TECHNICALS-SPX

Looks like we are at the high end of the SPX range which I define as 1235/1285 and I have no buy or sell signals, just closer to the top than the bottom. FWIW, I have no index longs but some QQQQ short.

VIX is a bit below the 10 day SMA of 14.69 and the 5 day RSI reading is 38, which is low but not quite a sell signal.

My guess is another rally into the fed and then the selloff as the bad is good turns into bad is not so good and the bulls ammo is spent and month end money is gone.

Here are some terrific links from Barry and Captain Kirk, and I especially recommend Van K's book, Trade Your Way to Financial Freedom.

RANDOM QUESTIONS

Here are some random thoughts for next week:

How much of the rally was due to end of the month/beginning of the month markups/401k money?

How much of the bulls ammo is spent?

Will another storm/hurricane form over the weekend and get crude back in the mix?

Will there be a cease fire over the weekend?

Why did the DJIA go up over 100, go down 40 and close unchanged?

When does Iran and North Korea reenter the radar?

If the fed pauses next week, will the language be hawkish creating another problem for the bulls?

Will the 4.9% 10 year Bond rate cause asset alligators to sell bonds and buy stocks?

BUY HIGHER SELL LOWER

I am officially changing my trading style and now will just trade one strategy, buy higher opens and sell lower ones. Of course the "traders" who bought this open have been fleeced big time just like the suckers who shorted yesterday's lower open.

My trading style of trying to buy lower and sell higher has been working well and I will stick with it. Buying breakouts and selling breakdowns has been a disaster lately and I expect that won't change any time soon.

My QQQQ short is working pretty well and I will stick with it for now even though the overbought status is diminishing. The QQQQ seems to have been repelled right at its 50 day SMA and a further drop would not surprise me.

The oils continue to trade lower and I will be watching for an entry point on the OIH/XLE tandem as their 2 day RSI'S get into buyable ranges (under 10).

MORNING THOUGHTS

The markets reaction to the weak job numbers has been pretty good as most expect the fed will not raise rates this month. The question most should be asking is when does the bad economic news turn to not so good news for stocks.

My guess is that its not today's business but keep it on the radar screen. Also, if the feds main job is to fight inflation, how happy are they with the higher wage numbers in todays report?

The markets opened near the highs and have sold off since. Market internals are bullish with 2,400 more winners than losers although they were also much better near the open. Best sectors - internets, brokers, homies, retail, semis and financials. Oils are lower and drugs and biotechs are flat. Small caps opened near their highs and have sold down fairly hard and are close to the flat level. A tell?

I have a sell signal in SPY (2 day RSI 90) and have sold all that I hold in a short term trading account and now have the largest QQQQ short that I have had in quite awhile.

The oils are looking interesting here as the OIH has lost several points from the 150 level earlier in the weekl. Any shot of a new storm developing over the weekend to drive the price of crude higher?

Volatility indexes are lower but not quite at the oversold level of 10% below the 10 day SMA so I have no desire to enter a SPY short.

BLAST OFF

I really don't want to work today, and this big gap up is not helping. Anyhow, my game plan is buy the pullbacks as I anticipate the rip gets sold and then dippers show to take us back up.

Some interesting comments by a CNBC guy regarding small vs. large; the opinion- if rates fall small caps will outperform.

And who really thought that the ramp up yesterday was based on a cease fire.

THE GIFT

Jimmy on 'STOP TRADING" talking about MRK and how great it has been. Well, Jimmy wasn't quite so excited about it one year ago when he wrote the following and how everyone should take "the gift" at 29:

"Merck's (MRK:NYSE) a huge problem here, now that the verdict has come in against it. I believe that we could be at the very beginning of hundreds of headlines like this, and the stock is only down a buck and change, which is the kind of decline you get on a garden-variety downgrade.

Some of that is because it is a quiet August Friday. Some of it is because of all of the puts being sold right now that just came back to life, so people get something back. I would not sell those puts. This verdict eliminates any chance of Merck getting a bid -- nobody wants this risk.
Merck could be in much more trouble than the Street believes because the Street doesn't understand litigation.

Merck yields 5%. Is the yield safe? Who knows? Merck doesn't know. It would be realistic to think that some prosecutor could go after these guys for murder. I am listening to the coverage of this right now and I am thinking, "Wait a second, when we first had fen-phen, I heard these same things, these exact same things, nice, calming chatter when you got some of the worst news possible. So what that it was Texas, which is plaintiff-friendly? The whole darned country is plaintiff-friendly when it comes to the drug companies."

I believe you should be ready for some horrible headlines on this, and that the stock simply can't be owned.

Period. End of story, except that $29 is a gift to the sellers, a gift that wouldn't happen if it weren't for expiration and August. "

I am actually quite surprised that Jimmy didn't own up and tells us how he was exactly wrong about MRK and what a great buy it was at $29.

HOME SWEET HOME

Markets are trading near their highs and at their highest levels (SPX) since early June, and a great big thank you to Liz Ann Sonders. Market internals have flipped to 1,500 green and leading sectors include internets, airlines, trannies, retailers, semis and brokers. Art Cashin of CNBC and UBS, attributes the mid day flip to the potential ceasefire in the Middle East. I am not sure I will go with that since the war had already flipped from the front to the back pages. The Iraq war is back on my front page as more generals and folks in the know anticipate the always feared civil war.

Homies are ramping up almost 4% today on the assumption that the end of rate hikes is at hand. The 10 year Bond is also signaling an end with the rate trading down to 4.94% which is the lowest since the beginning of April.

I have no idea if the end of hikes is at hand, but I do know that if the job numbers are good, folks will change their minds very quickly. I guess that is what they mean by data dependent.

NOON LOOK

Trade of the day, the gap fill. Anyhow, the markets are mixed with internals showing about 500 more losers than winners.

Bill Miller is probably making up some ground vs. the SPX as the internet stocks are flying with EBAY GOOG AMZN and HHH all higher. The guy on realmoney.com may have called the bottom in GOOG, but there is still a big gap to fill at the 350 level. And why don't I hear about GOOG price targets anymore and how about Jimmy with his $600 GOOG, and for all the homegamers, he made that call on April 21 when the price was $70 bucks higher.

Homies, airlines, internets, retailers and trannies are the best performing sectors with oils and metals being the worst.

Tony Crescenzi, the fixed income maven at Miller Tabak, is reporting the odds of an August rate hike have increased to 42%, and the market is priced for 46% odds of a hike at the Sept 24th meeting assuming no August hike. I will admit, it looks like a 50/50 proposition to me , but I do know that the numbers will change significantly after tomorrows job numbers.

Other interesting information - the composition of the SPX as of June 30:

Consumer Staples 9.6%
Consumer Discret 10.2%
Utilities 3.4%
Telecom 3.3%
Materials 3.1%
Technology 14.9%
Industrials 11.7%
Health Care 12.3%
Financials 21.4%
Energy 10.2%

Biggest components- XOM 3.23% GE 2.98% C 2.09% BAC 1.91% MSFT 1.78%
PG 1.59% JNJ 1.54% PFE 1.5% AIG 1.33% MO 1.33%


It still looks like a bid remains under the market but it may expire in the next few days along with the beginning of the month money.

OPENING LOOK

The markets opened on their lows and have been steadily climbing since. Internals have improved with a current reading of 1,200 more losers than winners.

Best performing sectors include INTERNETS, airlines and RETAIL. GS is higher and the BKX and XBD are flat. Worst performers are oils, metals, small caps and biotechs.

Bad news from retailers, SBUX, MDT, S etc is not crushing the markets and check out AAPL as that one now seems to go up everyday.

Volatility indexes up around 5% but not giving any buy signals so probably a day of watching as maybe more beginning of the month funds to keep a bid under the markets.

No real feel here for direction, but it certaintly feels like the bottom is not going to fall out of the markets.

PRE MARKET LOOK

Retail sales coming in pretty lousy this morning as hot weather and high gasoline prices keep consumers away from the stores. SP Futures are gapping down about 6 points and it will be interesting to see if the beginning of the month money shows to negate some of the poor consumer news.

Oil stocks look like they are also set to gap down as the feared hurricane may not be so scary. These equities are on my radar screen as "buy the pullback," so I will be buying OIH XLE on weakness.

CLOSING STUFF

Markets close in the middle of the day's range with the NAZ being the best performer of the major market indexes.

Best performing sectors were metals, tech, small caps and biotechs. Losers were internets and if you are in the sector, you have some excellent company as Bill Miller of SPX beating fame, has gotten crushed this year. His Legg Mason fund is down about 10% for the year, but he is still optimistic on internet stocks even though they act like death.

Sell signals generated in the middle of the day were all negated by the close as the markets gave back much of the morning gains. Tomorrow should be interesting with the nat gas and retail comp sales reports.

BREAK OUT UNDONE

Not sure who turned on the sell signal, but the markets have turned south as the DJIA has rapidly lost 50 points and the SPX is right back under the 1280 level.

Art Cashin didn't give much help as he noted the 90 day MA was an important inflection point and as usual volume wasn't high enough to give any confirmation. I have been listening to Art for years and he is very good, but I don't think he has ever said something like "volume is high today therefore we can tell a lot from this move."

I hope the 150 sell signal on the OIH and the overbought readings on the XLE were noted as the oils have sold off fairly hard this afternoon.

Also, curious to see if the bulls can come back in the last half hour and bring us back, for if not, its the same old trading range(lol).

BREAK OUT

I am not a big believer in trading breakouts, especially in Index ETF's, but the SPX is making a two month high today. My guess is funds are putting end of month 401k/retirement/savings money to work which is goosing stocks, probably started yesterday afternoon after the EFT's arrived.

My plan, assuming a romp into the close, will be to sell some longs and add to my small QQQQ short as the 2 day RSI on SPX and the Volatility indexes are beginning to give some sell signals.

And for those waiting for the SPX/DIA outperformance, not today as IWM is +1.6% while SPY+.9% and DIA +.8%. If you are expecting a big cap outperformance, move it all to cash as it will only happen if the markets move lower.

TECHNICALS- XLE

XLE moving up and nearing the $60 level; also nearing a 100 reading on the 2 day RSI so my plan is set and I will be selling some calls on any move higher.

The markets act fairly well but there are some flys hanging around keeping a lid on my bullishness. The problems, GS (down 3 bucks), the banks and the brokers and the NAZ internals all lagging; KLAC also a non participant so just a heads up.

OPENING CHECK

Markets open higher led by PG/CTSH as both trade up over over 4%. Sector winners include the usual suspects- oils and metals with airlines, biotechs semis and small caps also higher. Losing spots include YHOO EBAY GOOG and GS.

Market internals also strong with 2,100 more winners than losers.

In addition to PG best performers in the DJIA include T CAT PFE HPQ and MSFT; biggest losers are AIG HON GE AA and HD.

OIH is nearing the $150 line and that was a sell signal the last time it hit and my guess is history will repeat as better entry points will reappear since the ETF has gone straight up for 20 points.

MILD ARMS

Dick Arms over at realmoney.com gives his opinion this morning on the state of the markets:

"It isn't surprising that the markets have hesitated the last few days. At the end of last week, I noted that the Dow was right up to the highs of early July. In addition, we saw that various indicators, such as the VIX and the shorter-term Arms Index moving averages, were getting well away from the oversold extremes of three weeks earlier. The market looked as though it was due for a rest.

So far, stocks aren't overbought enough to be disturbing. The up days have been punctuated by enough down days to keep us from an extreme overbought level.

I continue to suggest holding most long positions established early last month, but I'm willing to take profits on stocks that look as though they have run too far, too fast. We may see some more upside in the next few days, but I think the bulk of the advance is behind us."

Bottom line, and I agree, we are near the top end of the recent range and the markets probably are not going to move substantially higher. In addition, we are heading to a seasonally weak period, so probably not much upward movement till the fall.

INDIAN BPO

Congrats to Jay Somaney at globaltechstocks.com for his CTSH call as the stock trades up 4 in the pre market. Jay says a 7 handle today; so lets see what happens.

Nat gas back over $8, crude over $75 and Castro's health problems are dominating the headlines. Oil crop report at 10:30 so a heads up. Retail sales tomorrow and the big jobs report on Friday. ADP comes in with a 99,000 projected number and just remember they were way over last month. SP Futs trading about flat with fair value after being somewhat higher earlier.

POPULAR DEMAND

Kudos to John W. for the heads up on the 90 EMA on the weekly SPX. Seems to be a real good line in the sand for support on a weekly basis.

CLOSING SIGNALS

The market jumps in the last hour gaining back about 50 DJIA points and the internals improve to 2k more losers than winners from an earlier 3k reading.

Sectors in the green included homies, metals and oils while the losers included GOOG(down 11 points), airlines, semis, retailers, trannies, tech and internets.

Closing prices aren't giving much in the way of signals as the VIX/VXO duo close near their 10 day SMA's; SPY QQQQ IWM all close with 2 day RSI readings under 50 but not oversold enough for buy signals; OIL ETF's giving sell signals with 2 day RSI readings near 90 but my plan is to sell XLE August calls if prices rise and buy more XLE if prices fall to RSI readings near 20.

CONVERTED

Art Cashen often mentions how he watches the 90 day SMA on the SPX and I must admit that I never followed it but decided to check it out today. Well, check it out (blue line) as it has acted as a wall of resistance during the recent downtrend. Not sure it was helpful during the uptrend but it certaintly is something to put on the radar screen along with the 50 and the 200.

SNAZZY NAZZY

Markets continue lower and anyone notice how bad tech and SMH are performing. Any truth to the death cross of 50 under 200? Yes, they are the worst performing indexes, and another question- If inflation is back based on the morning economic release, why is the 10 year Bond still trading under 5%?

Market internals still lousy at 2,500 more losers than winners, but NYSE is slowly improving while NAZ sits near the lows.

The only sector in the green is precious metals while big losers are semis, tech, GOOG(-2.5%) trannies, retailers and biotechs. My big market tell, GS, is down 1.6% so a turnaround is probably not in the cards today as it's a fade rallies kind of day and is there any bottom to the internet sector; HHH EBAY YHOO AMZN lower every day.

NOON UPDATE

Markets continue to trade lower but are off their lows. NAZ -28, DJIA -76 and SPX -8.

Market internals still show more than 2,500 losers to winners and the only winning sectors are metals and oils. Worst sectors are semis, airlines, trannies, biotechs and internets.

Briefing now reporting that "strength in gold stocks attributed to view that surge in crude oil and gasoline prices bringing back the inflation hedge."

Also on the briefing wire "Olmert says Hizbollah will never be able to threaten Israel again" and "at beginning of political process that will bring ceasefire."

I have been listening to the VLO conference call and margins are huge, estimates are light and will be raised and the price of VLO is probably going higher with a share buyback adding buying pressure.

HEADS UP

Please note the technicals this morning as the SPX has support at the 1260/1265 area as the old resistance becomes new support and the 200 day SMA at 1267+ is another area where bulls will hope for a bit of a bounce.

Also, keep in mind that Thursday is retail comp sales day and my sources are telling me its going to be ugly in light of the weather and the rude crude.

OPENING BUZZ

Markets open ugly with QQQQ and IWM leading the markets lower. Market internals ugly with 2,500 more losers than winners with zero winning sectors.

Worst performing sectors include trannies, biotechs, airlines, semis and small caps. Oils are trading a bit lower as VLO trades slightly higher in light of blow out earnings and guidance news.

In the TECH sector, GOOG is lower and is there a problem with the chart and the $600 price target?Looks like the 50 day SMA is going under the 200 and a gap will probably fill at the $360 level. Trouble ahead for the GOOG?

SUMMER BLUES

Heat advisory all over the continental U.S. as temperatures may approach or even exceed 100 degrees. The calendar says August 1, so it really is not that surprising.

The good folks at the CXO Advisory Group have done some work on a monthly trading calendar and some of the data is quite interesting.

The work for the month of August shows a downward bias for the first 10 days, and a climb back near the flatline before month end. Of the 16 August's they reviewed, eight were higher and eight were lower and upon further review, its probably pretty bearish news as ten of the years included (1990-1999) were in the middle of a very bullish period for equity markets.

Overall, their testing has found that equity markets typically rally from the beginning of the year into July, fade into the middle of October and then rally again through the end of the year. Their site is terrific with lots of worthwhile stuff.

THE CLOSE

Markets close near the flatline as oils, semis and small caps lead the way. Airlines, internets and homies the worst groups and the 10 year Bond closes under the 5% benchmark.

Why do they keep talking about the heat? It's the end of July and high 90's; what a shocker, similar to very cold weather in January and don't be surprised by a hurricane in September. Let me know when its 50's in July and 90's in January; then you have a story.

Final note, if you are/were bored with the days trading, check out these randoms from Captain Kirk.

TECHNICALS -XLE

The markets continue to churn under the flatline and internals also show moderately bearish with 500 more losers than winners. Best performing sectors include oils, retailers and semis with the weakest being internets, airlines and biotechs.

Note the XLE as the oils trade near the recent highs, and mean reversion high/ low buyers/sellers may want to take some off the table as the 2 day RSI hits 86.

The OIH is not there quite yet as the recent high of 150 is still 4 or 5 points away.

USEFUL SPEAK / FED SPEAK

Jason Roney over at minyanville.com with some interesting observations on trading the first day of the month. He notes that the SPX has an up bias on the first day of the month and that bias increases when the last day of the prior month closes red. However, August is different with a 46.7% chance of being up, and when the last day of July is red, the first day of August was positive just 1/3 of the time. So just some fun fact to know as I plan the week.

Janet Yellen, the fed official had some great stuff this morning, "fund rates in roughly appropriate areas" and "automatically raising rates risks going to far." Also says "recent inflation news is disappointing" and she sees "core inflation likely declining in the medium term." Finally, " inflation gauge is above her comfort zone" best and most useful quote of all "energy costs are wild card." Great stuff, thanks JY.

That is the picture of PFE price action over last three years and being a DJIA mega market cap stock, the performance was not justifiable by the board in light of the moves in the DIA and SPX. Of course the new guy isn't doing much better as the stock is already red after being higher in the pre market.

Seems like Naz stocks are outperforming in the early going and I wonder if there is a trade to be had going long SMH and short DIA/SPY. If you like mean reversion trades, that may be a good ticket to write.

Note that the internals have flipped to flat as the dip has been bought and the financials seem to also want to lead as GS is +1%.

DIPPERS

So far the dippers have decided not to show as the gap down remains in play. The market internals are getting a bit stronger at 1,100 to the red and leading sectors are oils, semis, retailers and drugs. Worst groups are biotechs, internets, airlines, homies and metals.

I will be watching for some jig in GS C and the IWM for an indication that the market is going to turn higher.

Chicago PMI comes in at a better then expected 57.9 V 56 expectations.

The 10 year Bond is back at 5 even and it will be interesting to see if the bulls decide to buy.

PRE OPEN LOOK

At the open, I will be focused on how quickly the latecomers will be to buy the dips as one should occur with SP FUTS trading down 3.5 as I type.

AAPL and PFE both trading up 2% on an upgrade at the former and a new CEO at PFE as directors probably just got fed up with the smooth talking under delivering Hank McKinnell. Clogspot not allowing pictures yet today so maybe a chart of PFE a bit later. Thanks GOOG.

Other news, SNDK buying FLSH and shares of the target are trading up 12%; fed guy Poole on the wires indicating a 50/50 chance of a hike at the August meeting.