THE CLOSE

The snapback never showed as all major market indexes closed lower with the SP500 and the R2K giving the best effort into the close. Best performing sectors were metals and oils with the worst being airlines, homies, biotechs reits and brokers.

I would not rush to buy Monday's open on encouraging news of diminished global tensions. There will be plenty of opportunities as many trapped longs will want to exit longs on the hint of good news and many bears will want to reassert short positions at higher levels.

No commentary on Monday as I will be out for an extended weekend.

BULLS

If you think you are the only investor/trader thinking of going long and catching a huge rally, I assure you there is lots company on that trade. Revshark on realmoney.com says in a column entitled Setting Up for a Snapback:

"We are setting up for one heck of a snapback at some point. All we need is a catalyst in the form of some good earnings or dovish statements from Bernanke, and we are likely to see a big bounce. It may not be lasting, but it should be big. I don't buy the argument that too many people are looking for a big bounce, therefore it can't happen. In fact, the key here is that they are looking for one and have not yet acted on that belief. When contrarian thinking works, it is because people all believe something is going to happen and have already acted on their beliefs."

And Cody Willard of the same site says:


"It's time to ponder some old saws, and whether or not this is a buying opportunity.
A smart friend of mine who has run hundreds of millions of dollars in health care and biotech money just pinged me, asking simply: "Who has the guts to buy today?"

I think what he's pointing out is that buying today is by far the hardest trade to make, even for someone in cash or someone who's short. Often, the hardest trade to make is the best one. I won't trade off irony, but it is an interesting point to ponder. "

So if you think you are the only one who is thinking that buying here is the smart money trade, I would step back and wait for the weekend news events. Also, those two fellows noted above have been bullish and have bought every dip thinking this is the easy layup trade. That hasn't panned out yet. There is also talk that Israel was given the OK to "clean out" Hezbollah and secure the northern border. Not sure that is bullish.

AFTERNOON TINKERING

Markets look like they want to recover this afternoon as the SMH is back in the green as is the WINTEL duo, but, I would continue to be cautious and would rather short pullups than buy any dips. Market internals continue to show trouble ahead with a skew of 3,000 to the red and financials are barely bouncing off the bottom so be careful with any dip buying.

The weekend continues to be a 50/50 game as W refuses to cave and will probably continue with the "right to defend" stance for the Israeli's. The G-8 folks obviously will feel differently but the President, as we know is a fairly stubborn fella.

Next week will also bring the Fed back into play as the fed futures have fallen to 50/50 for a rate hike in August. Earnings and guidance next week so there are lots of uncertainties to ponder.

And who would have thought that after Jimmy called a New Bull Market on March 17, 2006, that just four months later the Naz would be at a new 52 week low.

RUDE CRUDE

Markets continue lower and surprisingly WINTEL is green along with the Volatility indexes but all else is red as even the precious semis flip to red dye.

Interesting this morning that as Crude trades to the $78+ levels, the OIH and the XLE continue to trade flat to lower. The lesson being that even if oil spikes to $80/$90 there is no guarantee that oil stocks will make new highs. A better play is USO which tracks the price of crude and DBC which tracks a group of six commodities but is mainly crude(35%) and heating oil (20%). Aluminum, gold, corn and wheat make up the balance of the DBC ETF.

On another note thanks to Ticker Sense for starting the Blogger sentiment poll. It will be interesting to see if the bloggers are smart or dumb money.

QUICK TAKE

Markets open weaker with DJIA down 55 sp-3.5 and NAZ -9 as I type. That really isn't telling how poorly the markets are acting as the internals show 2,200 more losers than winners and the best performing sectors are metals oils and semis. Maybe semis are becoming the equivalent of a precious metal or maybe they are just way way oversold. Worst performers are homies, airlines, trannies, BROKERS, and internets. Also note that GE, with the mornings decent numbers and in line guidance trades down over 1%. That may be a preview of how other earnings stories may trade next week.

My feeling is that as long as the market internals act poorly all rallies/ mini rallies can be shorted.

MORE THOUGHTS

Maybe I was getting to bearish yesterday and things maybe are not as bad as they seem. I guess the best case scenario is that W will be able to negotiate some kind of cease fire over the weekend and all will be back to normal on Monday. My guess is he will negotiate something but I am not sure that Iran will care as they no doubt want to continue to stir the pot and cause grief to W. And what ever happened to the ultimatum to the harborers of terror, your either with us or against us and if you harbor terrorists your against us. Isn't this exactly what Iran and Syria do while we continue in the muck of Iraq. Would Iran be so bold if we were not stuck in the muck?

Technically, there are a lot of trapped bull who will want to sell any bounce as they no doubt do not want to be involved with the markets in light of all the geo political turmoil. Any bounce to the 1260/1280 SPX area will probably be shorted by the bears as it certaintly worked well the last time they tried.

Right now we are in the middle of the 1220 (prior lows) /1280 (prior highs) range and I will be waiting for one or the other to buy or sell. 1200 mentioned yesterday is not out of the question as earnings/guidance/Big Ben B/ and geo political issues take hold next week.

Dick Arms out on realmoney.com with a big buy signal as his Arms index signals indicate we are way oversold. Yes, we are way oversold based on technical indicators such as TRIN and VIX but we are still not down at the prior lows. Watch the market internals and the brokers as they continue to be the best market tells.

THE WRAP

Cramer on Stop Trading and he is bullish on oil stocks such as SLB CVX etc. I don't know if its right or wrong, but crude busted through the $76 area and the OIH is down $3 and the XLE is also lower, so not sure it will be a safe haven. One smart trader I know is shorting the sector as it is one area where traders can lock in profits.

The short term trading environment looks dismal even in spite of the 20% plus spike in the VIX/VXO tandem. Middle east tensions will probably get worse before they get better and what do you think will happen to Israeli soldiers who get sent to Iran? In addition, the North Korea/Iran issues will not go away as those leaders will only have unpleasant things to tell W and Condi in light of the pro Israeli U.S. stance.

Big Ben is on the hot seat next week and maybe he can have some upbeat commentary, or maybe inflation will come in tamer than anticipated and another rate hike will be a distant memory. Possible not probable. Also, second quarter numbers will be coming next week and reduced estimates for the second half may become a popular theme. All in all, SPX 1200 may be just around the corner.

TODAY'S TAKE

Things seem to be getting a bit ornery at realmoney.com as Rev starts to lambast Jimmy and his dopey TV show. Maybe Rev is a bit upset that the market hasn't cooperated with his every dip to be bought mantra or maybe just telling it like it is.

Anyhow, today the QQQQ was the worst performer at the get go but has since filled the opening gap and has started lower again. We are only half way through the trading day so today's ultimate winner is still unclear. Market internals have failed to confirm any rally (2,800 more losers than winners) as have brokers, financials and small caps. Semis remain green but if they don't get more oomph they also look to fail.

The only other sector higher or near the flat line are the oils as $75 crude is now in the rear view mirror, and if the mideast problems escalate there is no telling how high crude could go.

My strategy is not to buy here but to short if and when we get back to the 1260/1280 area and buy if we fall back to the 1220/1240 area for a short term flip.

THE CLIMB

No gap fill yet and with the markets this weak there was no way I was gonna play it. Seems like anytime the markets try to rally, the sellers come right back and fade it.

Internals have improved to 2,700 more losers than winners and the QQQQ has bounced the most from its morning low. SMH has turned green which is a similar story to Tuesday when it flipped first with KLAC and the markets eventually followed. Not so certain it will play that way again today even as KLAC is also green.

And congrats to the new leader of the Tour, Floyd Landis. Quite a bike race today, but I am not sure how one rides 2,200 miles in three weeks knowing one of your hips is about to be junked, but I guess that's bike racing.

WEAKNESS

If you like to buy weakness and sell strength today should be your day to load the boat as thirty minutes into trading the DJIA is down 105 NAZ 29 and SP 9.

The good news is that the VXO has ripped higher and is now over 20% above its 10 day SMA and is screaming buy the major market ETF's. My problem with the signal is that this market is in an awful downtrend and buying anything lately has been a money losing event.

The semiconductor sector was hanging tough at the open but is now down so no divergence there. Market internals also as weak as they get with 3,500 more losers than winners and TRIN/PC also showing lots of weakness for so early in the day. Maybe the washout occurs early and we can bounce later in the day. Lots of hope and bottom calling in this market but not much in the way of upward movement.

On a lighter note, it seems to be moving day on the Tour de France as the big mountains are in play, so maybe a day to turn LIZ off and OLN on.

THOUGHTS AND LEVELS

The areas where most technical types will focus on as support include 1240 and 1220. The obvious areas of resistance remain 1280 and 1290 but don't count on seeing those levels any time soon.

Revshark also gave an updated market commentary this morning, check it out:


"We seem to have a perfect storm of negatives coming together this morning. The unrest in Israel is heating up and is close to an all-out war, oil is hitting record highs on the news, inflation and interest rate concerns continue as Japan prepares to raise rates for the first time in many years, and we have to wait a few more days before we start seeing earnings reports. It is tremendously gloomy and negative and that is going to eventually lead to some interesting action.

Our job is to make sure we have our capital ready and are mentally and emotionally prepared to move when the time is right. It isn't right yet but I believe we are getting close."

Broken record continues. My question to the rev is what happens when earnings come and companies start reducing second half expectations.

MORE SHARK

The markets look to open weak again as global tensions in Iraq Iran Lebanon Israel N Korea India and Syria continue to make the front pages. My take is that it gets worse before it gets better as there is probably more bad news coming from Iran and North Korea as they no doubt stay defiant. The old adage that the markets climb a wall of worry seems to have changed to the markets are worried and their is probably a lot to be worried about.

Revshark on realmoney.com is getting more bullish as the tensions flare and the markets continue to sink. For those who haven't followed the rev, he is generally a momentum trader who likes to buy strong stocks, but lately he has been bullish on the selloffs. He is however, starting to sound like a broken record as he buys every dip and continues to be wrong. He started a hedge fund a few months ago as the markets were hitting their highs and hopefully that has not tainted his thought process. Anyhow, here is what he said on the close yesterday:

"Technology stocks have gone past the point of being ignored to being actively shunned. They have been declared dead and buried, and even the contrarians seem to hate them. The technical picture is very ugly, the mood is negative, and there seems to be no positive news. Despite the overwhelming preponderance of negatives, or maybe because of them, I'm increasingly optimistic about a good playable bounce during earnings season. The psychology of this market is intriguing, and if nothing else it is likely to produce some volatility. I am feeling so strongly that we are going to see a bounce that I increased my long exposure and loosened my stops. I'll be doing more positioning in the days ahead and am primed to become very aggressive at the first sign of strength."

Being aggressive at the first sign of strength has been a disaster trade of late as all strength has been sold so good luck to all who want to follow this strategy.

OVERSOLD

Here we go again as we oscillate between overbought and oversold on what seems like a daily basis. Kind of funny but it is what it is, some recently found daily volatility within an overall tight trading range.

The VIX/VXO combo jumped 10% today and both are now overbought and sitting 5% above their respective 10 day SMA's. The 2 day RSI on SPX is also getting oversold at a reading under 20. Remember yesterday when the SPX 2 day RSI was 75 and both Vol indexes were 5% under their SMA's. Yes, all in a days work.

The safe haven continues to be the oil patch where dips continue to be bought which of course is the reverse of the easy money NAZ/tech trade where rallies are quickly sold.

Our friendly LiveOptionsTrader is looking for a bounce here as he notes a Fib retracement level. Not sure it is the right play as waiting for a bounce and shorting has been a sure thing.

COMMENTARY

The markets continue to move lower on what seems like no news except maybe a warning from Brunswick that boat sales are less than expected. Don't believe most will find that shocking and I bet WGO tells us the same thing about RV sales when they decide to fess up.

Anyhow, the NAZ continues to act the worst of the major market indexes and the QQQQ has now breached the support of the $37 number. SPX falls back to the 1260 area, below the 200 day SMA and any day now the 50 will cross under the 200. I know that moving averages and crosses are lagging indicators, but lots of market timers may decide enough is enough and abandon the stock ship for what seems like decent yields on Treasury Securities.

Market internals still ugly with 2,300 more losers than winners, with top sector performers being gold, reits and biotechs. Semis, retailers, tech, small caps, KLAC DNA and brokers all acting ugly and was it just yesterday that KLAC had what was perceived as good news? Oils stocks hanging in near the flat lines and what about the trade of long oil on weakness and short tech on strength?

WHY WAIT

Looks like those who wanted to short the markets have decided not to wait for SP 1280 as 1273 appeared to be close enough. Surprisingly the markets have given back half of yesterday' s rally and with 1,600 more losers than winners it looks like lower is more probable than higher. Bulls will tell you this action is very disturbing in light of turnaround Tuesday.

Semi's and QQQQ are the weakest sectors with KLAC giving back a buck of yesterdays gains. Retail, brokers, small caps and internets are weak while metals are higher. Oils are all over the board and now about unchanged as oil trades to a shade under $75.

INDIAN MARKETS

It looks like the Indian markets are way up this morning rebounding from yesterday's crushing in light of the railway attacks. Jay Somany and Adam Warner, both of whom write for globaltechstocks.com, recommended buying yesterday after the attacks and in front of the INFY earnings last night. Powering up, I find INFY + 8%, SAY+4.4%, CTSH+4% and IFN (closed end ETF) +2.7%. Jay has been bullish on the Indian group for years now and has made himself and his subscribers plenty of money with his Indian BPO picks. He was screaming buy (mon back) yesterday in front of the INFY earnings, so kudos to Jay.

Market indexes are gapping down a few points this morning and my bet is the gap will be quickly bought. And is the Israel ETF (ISL) the fund to buy today in light of the violence and the reaction to Indian stocks on the day after?

NEWS OF RESISTANCE

After a quick look at the SPX chart several things become apparent. One, unless something powers us higher, resistance is about 7 SP points higher at 1280 and if we get past there, then 1290 comes into play. Other stats confirming that ceiling include the 2 day RSI on the SPX already at 75 and the VIX/VXO tandem both closing lower and now 5% below their respective 10 day SMA’s. Bottom line is the rally may last through the end of the week, but don’t expect much as the shorts will be happy to put out stock above 1280.

THE CLOSE

The markets recover and put on an end of day rally taking the QQQQ back up to the 37.65 area after putting in the Cody bottom at 37 and change. I guess its a start. The SMH was the star of the day as the ETF climbed over 3% to close over 32 after bottoming (for now) in the 31 area. These moves may not seem like much but both of these ETF's have been dripping lower day after day.

Dr. Brett had this to say about the recent lousy Arms Index readings on the NAZ and his work says a short term rally is likely:

"We've seen heavy selling in the NASDAQ 100 Index (QQQQ) over the past four days, with the NASDAQ TRIN (Arms Index) averaging a whopping 2.15. Since March, 2003 (N = 842 trading days), when the four-day NASDAQ Arms Index averages over 1.5 (N = 71), the next four days in QQQQ average a very solid gain of 1.29% (50 up, 21 down). That's much stronger than the average four-day gain of .13% (411 up, 360 down) for the remainder of the sample.

By now, we've learned that patterns can shift. So I looked at the four-day NASDAQ Arms Index pattern since 2005 to see what has happened next. When the four-day Arms Index has exceeded 1.5 (N = 18), the next four days in QQQQ have averaged a gain of .62% (13 up, 5 down)--again much stronger than the average index performance. Interestingly, the edge has seemed to be on a multiday basis; the next trading day, we don't see a bullish edge."

I took a flyer this afternoon on the IBB thinking the index has been beaten up so much any news from DNA will be seen as bullish. It won't be long to know that answer.

BROKEN CLOCK

The market is moving higher on news from KLAC that orders will be up 10% next quarter. Not sure that is the reason or an excuse, anyhow the market seems to have made some kind of interday low at the 126 area on the SPY and 37 on the QQQQ. The market also might have smelled out the sale of Cody's (realmoney.com's nibbling trimmer) QQQQ long from yesterday on a stop out.

The SMH have also traded dry all day and were hinting at a market turn. The internals have also gotten some jig and now trade with an equal amount of winners and losers, a big improvement from the 2,000 more losers earlier.

I would also note the jig in the oil patch. They seem to turn the quickest when the markets flip to the upside and today seems no different. Briefing also has a blurb on one of my favorite oil service stocks and one that I have held since it was Cal Dive:


"Fortis raises their tgt on HELX to $70 from $53 saying mgmt guided to $4.00-$5.50 in 2007. They think that they are likely to come in near the top end of that guidance, if not exceed it primarily due to their expectation that the Marine Contracting business is likely to exceed the upper end of guidance levels. The firm says organic growth in the deepwater marine contracting business, internally generated utilization, a dominant position in the shallow water, innovative approaches to lower E&P development costs, a 5-7 year backlog of drilling inventory with a rapidly growing production profile and reserve base all indicate a valuation premium to their peers."

I think I will hold it for now.

NOON THOUGHTS

The markets have stabilized after the news of the Bombay bombings but bottom calling in this market environment has not been a profitable endeavor.

Today, however, may be in the "this time its different" category as the SEMI'S continue to trade well along with the oils and metals. Other bullish sightings include EBAY KLAC DNA and AMGN.

The worst of the red performers are the airlines, homies, retailers and small caps.

The TRIN readings of 1.1 to 1.2 are not that bearish in light of today's downside action, so maybe another tell of better times to come.

QUICK TAKE

W is going to talk shortly about budget deficits and I bet he says how they are beating estimates and coming in lower than expected. I don't expect that to be a market mover, however, note on the markets opening the best performing groups are oils and metals followed by SEMI's. Haven't said that in a while and that may be a tell for a short term rally as few expect it. Other stocks acting well on the open include KLAC, NVLS, AMGN, DNA and EBAY.

The market internals (-1400 and improving) are not confirming any upside action yet but this is just a heads up. Also keep in mind the 200 day on the SPX is right here right now.

SOX PREDICTING

One of the old sayings on the street is that Semi stocks are leading predictors of future economic activity and future prices. Well looking at the three year charts it certaintly looks like the SOX is unhelpful as it seems to go its own way. So just maybe the recent plunge from 550 to 420 doesn't mean a whole lot to the overall market. Techs and NAZ yes, S and P's and DJIA probably not.

And if you don't think 50 day SMA's are lagging indicators, check it out on the SOX as it just now starts to slope downward as it sits at 480 with the index at 420.

JIMMY

After giving up the mornings 80 points on the DJIA, the major market indexes are trying to stabilize at the flat line (except the NAZ). No guarantee that it will happen but the short and intermediate term trends sure are lower (especially the NAZ and the techs).

The 200 day SMA on the SPX looms again just a few points lower and the more times the support line is tested the greater the chance it will break through it, again.

Jimmy, on his site, saying some of the NAZ stocks have gone too far and now maybe cheap. Those he mentions include AAPL QCOM MRVL NTAP MOT and GLW. Owning tech right here seems very difficult as warnings come often and any rally in the group is sold. I think the better strategy is wait for a pullup to resistance and then start shorting. Sorry Jimmy. My bet is that Jimmy's other strategy of buying energy stocks is a better theme for now. There you go, long energy on weakness and short tech on strength.

EARLY AFTERNOON

The NAZ and the tech brethren continue to act poorly and I suspect they have taken a little steam out of the major market indexes. NAZ internals have also turned flat and NYSE internals are green by 800 issues which is down from the 1,300 earlier.

Sector outperformers are airlines, consumers, banks, retailers, defense and internets, while semis and techs continue to lag. Metals have come back a bit while oils have sold off from the morning highs. The DJIA is still looking to be the best of the major indexes with twenty four winners and six losers. The losers, not surprisingly, include HPQ INTC MMM and IBM.

Briefing.com has picked up some research on the oils from Oppenheimer and I find it kind of interesting being a long term/long time energy bull:

"Oppenheimer remains positive on oil and gas stocks as they believe their upside potential is greater than the downside risk from a sharp drop in oil and gas prices or refining margins, which they expect to remain volatile, but fluctuate in ranges above historical levels. While there is no shortage of crude oil or refined products, most of the new world oil supply is heavy sour crude, which is straining world refining capacity and widening the light-heavy spread to record levels.

Firm expects the differential to continue for several years, which should bode well for refining margins, profits, and stock prices. Firm thinks the industry long-term outlook is very favorable and investors could benefit from the price volatility. Active investors can maximize returns buying on dips and selling on spikes, while long-term investors should add to their positions on a meaningful pullback."

OK, sounds good and bullish for my friends at FTO VLO SUN etc.

I don't have much of a feel for the afternoon trade so basically sitting it out and waiting for better clues.

TODAYS DOINGS

The question that I would like to know is, can the markets rally with the SMH making a 52 week low and the MSH and QQQQ acting so poorly?

Are the markets speaking loudly about a rotation to healthcare and other defensive areas?

And what about this fact from David Rosenberg at MER via my friends at Minyanville:


"The Fed funds rate is presently at 5.25%. Meanwhile, the entire yield curve is now trading below the Fed funds rate. - 2-year: 5.17%- 5-year: 5.12%- 10-year: 5.15%- 30-year: 5.19%

According to stats from Merrill's David Rosenberg, this has only happened four times in the past 25 years:- March 2000, August 1998, January 1989, January 1982.

In each instance, the next six months saw a significant rally in bonds, a widening of corporate spreads, an average 6% decline in commodity prices and underperformance by small cap stocks."


Oh, and congrats to President W on the hat trick, Treasury Secretary #3.

OPENING LOOK

The markets open higher with sector outperformers being the airlines, bios, internets, oils and small caps with metals, semis and homies bringing up the rear.

The 10 year Bond is hanging in at the 5.15% area.

Some red flags on the screen are the QQQQ and SMH lagging and the TRIN above 1.00 indicating more volume flowing to losing stocks. On the other hand, GS HHH AMGN OIH all green and generally they lead the markets higher. So kind of a mixed bag but the internals green are probably the signal to buy the dips for now.

MORNING PLAN

The SP futures are gapping higher this morning +2.5 (9:00 eastern) and we know that Monday gap fills are less probable than other days. My take for now is to buy a gap fill assuming the internals and financials confirm market strength as it appears that Friday's weak job, high inflation report is quickly in the rear view mirror.

I am also looking to take a short term trade (scale basis) on the IBB with a stop under the recent lows.

HISTORY

A brief history of the SPX on a longer term basis shows (daily) the moving averages of the 50 day crossed the 200 day lower in November of 2000 , recrossed higher in May of 2003 and has been in bullish mode since (50 over 200) except for a short period in the fall of 2004.

The longer term dailyand weekly charts of the SPX also continue to look bullish as one can draw a trend line at the upper channel and the lower channel and still find higher highs and higher lows. Not sure how long it will last but for now it is continues.