BARRON'S UPDATE

Barron's out with a headline that looks interesting "TIME TO BUY" with the logical reasons being stocks are cheap and oversold. Keep in mind that the SPX hit a low of about 770 in October of 2002 and a high of 1330 in May of 2006 so it may seem like less, but we are only 90 points (7%) off the May highs.

Jason Trennert, the always bullish TV guy/ strategist from ISI says "the downside is limited because price earnings multiples are coming down, while interest rates generally are low. I tell our hedge fund managers clients that, if a few things go right, the market could explode because there has been so much P/E multiple contraction for so long."

Note to Jason, short term rates are low, but they have increased several hundred percent from their 1% lows.

According to Barron's, the SP 500 multiple is now where it stood four years ago when the index traded around 850, which was a great buying opportunity. They go on to say that the only time in the last 15 years that the SP 500 was lower than it is now was at the end of 1994, when it was 12 which was a great time to buy.

My question for the folks at Barron's is the 850 buy in 2002 came after the SP 500 hit 1500+ in the year 2000 and the index was almost cut in half as it hit a low under 800. In addition, we were coming off a slowing economy and the economy has now been growing since. My point is that if growth is slowing, P/E's will probably continue to decline as folks refuse to pay up for slowing growth.

My guess is that the markets have sold off over the last two months because of geopolitics, rude crude, higher interest rates, slowing housing markets, and probably the most important, slowing overall growth. There is also an old rule that when oil soars in price, a recession follows. Now the rule maybe different this time as oil is less important to our economy but I will leave it out there for now.

Anyhow, here are the favorites according to Barron's:

CVX P/E 8.1 Div 3.2%
CSCO P/E 14.9 Div ZERO
DOW P/E 4.6 Div 4.1%
GE P/E 16.4 Div 3.1%
HD P/E 11.1 Div 1.8%
LEH P/E 9.5 Div .8%
Nestle P/E 16.5 Div 1.7%
NWS P/E 18 Div .6%
VOD P/E 10.3 Div 5.3%
WMT P/E 15.1 Div 1.5%

My take is that if you agree with the thesis, buy the SPY or a similar index, it will save on commissions and record keeping and the results will be the same or better.

And congrats to the Tour Winner Floyd Landis, who would have thought that an American would win the tour the year after Lance retired?

MORE GLOOM

More unhappy news for the NAZ longs as a close read of the QQQQ chart along with a look at the VXN provides some interesting information. The VXN is the volatility index on the NAZ 100, so it is equivalent to looking at the SPX with the VIX.

The big red flag warning from the two charts is that the VXN was considerably higher back in mid June when the QQQQ was also much higher. In other words, there was more fear and higher put pricing surrounding the QQQQ back in June when the price was a couple of bucks higher. My logic is that if the fear becomes equivalent to the June levels, the QQQQ will be lower yet. Just a heads up for the longer term traders/investors. There is no sure thing in trading, but these charts have to be somewhat disturbing to any perma bull.

TREND REMAINS

So how much of a slowdown/recession is priced into stocks? That is a very good question as the markets continue to sink led by the manipulated oil service stocks, techs and semiconductors. I wish I had better news to report but the markets are in an ugly downtrend and every rip higher is met with selling witness the solid resistance level known as the 50 day SMA. More bad news is that we are not near oversold levels on the SPX so no good news to report there. After Wednesday's huge rally, which alleviated the oversold conditions, the markets have sold back down to the lows on the NAZ /QQQQ and the small cap IWM proxy isn't faring much better. Keep in the front of your mind the October 2005 lows on the SPX at the 1160 area. The NAZ COMP and the QQQQ are lower now than they were in October 2005 and the question is will they take the SPX larger caps down with them.

Market internals have held steady today at the 2,500 red number and the best performing sectors include drugs, consumers, internets and banks with SOX, oils, India, techs and metals bringing up the rear.

For all those analysts and traders looking for outperformance from the big caps, it is has finally arrived. The problem, like I mentioned weeks ago, is that they are outperforming but they are still going down, just less than the smaller caps. Cash would have been the better trade for the large cap believers.

CONDI ALERT

It looks like the markets are trying to reverse/bottom but I would be careful with the longs as the market internals still show an ugly 2,500 more red than green. I would look to better internals before I have a belief in a new rally and my gut is telling me to play the Alex Elder strategy and short the pullups.

The strongest sector is again the drug group with the CMR (consumer) sitting near the unchanged line. Worst of the rest are SOX, airlines, trannies, techs and brokers. WINTEL is in the green on the DJIA with HPQ BA HON and HD all the worst of the DJIA.

On another note, since this is my blog, I can rant about what I choose and today its the wars. Question, how can the government of the United States tell Israel or anyone else to be mindful of civilian collateral damage in Lebanon when the there have been about 100,000 civilian deaths in Iraq since the conflict started in 2003?

Other facts; about 2,500 U.S troop casualties in Iraq and about 40,000 wounded. Get that, 40,000 wounded when there are only 160,000 (yes they rotate) troops on the ground. The odds of escaping Iraq without any physical harm is not that high. Why do I have to do the math and why does the news media not focus on this when it reports news from the Middle East?

OPENING LOOK

The markets open ugly with the NAZ taking the brunt down another 19, SPX down 6 and DJIA lower by 40. The ramp on Wednesday is becoming a distant memory as most earnings news seems to get sold regardless of guidance with the most expensive stocks getting hit the hardest.

Market internals are ugly with 2,800 more losers than winners and SMH is at a new 52 week low trading near the 29 level. Oils are also getting trashed again even as the price of crude trades back to the $75 level. It is becoming apparent that the oil patch stocks now trade in line with the major market indexes.

Jimmy gave a great explanation yesterday on why you need to buy the OIH at 135 and how all the option games impacted the price. Well if you liked it at 135 you should really love it at 131 a few moments into trading.

Bottom line, go with the charts and sell any rallies (wishful) back to the Wednesday highs.

NO DELL FOR YOU

Maybe more manipulation for us today as DELL spits the bit driving the NDX futures below fair value in the premarket. And is buying a computer today any different than buying a refrigerator, and are the components of the fridge any different than the components of the PC (SMH). Tech bulls I am sure would like to differ, but I think the analogy eventually works.

Keep the recent lows on the NAZ COMP and the QQQQ on the back of an envelope, 2012 and 35.54 as there could be more downside if they break.
Also keep the war on your front page even though others don't as any escalation is not going to help the markets.

MANIPUWHAT?

Maybe I was a bit confused by Jimmy's comments, apparently he did not view his call from yesterday as wrong. He blamed the down day on ETF manipulation. Yes, the guys pinning the options are now causing the ETF's to go in any direction and today they picked lower. I guess its the equivalent of the trade where you were correct but lost money anyway.

Just ridiculous, and Jimmy, are the SP futures pits also manipulated and if so you have a real scoop.

Some of the traders I communicated with today laughed at the idea that the charts had something to do with the selling. My take, go with chart voodoo over ETF manipulation voodoo.

Finally, it seems like CNBC has recently ignored the Middle East war and focused exclusively on earnings and guidance of reporting companies. I would not eliminate geopolitics from trading decisions as the conflict may escalate and will keep my trading timeframes short.

CHECK THE CHART

Here we go again with the DJIA down 83, SP down 10.5 and NAZ down 41 which eliminated the gain from yesterday and puts the index back down near the 52 week low.

The chart above is not looking pretty as the lower highs come back into play and the 50 day SMA under the 200 day SMA becomes crystal clear.

In the after markets, AMGN is up 2% and GOOG is hovering between - 15 and -25 near the $380 level as it appears we will have to wait a bit longer for GOOG to hit Jimmy's $600 price target.

Be aware that the only sector to the upside was the DRG which is screaming something at us, my guess, a substantial slow down as the oil patch continues to act poorly in light of what appears to be robust crude prices.

STOP TRADING NOW

So today on CNBC, our guy Jimmy says of course the rally wouldn't hold. Yesterday he penned this piece at a bit after 4:00 PM and I quote:

"Put this one in your brain -- a reminder that you get these moments, when things are so bleak, that you simply have to buy.

I am a big believer that every rally of substance when the Fed is tightening starts from a substantially oversold position. You don't know where it is going to come from -- but it will happen. The fact is, we were just down too much for it to go down.
Think about it: Bernanke says he needs to look at the data to make a determination. But the data this very morning were bad! Didn't matter. We were too oversold. People who had been selling the Deeres and the Caterpillars and the UnitedHealths every day finally decided they had taken the stocks down too low themselves!

That's what happened. Don't be confused by it. We can now rally for days without fear of being overbought because we are just starting to drop the big down days from the oscillator.

Soon we will be too joyous again and there will be data like the CPI that will cause the talking heads to whine and ignore this rally and this day, just like they did not long after the June 29th relief rally. It is the nature of the beast.

So, remember this day. Keep it venerated. "

I find it totally offensive that CNBC knowingly or not, allows Jimmy to go on national TV and pretend that he was correct about something when the real time commentary shows the opposite. How long can GE allow this type of behavior to continue?

VOODOO

So far the witchcraft of technical analysis looks to be right on the money as the major market indexes get repelled at the SPX 50 day SMA. Checking the numbers, its all pretty ugly as the oil patch gets crushed, Semis get back to their 52 week lows, biotechs and small caps lag along with tech and the Naz.

Market internals are bearish with 2,350 more stocks red than green and check the VIX and VXN for more bear news as they have hardly flinched in the wake of todays setback.

The worst sectors today remain homies, oils, semis, airlines and cyclicals with drugs and consumers the winners; and with this being the recent norm is a recession or a slowdown far fetched?

On a final note, why does Revshark buy every dip in the SOX/SMH group thinking the down turn is over. I think the Elder trading rule is short stocks in downtrends on pullups and buy stocks in uptrends on pullbacks.

THE GOOD BAD and UGLY

So far the good is the DJIA hanging near the flat line with an equal amount of winners and losers. Best components are still MO and PFE and worst are techs led by MSFT INTC. The SPX also continues to hang near the flat line.

The bad is IWM SEMI's NAZ OIH XLE and QQQQ all lagging along with market internals at 1,300 to the red. Oils, homies, airlines, techs and metals the worst sectors while the best performers are drugs and retailers.

The ugly is an analysis by Adam of Jim's columns from yesterday and Tuesday. Check it out as he was bearish on Tuesday with the every sale is smart (lower), while coming back with the have to buy Wednesday(higher). More of the same from our favorite carnival barker.

QUICK FLIP

The markets are lower after being higher at the open as the market internals continue to be the best market tell. The internals opened with 1,500 more winners but quickly flipped to minus 1500. On a quick look, it appears the crushing of the Volatility indexes yesterday and the repellent at the 50 day are casting their typical spell.

The Semis and INTC look to be a good tell as both have opened red and have continued lower. Sectors outperforming include defense, drugs and homies with the laggards being airlines, oils, metals, biotechs and brokers.

DJIA components are mainly lower with INTC and MSFT the biggest losers and PFE and MO the biggest winners.

If your getting too giddy when the markets are ripping higher or too depressed when the markets sell off big check out the charts as there is some great stuff to be found by just looking at the pictures

TECHNICALS -VXO SPX

Futures are higher this morning on top of yesterday's big melt up in light of good earnings news from AAPL EBAY MOT etc. Note however, that there was a big sell off in the futures between 4 and 415 eastern time yesterday afternoon on the INTC disappointment so we are sitting near fair value (the cash close) as I type.

The pictures are giving some pretty clear sell signals as the 2 day RSI on the SPX is over 90 and the VXO is trading at about 6% below its 10 day SMA so I suggest caution on this "GAP" up this morning. On top of the VXO/SPX signals, we also have the SPX approaching its downtrending 50 day SMA. What do they say about signals lining up; and I would watch the giddy CNBC journalists for the final piece to the puzzle.

MORE KRAMER

Just when I thought I penned the last piece of the day, Adam came out with some great stuff on the site I hate to criticize. Apparently, Jimmy's Action Alert portfolio is not acting well and there may have been a blow up today (3,500 YHOO) so the performance is even worse than today's numbers indicate. I thought it was odd that I received an email from RM today asking if I wanted a subscription to Jimmy's service at a discount. Hmm.

Anyhow, the market is selling off in the after market on news from INTC MOT EBAY and QCOM and be mindful of both the SPX 1263 resistance level, and cheerleaders on your CNBC station. On a final note, lets see if the QQQQ closes the day in the green as it has already slid back to the 36.4 level after being as high as 36.83 earlier.

THE CLOSER

The most impressive fact about the rally is the market internals as 4,000 more stocks closed higher than lower. The best performing sectors were airlines, brokers, metals, biotechs, and homies with the internet group the laggard thanks to YHOO. Should one worry about a market being led by the airline sector?

Other items of interest include the relative outperformance of the IWM as it was up by 2.75% compared to 1.1% for the QQQQ and 1.75% for the DIA and 1.6% for the SPY. Also check the action in IFN, the India closed end fund, which was up by almost 8%. Keep a close eye on the after market as many tech stocks will reporting after the close.

On a final note, is it just me or do the CNBC anchors get giddy on the big up days and depressed on the big down days. Listening to Maria and Haines today, one would think there will never be another down day. Maybe one of the bloggers will come up with a manic depressive market indicator based on CNBC "journalists" and I use that word loosely.

TALKING PICTURE

Here is a picture that is worth at least a thousand words. The 50 day SMA is the line on the chart and if you look closely you can see that when the SPX was in an uptrend, the 50 day line provided support every time it sold down. So far during the downtrend, it has held as resistance every time the SPX rallied. Food for thought as we rally to the 1258 level with the 50 day SMA just a bit higher at the 1263 level.

A GIFT

Maybe I am just in a sour mood, but my thought is that this strength today is for selling. I have unloaded some unwanted inventory and if we climb higher I will unload more. My guess is that we have set up a nice day for the shorts and all the happy talk is to be sold. There also appears to be nothing new in Big Ben's testimony and the reason for the rally is most likely the oversold condition.

The VIX/VXO are acting as forecasted, with both down close to 20% and 5% below their 10 day SMA's, so "boom boom"and poof goes the oversold condition. The 2 day RSI on the SPY also goes quickly to an overbought 89 and in an ugly downtrend that is good enough.

Market internals continue strong with 3,700 more winners than losers; best performing sectors include metals, small caps, airlines, brokers, homies, bios, banks and retailers. The worst performing sector is Internet related with YHOO GOOG and EBAY all in the red. Oils are higher but they are lagging the major indexes.

OPENING THOUGHTS

The markets are way higher on good news from Big Ben and the oversold condition, but I would stress caution as the VIX/VXO tandem immediately drops 12%, and the techs are not leading in light of YHOO and the spill over to the other internets.

Market internals are strong with about 3,300 more gainers than losers and the bios, banks and brokers are all leading. Oils are lagging along with the homies and the metals and watch for the overhead resistance at the SPX 1260 level.

ARMS STUFF

I certaintly don't like to criticize anyone at realmoney.com, but I think Dick Arms may be in need of new spectacles. In this morning's commentary Dick says the following:

"The Dow came down to just about its June lows, where support is to be expected. The S&P 500 has, so far, held just above that support level as well. The Nasdaq broke that support last week, but it seems to be trying to hold at its October support level.

The VIX is almost back at its level from the June market low, which is another reason to look for some support here. In addition, the Arms Index moving averages continue to be very oversold."

I agree with everything except the part about the VIX which hit 23.81 on June 13 and hit a high of 19.58 yesterday. That is not back at the June levels and maybe if Dick looked a bit closer he may have drawn the same conclusion that I did on my first post.

TECHNICALS-VIX

Yesterday, I mentioned some of the market tells that would get me more bullish such as better acting financials, leadership from tech/semis, and better market internals. One I neglected to mention was the VIX/VXO tandem, and if these indexes quickly tank, I will have major doubts about the sustainability of any rally. A look at the chart of the VIX quickly shows that their was less fear yesterday than their was the last time the SPX was trading at the same levels. Currently the VIX/VXO tandem is trading at levels approximating 115% of their respective 10 day SMA's. A quick return to their 10 day SMA is going to indicate to me that this rally will be short lived and look for quick sellers at the SPX 1240 and 1260 resistance levels.

THE CLOSE

The markets have closed in the green with the DJIA +50, NAZ+5 and SPX+2. I am not too excited as the market internals show a whopping 300 more winners than losers with best sectors being airlines, reits, internets, and small caps with retailers, homies, metals and techs bringing up the rear.


Some folks getting a little bullish today including Captain Kirk who thinks bearishness is getting a bit overdone. Not sure I am on board but maybe we are getting close to a short term bounce ( a good short). The Oil patch continues weak as the OIH is down another few points and my feeling is that if oils go lower, the major market indexes will follow with the reverse also being true.


Jimmy on Stop Trading offering nothing as he has found that there is no bull market to be found in any of the 882 that he has recommended . His SHLD is being crushed and not even a mention so maybe even he is (bullish?) throwing in the towel on that one.

I continue to stay in the show me mode and will not be buying until I see positive market breath for more than a few hours, higher prices in the OIH/XLE patch, tech and semis outperforming, and better action in the financials/brokers. Also don't forget that major resistance lies above at the 1240/1260/1280 levels so don't get too excited about a big rally as lots of trapped bulls will want a break even exit. One other thing, look out for poor guidance from the companies reporting, not sure how much of that is factored in and, yikes, Bob Froehlich of Scudder says to be fully invested. Of course he said the same thing at NAZ 5K.

TECHNICALS

After buying all the dips on the way down, revshark on realmoney.com offers this in a column today:

"It is extremely important that we stay patient and not be overly aggressive in trying to catch a turn. First, the losses you can rack up while constantly trying to catch a bottom can cut into any gains you ultimately realize. In many cases you are better off missing the early part of a move rather than overanticipating because the downward moves have a tendency to last longer and go further than seems reasonable.

It is also important not to become overly excited at the first sign of strength. In this sort of market there is a strong inclination for trapped bulls and aggressive shorts to sell into strength. We saw this yesterday when the markets couldn't gain any upside traction although the move to the downside had slowed.

Stay patient. The market will make a lasting turn at some point and when it does there will be plenty of time to participate in the festivities. If you miss the early part of the move you more than likely will still be ahead because you missed the tail end of the downward move. Precise timing is nice but it's more about ego than it is about making money."

I find it quite interesting that Rev is now saying don't call a bottom after trying to call the bottom several times over the last few weeks. I have a feeling that running a hedge fund puts one in a performance anxiety situation while trading for ones own account yields no such pressures.

I also remember Cody last week asking the question about whose more scared bull or bears. Well the answer was obviously bulls, but it also did not matter as the market continued lower and the bears continued to make money as they sold/shorted all rallies.

My point is that the market is in a brutal downtrend and trying to game the turn is more than difficult. The money trade is shorting rallies and ignoring long trades as all the major indexes are in severe downtrends. I would also ignore all signals for long side entries and stay focused on short trade signals.

Today also looks to be the day when the downsloping fifty day SMA crosses below the 200 day SMA and that may bring out more sellers as timers head to the sidelines.

Bottom line is this war doesn't look like it will be out of the way any time soon and staying short or sidelined in this ugly downtrend is the way to hang on to your capital. And remember another old adage "the market can go up more than you thought possible and the market can go lower than you thought possible."

BACK TO THE LOWS

As I suspected, the morning rally could not hold and the markets are back near there mid June lows on the SPX and the QQQQ. Oil stocks also can't get any jig in spite of today's higher crude and the last time the OIH was this low, crude was trading in the high 60's, so some confusing action in the oil patch.

Market internals have flipped the switch to red and there are now about 1,000 more stocks losing value than gaining.

Sector wise almost all are in the red with the worst performers being retail, semis and metals.

My take is that all the decent rallies in NAZ or SPY can be shorted. Bottom calling has been a fruitless experience lately and I will leave it to others to try and find the bottom.

EARLY LOOK

Markets open higher led by oils, airlines, small caps and brokers with leading laggards being metals, retailers homies and defense.

Market internals act bullish with about 2,000 more winners than losers. HD JNJ and WMT are all lagging DJIA stocks.

The sectors/stocks that I would expect to lead a rally (SMH KLAC QQQQ GS) are not acting that well hence I don't expect much upside movement. My guess is that any significant rally in the SPX to the 12501260 area will be sold quickly and shorted by the Bears.

BACK FROM THE BEACH

Long weekend in South Florida and a great time in South Beach; highly recommended to all.

As I look at my turrets, I didn't miss much as the major market indexes went nowhere. Oil stocks however were crushed on the thought/hope that violence in the Middle East is contained and ends quickly. Not so sure the fighting is going to end any time soon, but there appears to be plenty of opportunity when oil stocks sell off or rocket higher on percieved news.