MORE BARRON'S

Barron's also trumpeting the value of NEM in the precious metal sector and I bet they are correct on this one. Single stock risk in the volatile sector however could cause some angst and with the recent close of the best performing Vanguard Precious Metals Fund (VGPMX), I like the chances of the new Gold Mining Etf, GDX. Biggest components include ABX (14%), NEM (13%), AU (6.5%), GG (6%), FCX (5%), GFI(5%). The often mentioned PAAS and SSRI are also included but at lower percentages (about 1% each). Can we say buy the dips as the dollar will no doubt fall over the long term and inflation will creep higher.

BARRON'S

Browsing through Barron's this morning and the most thought provoking piece came from Ned Davis and his discussion about the energy sector:


"There are some factors that are really, really bullish for energy. Except for a global recession, I can't see what could possibly stop it. We in the U.S. use 25.8 barrels of oil per person per year on average. In China, which has a lot more people than the U.S., they use 1.8, and in India it is 0.8 barrels per person per year.

We have SUVs and they don't.

We have every energy-using vehicle going, but those countries are getting richer and are industrializing. I don't see what could possibly stop demand. If rates stay up here, U.S. demand could go flat, but I can't see how that possibly happens in China and India. OPEC [Organization of the Petroleum Exporting Countries] always produces above its quotas. Now that oil prices are at near-record highs, OPEC is producing less than its quotas. That has almost never happened, which tells me they are flat-out producing and don't have any spare capacity because they would be selling it. Prices almost have to go up. There are other issues, too. The U.S. is now producing a record low amount of its own oil supply -- only 10.5% -- and other developed countries' oil production is down, and we are getting oil from countries that are unstable and not friendly. We've got a refinery problem. We haven't built a new refinery in this country in years, and we have got hurricane season coming in July and August. That's upside pressure. I'm not even taking into account any possible terrorist acts. The pressure is on, and it would take almost a global recession to stop it.

Now that I've given you all the bullish factors, let's look at the Fidelity sector funds again. A record 28% is in four funds that are energy-related. So energy is a crowded trade, and a crowded trade doesn't mean you will lose money, but it raises the risk a great deal. Since the end of January, we have been telling people to continue to hold energy but write covered calls on their positions."

Ned is echoing my often repeated thoughts on energy, we are running out of oil and OPEC and the Saudi's can not produce as much as they want us to believe they can produce. In addition, I bet the Chinese and Indians start using more oil on a per person basis(lol). Bottom line, prices are going higher and probably higher than one would think.

SEMI FINAL

The final post of the first half, yes, its KRY, and with the big bounce back in GOLD back over the $600 level we see that KRY has barely moved. Of course it filled both of the gaps in pretty rapid fashion as the homegamers realized that KRY wasn't all Jimmy made it out to be. The lesson learned, do your homework and don't buy penny metal stocks located in problematic areas of the globe.

FLAT

The markets are not flat lining today they are straight lining as the chart details. The feather in the bull's cap is the Advance Decline line with 1,500 more winners than losers with the NYSE internals looking especially bullish. The money trade today still appears to be buying the pullbacks and selling the rips.

Metals, oils, bios, drugs and bios leading the way with the SOX and homies the worst performers.

GM is leading the DJIA advancing over 9% today on the hookup news. My guess, a great shorting opportunity if its borrowable. MRK and PFE the better performing DJIA stocks with HD and BA the leading sliders.

Lots of traders are gone for the day, so some big funds may be able to push the markets around this PM. The markets will also be an easy target on Monday with traders away in light of the short week.

QUICK TRADING

Looks like a day for day trading with buying dips and selling rips the recipe. Market internals have clawed back to 700 positive on the NYSE and flat on the NAZ and I think the dippers will be buying to put a bit of a floor under the markets.

The SOX/SEMI sector is still acting poorly along with the homies. Leading sectors remain metals bios, drugs, and oils. Interesting how MSFT is higher in spite of the Office delay and GS also trades well despite the news of the TREAS HEAD sell.

MASTERING THE TRADE

Looks like market participants are squaring up for the weekend as the gap is filled; the SMH, IWM, NAZ are all red and we are just one half an hour into today's trade. Seems like old times.

Market internals have also flipped the switch and they are now slightly red with SP stocks faring better than the Nazzies.

Standout items include the dollar crushing, metals ripping higher and SOX and small caps leading lower.

My only commentary is that I suspect the market will oscillate today and not give much to the trend traders. Indeed it may be a nice day to start the weekend.

LAME

Looks like the gap fade trade may be in play for today and it may be worth a shot. My guess is this one gets faded.
A few days ago, Dick Arms on realmoney.com suggested that traders sell longs and maybe even put out some shorts in light of the recent market action. Today, Dick has some more market thoughts:

"The rally in the last two days, keyed primarily by anticipation of the Federal Reserve's latest rate decision and subsequent action, has recaptured and surpassed the losses sustained earlier in the week. I said two days ago that I was disappointed in the feebleness of the rally I had been looking for since the oversold indications two weeks earlier. This strength does help a little, but we still have seen a very poor performance since the extreme oversold levels of our indicators.

I suggested on Wednesday, based on my Arms Index moving averages, that some profit-taking and even some shorting might be in order. So far I am wrong, but it looks more and more as though I am actually early. Unfortunately, the rally does little to change the outlook I expressed two days ago."

Far be it for me to criticize Dick, but saying I was early is like the guys who have been calling for a rotation out of small caps into large caps for the last several years. I was early is the greatest excuse in the trading world. It is like Dick is following the give them a time or a price but never give both. Not sure why not use the "I was wrong" excuse. After all, he has trading indicators named after him, not like he will be forever remembered for this call.

TECHNICALS -SPY

Lots of bulls declaring another new bull market because of today's high volume and uber bullish advance decline.

I would be a little cautious, as their are two gaps that will most likely be filled, one this morning and one back at the 123 area. Not trying to put cold water on the rally, just looking at the chart.

STORMY DAY

Storming in Westchester and right in the middle of a post the power goes. Anyhow, the markets have ramped and the SPY is up over 2%, IWM+3.5% and the DJIA+2%. What to do? My guess, sell (trail ) as I have sold some etf's and some index calls into the ramp.

Sector strength across the board with the best being precious metals (+7%) followed by SOX, oils, brokers (GS up over 5 bucks), biotechs, internets, small caps and homies.

It wasn't that long ago that we got this from Liz Ann Sonders and what a great tell she was.

The VIX and the VXO are both 15% under their 10 day SMA and they rarely get stretched lower. The SPX is also in overbought territory as it trades with a 2 day RSI of over 90.

My advice, use the euphoria to lock in gains and wait for better entry points. Remember, next week is a short week and many market participants will be vacationing and may look to lock in gains by the weekend.

THERE IT WAS

The Fed Head raises rates another quarter point and the markets immediately rally. Not sure what else was said, but I think it is clear that further rate hikes will be data dependent and the economy seems to be moderating.

When the announcement came out the DJIA was +83 and the SPX was +9.5, so an immediate ramp of 100 on the DJIA and 13 on the SPX. And the 200 day SMA is in the rear view mirror for now.

So if the day ends now I nailed it with the fade the faders trade (lol).

NOON UPDATE

Markets continue to trade higher although off their highs. Internals continue to tell bullish as there are 2,600 more winners than losers.

Best sectors continue to be metals, oils bios, brokers, small caps and tech. Laggards although still green include homies, banks, retailers and reits.

I hear a lot of chatter like "I don't like to see so much strength before the Fed meeting" and I just wonder if too many folks are expecting a sell off after 2:15. Just some food for thought.

Ron Sen put up a worthwhile list of do's and dont's and here goes:


Rule 1. Don't lose money (capital preservation)

Rule 2. Don't beat yourself up. There will always be someone else around to do it for you.

Rule 3. Be patient (with winners) and ruthlessly impatient with losers (how much is enough - that's the hard part)

Rule 4. The market is always right

Rule 5. If you don't have an edge, don't play.

Rule 6. Stick to your discipline (whatever that is)

Rule 7. Listen to your emotions. "If you're laughing you should be selling and you're crying, then you should be buying."

Rule 8. Prepare!

Rule 9. "If 50 million people say a stupid thing, it is still a stupid thing." If it doesn't make sense, it's probably not you.

Rule 10. Take your job seriously, but don't take yourself too seriously. Life is pretty short. My job has taught me that over 10,000 days.

On a last note, how about Nadal and Agassi playing one another next. That should be a terrific match.

THE OPEN

Markets open strong as the internals are as strong as I have seen them with 3,300 more winners than losers. The SPX is up 10, DJIA+68 and the NAZ +20. Of course the major market index that is doing the best is the IWM which is +1.3% to 69.3. The DJIA has 28 winners and 2 losers.

Sectors outperforming, the usual suspects, metals, oils, trannies, bios, brokers and internets. Bringing up the rear are the big caps, semis and retailers.

So Tuesday surprised us with the big selloff and I bet Thursday AM is surprising some with the ramp higher. The question, what will happen after the Fed announcement? Keep in mind that as I type, SPX is trading just 4 points away from the 200 day SMA and that level could be quite a tug of war.

BIG BEARS

It looks like another gap up this morning and I am not sure what the chances of a fill are on a Fed Thursday, but my strategy will be to buy the fill (or close) and not short the gap. There just seems to be too much bearishness and my guess is the markets are due for a rally. The recent Investors Intelligence survey out yesterday had this information:


"Pessimism about U.S. stocks rose to the highest level since October 2002 on concerns that higher interest rates will derail economic growth. The last time investors had this bleak an outlook, the SPX dropped to a five year low and then began a new bull market."

If you look at the charts, the markets bottomed in October of 2002, retested in March and took off from that point.

Today we have the Fed giving their final answers at 2:15 and my guess is that no matter what they say, the markets will rally. In my opinion, the bad news is baked in and all the hedge funds who had investments in high flying securities that swooned over the last 6 or 7 weeks who received redemption notices have sold alleviating further selling pressure.

The 200 day SMA of 1260 on the SPX will provide temporary resistance, but if we can get past that point it will then provide some pretty solid support.

I know that this all sounds like quite a scenario, but one needs to try to identify where the markets is going rather that look at where it stands presently.

THE CLOSE

The markets rebounded today with about 900 more stocks ahead on the day than down. The DJIA closed + 50, SPX +7 and the NAZ +12.

Oils, internets, banks, techs and drugs closed higher while losers included SOX, airlines, homies and metals. Intersting how SMH was flattish and SOX was lower (weightings). There is also some chatter that a large investment house is about to upgrade the semi group. Time will tell.

Tomorrow brings us Fed Head day and I have no clue as to direction although it would seem that there really isn't much that Big Ben can say that would make the markets go lower. Seems like he has already done his damage and anything else he has to say would be baked into the markets (one would think) .

DAY NOT OVER

The markets are drifting higher this afternoon recouping about half of yesterdays losses. The internals show about 800 more winners than losers and the DJIA has 20 winners and 10 losers. Winning sectors include oils, internets, trannies, banks and drugs while the losers continue to be airlines homies semis and brokers.

Notice how INTC and MSFT seem to go up every day? Is that a sign that not one of those hedge funds with every day redemption selling owned/owns a single share?

TECHNICALS- GS

GS is one of the brokers that has hung in fairly well during the recent market decline. Do I dare mention that it is cheap on a PE basis as it trades with an anticipated E of $16 to $18 for the year ending in November. If the E comes to pass, the P/E becomes around 8 on a current basis and I can't see why that is not considered cheap. Of course the markets could tank big and the E for 2007 could fall off the table. There is however some margin of safety as GS has a book value of about $62, and with earnings at these levels the book value grows at about 25% per year.

A few months ago, Jimmy Cramer set his price target of $225 on GS when it was trading higher and the earnings for the year were thought to be lower ($15). Jimmy reasoned that the P/E for GS should be 15 and with earnings of 15, the stock should trade in the $225 area.

The stock peaked when Jimmy wrote the column (shocking) but for longer term investors it looks like a good buy at these levels. The 200 day SMA will probably continue to be a primary area of support with resistance at the 50 day level and if the markets ever have another up day, the shares of GS will probably outperform.

READ ALL ABOUT IT

Shockingly the gaps fill and the internals quickly flip to the red and the upside sectors shrink to metals oils and internets. Semi's continue to lead the downsliders along with airlines homies and bios.

There are not many encouraging signs in the markets as I read them. The Volatility indexes are basically treading water at "equilibrium" levels and a daily moving average of the internals also shows no sign of a buy signal.

Dick Arms has a column on realmoney.com this morning and he also is not finding anything encouraging and is suggesting selling longs and putting out shorts.

GAP FILL

I didn't mention it but the gap fill trade might be just the ticket today as the SP futs gap up 3. Seems like all rallies are now sold and I bet today is no different. So, if the gap hasn't been filled by the time you read this, put it out there. Of course J CREW is the big story so don't leave home without your fancy flippers.

The market internals have opened a bit green with 1,000 more winners than losers. The best performing sectors are metals and oils with the sox bringing up the rear with homies techs and small caps.

UGLY

The markets were not pretty yesterday as the markets sold off all day with hardly a break. The problem is that the markets are not oversold here as MACD and Stochastics are both smack in the middle of their ranges and the Volatility indexes are hanging in right at their 10 day SMA's.

The 200 day SMA looming overhead still looks like a heck of a lot of overhead resistance and any rally to those levels will be shorted big time in my opinion.

The pivot's today, which were worthless yesterday are 124.6 on the SPY and about 110 on the DIA. Major areas of support still exists at 123.8 on SPY and 109 on DIA. I plan to sit on the sidelines as I have no great desire to get long or short these levels except maybe for a quick scalp.

BLOGGERS

The bear is growling quite loudly and I don't remember many bloggers (this blogger included) yapping about another big sell off before the Fed head speaks on Thursday. Most expected chop and that is the last thing we have as the markets continue on a steady path lower. I have not seen much of a reason for the sell off, but I do see fairly high volume and steady selling in the SP futures. The shorts may come to cover before the close but I expect the markets will still end near their lows.

Some of the oil stocks are higher but most have turned down and crude is trading back up to $72. Maybe North Korea and Iran are back on the radar but one can always come up with a reason why the markets should be lower or higher.

MSFT T and XOM are the only DJIA stocks higher with GM bringing up the rear, lower by over 6%. I read where GM is now out of the woods as far as bankruptcy is concerned; I have my doubts and my guess is within a few years it will become clear that they are done. Of course $80/$90 oil will not help their case but all companies need to adapt and not offer excuses. The new zero % finance plan takes the place of last year's employee discounts and offers them another excuse of why there are no profits anywhere in sight.

NOON TIME

So much for the bullish bias for the day as the DIA takes the brunt of the selloff with less than stalwart performances by GM DD BA HON HPQ and UTX. If all those GM buyout takers was good news, why is the stock off 5%. It always bothers me when 35k folks get buyout offers; Why are they dispensable today and what exactly were they doing yesterday, last week and last month. That is a lot of payroll for what I suspect is very little productivity.

Anyhow, the market tanked as the SP futures traders sold the market big starting a bit before 11 eastern time. Not sure why the selling started but support on the DIA is now the 109.15/109.35 levels.

Market internals now pretty ugly with about 2,000 more losers than winners with the big sector losers being the sox, airlines, homies, metals, tech and retail. The only green sector is oil with XOM being the strongest dow performer up 1.3%.

TECHNICALS- VLO

Revisiting VLO as the stock trades at a PE of less than 8 based on the $8 earnings estimate for 2006. I am also hearing that there is a general refining capacity problem which will only make the earnings at VLO and other refiners higher. Analysts are also assuming EPS of $7 for next year and I have no clue why they think the prices of oil and refining will come down. Seems as if the only commodity that held up during the commodity crash of 6 weeks ago was "terror premium driven" crude.

Technically there looks to be lots of overhead resistance on VLO at the 64/66 level so if it gets through there it could be clear sailing to new highs. Also if you look at the charts on OIH/XLE, it looks as if the oil stocks in general have bottomed.

THE OPEN

So much for the Gap trade as the market fills in the premarket. Surprisingly, the internals are quite green with 1,200 more winners than losers but the major indexes don't seem to be responding as they trade mixed. It is probably going to be a choppy day with a slightly bullish bias.

Wintel, oils, metals and small caps are leading the way while the drugs and the socks lag. Financials are mixed as the banks are unchanged while the brokers are slightly lower.

The Pivot Point on the SPY is 124.75 while the DIA pivot is 110.2 so those levels may be temporary support levels with initial resistance of 125.3 on the SPY and 110.7 on the DIA.

GOOD TUESDAY

It looks like the Gap fade play is on the table and according to "the book", there is almost an 80% chance of a gap fill on Tuesdays. My game plan will probably be to enter 1/2 the trade at the open and then watch the action as prices approach various pivot levels.

As mentioned yesterday, I expect choppy action ahead of the Fed on Thursday so a bounce from the open and a fade of Pivots/Supports/Resistance may be just the recipe for today's trade.

HEADS UP

The SPX is now trading with a 2 day RSI of 75 and below its down trending 50 and 200 day SMA. The book says to short as it approaches the 200 day (1260) especially with the VIX very oversold at 11% below its 10 day SMA. However, I would be reluctant to put on that trade
as Ben may fake us out and do something unexpected sending the markets ripping higher.

Remember, in addition to the 200 day and the oversold VIX, we also have had several narrow range days which may also be setting us up for some added volatility. Of course we don't know the direction, but I have little doubt that more volatility is in route.

STOP TRADING NOW

Apparently no Cramer today as he must be away? My only trade of the day was buying the DIA earlier this AM at 109.95 and selling em a few minutes ago at 110.35, so a successful day back after a nice vacation in the hair dryer (dry) climate of Scottsdale, Arizona.

The key for me to stay in the trade was the relative strength of the internals, the brokers (GS) and the techs. Generally, when they are all green it pays to hang on to the inventory and buy pullbacks. The oils also flipped to green this morning after opening to the downside, another good tell that the market would get some jig. Anyway, I am out as it looks like the markets are going to close at/near their highs. I anticipate more of the same tomorrow and Wednesday as we await the Fed speak from the Fed head.

CHOP CHOP

The markets continue to meander in a tight range providing little activity for any day trading trend follower. If you are looking to trade the tight ranges on a fade, well that is working just fine as every rally is sold and every dip is bought.

The internals continue to hold with 900 more winners than losers with homies, small guys, techs, metals and oils now leading with drugs trannies and airlines the losers. The DIA pivot of 110.1 continues to provide resistance today for the markets in general, but if we can burst past it will turn into support. However, bursting past doesn't seem likely as the ES futures volume looks light and that is a pretty good tell that the chop will continue. And it will probably continue through the Fed report on Thursday, so you know.

INTC and MSFT are acting well as Jimmy Cramer gives them a boost on realmoney.com with 20 and 25 new price targets for them. Of course at the beginning of the year he had $31 and $32 price targets.

11:00 LOOK

The markets continue to meander slightly higher as "all eyes are on the fed." Of course everyone knows about the 25bps increase that is coming but it is the all important fed language that we anxiously await to dissect.

And how bout this just on the briefing.com wires "fed cites significant risks to US including from slowing housing sector." Fed also says "core inflation to remain under some pressure in near term due to higher energy prices."

Thank goodness they are giving us some new stuff that we haven't heard before (lol).

Market internals continue to be bullish with 1k more winners than losers. Winners continue to include Small caps, tech, semis, brokers, homies and retailers. The losers include the oils, metals and drugs.

THE MARKET IS CHEAP

The markets open slightly higher but the internals paint a better picture as there are more than 1,800 net gainers. Gold, small caps, homies, retailers and techs are the best performers while the laggards are oils and drugs. The TRIN is however indicating that more volume is flowing to losers as it stands at 1.4.

I have been hearing this morning about how cheap the market is and what a great buy it is here and now. I don't doubt that it is cheap based on a PE multiple of 16 give or take, but I am not sure that will help us make money in the short term. I also don't know if cheap matters when earnings growth rates are decreasing. Just a little food for thought.

WEEKEND LINK FESTIVAL

Phil may not have won the Open, but he sure made fun to watch. Captain Kirk, Adam and Barry all have some good stuff today and all I need to do is link it. Oh, and check out these from Abnormal Returns, another great site with some great links.