how ugly that close was and with all the gloom and doom surrounding Big Ben is there any chance the markets will go up again this week?

My indicators are not showing any great oversold bottom here but the TRIN closed at a level not seen since August of 2004. And yes, that was the last time the SPY traded at those levels. I am not confident that the low for this cycle has been reached but a temporary bounce would not surprise me.

NO GAP FILL

Looks like that Gap will not be filled today as the lower probability Monday was correct. Has Helicopter Ben earned a new nick name, how about Stock Market Lower Ben? He says the consumer is slowing down and we have to be vigilant against inflation.

The good news on the day, the OIH is getting crushed and my shorts are approaching cover territory. Oh and the Volatility sisters are ripping higher and they are getting back over their 10 day SMA. Not exactly buy territory but a heck of a lot better than last week and note the TRIN well over 2 today, so probably a temporary bottom near here.

One other interesting point is that the 10 year Bond has not moved from the 5% area in spite of the Big Ben's remarks. Telling?

I wonder if W is still happy with Ben, oh well, at least we have Erin back from vacation.

GAP REMAINS

The markets tried earlier to close the gap but so far no dice. The SPY continues to trade betweeen its Pivot Point of 128.9 and support at 128.4, so it may just be one of the Monday's where the gap doesn't fill. However, the bulls have a few things going including the relative outperformance of the SMH which is only down a dime in light of the 63 point crushing on the DJIA. Speaking of the DJIA, only 5 of the 30 big caps are higher as I type. The internals are still 1,700 losers over winners but they are not getting any worse. So may be a light at the end of the tunnel or a ray of hope or something like that.

OPEN LOOK

The markets open lower with the gap unfilled as I write. The market internals show about 1,700 more losers than winners with the best performing sectors being metals and oils. Worst performers are homies internets biotechs and cyclicals.

I am playing the gap with a position in SPY at 128.6 with a stop under initial SPY support at 128.3. I am not that certain that the gap will fill, but I suspect at least half a gap fill up to 128.8.

MORE READING MORE GAP

Today looks like a day to play a gap fade trade and John Carter, the trader who wrote the book I mentioned last week spends a lot of time on the trade.

He and his partners did some backtesting (4.5 years) on the chances of a gap filling and the results are quite interesting.

The likelihood of a gap fill is as follows:

Mondays- 65%
Tuesdays- 77%
Wednesday -79%
Thursday -82%
Friday - 78%


Those odds are excellent by any traders standard. I have not backtested the gap fill test, but if they are close to correct, one could just play the gap and spend the rest of the day on the links.

Also according to the author, the gap play is less likely to work if the premarket volume in key NAZDAQ TECH/SEMI stocks is "high" which would appear to signify a strong trend and time to stand aside from a fade. Also according to John, expiration Friday's are a day to pass on the gap play .

THE SETUP

We start the week with the VIX trading at about 15% below its 10 day SMA, which is way way oversold and hence I normally don't expect much upward action by the equity market indexes.
The 2 day RSI is also telling us to take profits as it now shows a mid 80 number.

In addition, the SPX is trading about 7 points below its 50 day SMA, which if one looks closely at the chart, one can see the 50 day SMA had provided excellent support for the SPX until the recent market decline. The adage is that prior support becomes overhead resistance on the flip flop.

So now we sit between the 50 and the 200 and the 50 is downwardly sloped hence my guess is that it will act as strong initial resistance if we can climb up to it.