TECHNICALS-SPX

The SPX chart is looking a bit toppy ( as it often does during major rallies) with the MACD Histogram and the Rate of Change indicator making lower highs as the markets continue to drift up. Typically the negative divergence is a warning sign of lower prices but so far the markets have refused any significant pullback.

The Volatility indexes also appear to be headed for single digits but as Adam points out, that is somewhat related to the time of year and the upcoming holiday.

ANOTHER SHOCKER

Looks like I was wrong again as the markets managed some afternoon jig as the NAZ came all the way from -15 to +6. Market internals also improved all day and finished at +620.

SPX 1,300 back in the rear view mirror and Monday's action should be interesting. I am looking for an early morning high and then selloff. That is out on a limb but it is my thought for now.

Winning sectors included oils, internets, techs and small caps; losers included brokers, GOOG, trannies, airlines and retailers.


Also note how the SMH came back after being way down at the open on the heels of DELL and AMD. DIA owners, be aware that the ETF went ex today with a 25 cent dividend.

Volatility indexes smacked again and now close to 20% below their respective 10 day SMA's. Please keep the longs on a tight leash as sell signals abound in this strongly upward trending market.

And great job by the yanks so far, and if they win this one all they really need is one out of the next four.

SLOW

The markets continue to hover near the unchanged line with the SPX and DJIA green and NAZ/ techs red (for now).

Market internals have fought back to only 800 net red with sector winners being oils, AMGN, AAPL, KLAC and YHOO. Losers include metals, airlines, GOOG, brokers and trannies.

No idea how this day will end but my guess is not far from where it began. The buy the dip crowd has showed up and is probably anticipating some more upside early next week.

Keep an eye on the SMH as it has come nicely off the early lows on the DELL/AMD news.

My plan for the afternoon is to watch the yankees beat up on the redsox and Phil to beat up Tiger outside of Chicago. Yanks play at 1 and Tiger vs. Phil at 2:30.

OPENING PEAK

Markets have opened lower led down by the small caps and the NAZ/TECHS.

In a reversal from yesterday, tech is lagging on the heels of DELL and maybe an overbought condition; other losing sectors include internets, semis, small caps, trannies and biotechs. Best sectors include oils and metals.

Market internals are decidedly bearish with 1,500 more losers than winners with the NAZ taking the brunt of the beating. The DJIA is slightly green and it is all due to MO which got some kind of unfavorable/favorable ruling yesterday after the bell.

Yesterday, I mentioned that no one on my pings was asking about shorting stocks at the open, all I heard was should I cover or buy? Well shorting the QQQQ at the open yesterday looks like a pretty good trade as of now.

THE GURU FACTOR

Every January, Jimmy Cramer makes predictions for the closing price of the DJIA at the next December 31. Not surprisingly, his predictions over the past few years have been pretty bad.

I decided it was time to take a look and see where he stands on this year's predictions.

The DJIA started the year at 10,717 and Jim predicted the year would end at 12,470. After the big rally we have just had, the DJIA is still way under his target by more than 1,000 points at 11,335. In 2005, Jim predicted a DJIA close at 12,547, which was only off by 1,830 points as the close was 10,717 so maybe he is doing better this year.

Now lets check some highlights:

AIG- Started the year at 68, Jim predicted a close of 90 and trades now at 64.

GM- Started the year at 19, Jim predicted a close of 10 and trades now at 31.

HD- Started the year at 40, Jim predicted a close of 48 and now trades at 35.

IBM- Started the year at 82, Jim predicted a close of 95 and now trades at 79.

INTC- Started the year at 25, Jim predicted a close of 31 and now trades at 18.

MMM- Started the year at 77, Jim predicted a close of 90 and now trades at 71.

MRK- Started the year at 32, Jim predicted a close of 25 and now trades at 39.

PFE- Started the year at 23, Jim predicted a close of 24 and now trades at 27.

WMT- Started the year at 47, Jim predicted a close of 55 and now trades at 45.

XOM- Started the year at 56, Jim predicted a close of 64 and now trades at 68.

The moral of this little excercise, Jimmy is not a guru and don't expect him to be when it comes to "guessing" stocks prices months in advance. The annoying part is he pretends he can and CNBC gives him a forum for it.

THE CLOSE

Looks like Mariano won't be necessary today as the yanks look to lose by ten runs to one of the leagues worst teams. Hopefully they are saving their runs for the next five game set.

Back to the markets, the internets are the story of the day as the HHH closed + 3.75% and EBAY +7%. Other strong sectors included biotechs, brokers, SOX, retailers and homies. Metals and oils brought up the rear and how long will it be before T Boone is back on CNBC calling for $85/$100 oil. Someone needs to pump it up and my guess is we will see him before long.

The market did hit the wall at SPX 1,300 and QQQQ 39, so we now have some upside targets and I will be watching the reaction when and if those numbers are approached again.

Market internals closed modestly bullish with 800 more winners than losers.

I don't expect much market action tomorrow as many trader types will be heading for the shore with all their newly found profits.

THE WALL

Markets look like they have hit the wall (temporary?) at QQQQ 39 and SPX 1,300. Who would have thought that?

Market internals have flipped to flat and most sectors have also flipped with the internets, SOX, homies and biotechs hanging on to green. Metals and oils still red but now joined by GOOG, AAPL and GS.

How long before we hear from our main CNBC tell, Bob Pisani, saying "of course they are selling off, we have gone up so much in the past few days." Did he say to sell yesterday because we went up so much. Don' t think so.

AFTERNOON READ

The markets continue higher this afternoon as they are led by semis, internets, brokers, biotechs and homies; laggards are metals, oils, trannies and banks.

If that leadership continues, it is very bullish and it will give the dip buyers continued reasons to buy.

Checking on the flight to quality trade, SPY+.35%, DIA+.37%, IWM+.8%, SMH+1.35% and QQQQ+.88%. So yes, small caps continue to outperform.

TECHNICALS-USO

The USO, or the US oil fund, which tracks the price of crude oil is coming back to the recent lows in the $65 area (which translates to approximately $69 on the crude map) where there is significant support. I see this as a good longer term buy and if there is some renewed saber rattling from Iran over the next few days as we get closer to the deadline, it could also be a good short term trade. I am taking a shot here and may also dip back into XLE VLO OIH XTO and PXD.

THE OPEN

The markets open mixed with internals flat and the question going around was: Should I buy the dip or cover my shorts from a while ago? A question I didn't hear was should I short here?

My decision; watch and see where the internals, financials, semis and GS leads.

As of now, the internals are flat, semis are higher, financials and GS moving up so its probably a buy the dip for a daytrade although longer term a bit more unclear.

Sector leaders include internets, airlines, semis, homies and biotechs. Metals, oils and GOOG are lower.

TECHNICALS-SMH

The NAZ futures are trading a bit lower this morning in spite of the good news from HWP last night and my guess is the bulls and the pull back buyers will show up quickly to give a floor to the market.

The SMH, mentioned back in July, seems to have bottomed and may be a good play in light of HWP and the probable bottom in DELL. Stops can be taken under the low of the last few days and risk to reward looks pretty good as the ETF may be able to make it back over the 35 level. SMH is one of the ETF's that always seems to go lower than you think sensible and higher than you think possible so shoot away.

THE PISANI

The markets have closed near their highs and Bob Pisani, of CNBC fame, is certaintly excited noting how the bears have been crushed and the markets are at three month highs. Jim Cramer also screaching about how the call sellers have been crushed and are probably out of the game.

My take, if you want to buy the highs, be my guest but it isn't the way to make money on a consistent basis and if you are long, trail those stops closely. If you are feeling like you can do no wrong, please go back and read this about buying highs and selling lows.

I haven't been much help lately as the markets have ignored my sell signals and made me look foolish. One thing is for sure and that is tomorrow is another day and we will see what it brings.

On a final note, a CNBC love fest as Hewlett Packard beats, raises and buysback. They know the market rally is good for ratings and that is all they care about regardless of how ridiculous they sound.

THE AFTERNOON

The markets continue to trade as there will never ever be another down day as the NAZ leads the markets. SMH also looking good here as it is up 2.5%. Small caps continue to outperform the DIA/SPY tandem, but the spread seems to be receding so maybe a tell. NAZ internals are not nearly as good as the NYSE but still positive by 840 issues.

The Volatility tandem of VXO/VIX continue to be worthless tells trading at about 14% under their respective 10 day SMA's.

The 10 year Bond yields 4.87% and that is probably the biggest reason for the rally as stocks get cheaper in relation to fixed income.

I have not made a trade today as I have decided to just let the market get way overbought without me.

TECHNICALS -VXN

The first dip on the SMH and IWM was bought and now the question is what will happen on the next one. NAZ internals continue to underperform and stand at +540 vs a +1450 near the open.

I like to take the signals the market gives me but Adam has another take on the recent volatility dippage and the sell signals. More food for thought and does that gap in the VXN get filled?

Techs, metals, airlines, homies and oils are still the best performing sectors while the retailers lag. Also check the banks and the brokers as they trade fairly flat and don't give signals that the markets are going to rip higher today.

THE OPEN

The markets have again opened higher on the bullish inflation news reported at 8:30; now the question is whether to fade or buy the pullbacks.

Market internals are bullish with 2,400 more winners than losers but the NAZ ratio has come down substantially in the first twenty minutes from +1,400 to +700, so heads up to the longs.

The SMH has also flipped from up 1% to flat and that makes 2 heads up as they often lead the general direction.

Best performing sectors are homies, metals, airlines, oils and internets; laggards include retailers and consumers.

Volatility indexes are a mixed bag, but we know they are oversold and giving sell signals.

My plan for now is to watch as I really don't see the market moving much in either direction for the moment.

ONE THOUSAND WORDS

The pictures above tell a lot if you are interested in buying low and selling high; VXO five day RSI under 30; VXO under 90% of the 10 day SMA; 2 day RSI on SPX -91; SPX negative divergence on MACD Histogram.

BUY EVERYTHING

If you like to buy high and sell higher, today was your day, of course it hasn't happened often but just about everything happens once in a while. Seems like Joey B. is back calling for NAZ 7,500 again, oh well.

The CPI number is tomorrow and the question becomes who wants to be long or short in front of it. My answer, not me, I will be on the sidelines with the anticpation of fading whichever way it goes, but that is a long way away.

As I mentioned a few times, the VXO/VIX tandem are very overbought, lower by about 8%, giving strong sell signals. Also sell signals with the overbought 2 day RSI readings of over 90 on SPX QQQQ etc.

Big cap Small cap update- IWM+2.1%, SPY+1.3% and DIA +1.1%. Big Cap buyers, hang in, when the markets head lower, the big caps will outperform.

KUDOS TO CRAMER

Jim Cramer got this one right when he suggested late last week to buy August CSCO 20 options. The stock has rallied from the mid 19's to the mid 20's and that is a huge move for CSCO in the post bubble era.

Today he is out with commentary on TWX:

"I am rarely amazed at how sometimes stocks act so badly. I just got off the phone with the Ingersoll Rand (IR) guys, for example, to ask what the heck, how can their stock be so horrible after a pretty darned good quarter? I have said the same thing to Nabors (NBR) and to Foster Wheeler (FWLT) .

But this Time Warner (TWX) . Now that one takes the cake. Giant buyback. A resurgent cable business. An aggressive maverick shareholder. Good quarter.
And it still doesn't move. At this point I don't know what does move it.
Frankly, this is an unimaginable situation, and it makes me wonder if the story simply can't be told or if the AOL business and the magazine businesses are just plain awful enough to overshadow all of the other businesses.
I also think that there is tremendous disdain for a company that borrows big money to buy back stock.

Still, tough, this one is really stuck. It would be very hard not to be so frustrated as to give up on this one. Just awful."

Is this the call we have been waiting for on TWX. Would not surprise me if it also rallied a buck from here.

TECHNICALS-SPX

The markets continue to trade near their highs with the best performing major market index being the QQQQ followed by IWM with SPY and DIA bringing up the rear.

Market internals continue to trade with a very bullish 3,500 more winners than losers and our guy Bob Pisani excited about all the cash on the sidelines. Someone should remind him that its August and its not such a great seasonal period for owning stocks.

Sector leaders continue to be tech, semis, brokers, airlines, midcaps and biotechs; laggards are oils, metals and consumers.

Trading signals say:

Volatility indexes all oversold at or near 10% below their 10 day SMA's and the 2 day RSI's on all the major market indexes are near the 90 line. The SPX is at 1280, which is significant overhead resistance and it is unusual for the markets to make much upward progress when the markets are this overbought based on my signals. Problem is, we have a big report tomorrow in the CPI index and if that is benign, the markets could continue to move higher. I think all ETF holders (shorts and longs) need to keep there trades on a tight leash.

OPENING LOOK

The markets open strong and continue to hold near their highs. Market internals are as bullish as they get with 3,500 more winners than losers. I would watch those for any slippage as a sign of another failing rally.

Strongest sectors include airlines, trannies, SOX, techs, brokers and retailers. The weakest link is the oil patch.

For all those looking for the switch from small to big, the IWM is +1.1%, the SPY+.65% and DIA +.57%. Just so you know.

Another for what its worth, the SMH has already lost over 1% of its opening gain as it has fallen from 31.89 to 31.55 in about 25 minutes.

GAP AGAIN

Here we go again as the futures pop higher on better than expected inflation news. Core PPI came -.3% vs +.2%; PPI +.1% vs. +.4% consensus. The NY Empire State index came in at 10.3 vs. 14.8 consensus.

The market is focused on the inflation numbers and those were better than expected and the NAZ futures are higher by 20 and SPX higher by 9 as I type.

Buying gaps has been a lousy trade lately as just about all of them have been faded and filled. John Carter's favorite trade in his book, Mastering The Trade, is to fade the opening gaps and Tuesday's gaps have a 77% chance of being filled.

This gap puts the SPX right back at the 1280 resistance level and the NAZ at its resistance level so just keep it in mind.

My plan is to fade it but to wait until I see some kind of exhaustion and downward action before I enter.

THE OTHER GUY

Revshark over at realmoney.com, whose columns I used to enjoy as he was very good with his market calls has become a perma bull in my opinion. If the market is going up, we should be buying strength and when it sells down, we should be buying weakness. Here is a take from his most recent column:

"Once again, early strength invites selling and the bulls suffer another depressing intraday reversal. This is the third such reversal in the last six days of trading and has to be taking a heavy toll on the bulls.

The intriguing thing about this poor action is that when things finally do turn, everyone who is conditioned to sell strength is going to be so badly positioned on the long side that we are going to see some very sharp spikes. Big moves to the upside will come when overconfident shorts are squeezed and the underinvested longs scramble to gain exposure.

I'm not anticipating that we are going to see a turn soon, but I am staying very aware of the growing pressure that exists for very big spikes up as market players continue to lean short. The fact that I am hearing from bears who are talking about how "easy" this market has been is a sure sign that they are going to be taught a lesson in humility by the market beast. "

Of course he could be correct, but for now it looks like a tight trading range and until that changes, that is how I will be playing it.

Also note that Revshark is becoming a mainstream guru as he details a seminar he will be giving at the Waldorf in NYC on August 26. So it goes.

THE CLOSE

The markets hit their highs early in the day and sold off most of the afternoon as 1280 on the SPX and 37.25 on the QQQQ continues to be tough resistance levels.

Market internals ended the day with 600 more winners than losers and the best performing sectors were semis, although way off their highs, airlines, techs, reits and trannies. Losers included oils, metals, homies, brokers and banks.

Anyone who daytrades has to watch the action in GS C XBD BKX SMH GOOG and AAPL. These stocks will give a very good indication if strength is to be found or if the market will sell off. If you look at the interday charts on those indexes/stocks you will see that they all made their highs early and sold off the rest of the day. My usual conclusion is that if GS has no jig, the market is going to have a very rough time making upside progress.

Volatility indexes also moved up after giving sell signals early. They are now a hair oversold, except for the VXN, which is on a sell signal. The only area that tempted me today on the long side was the oil patch and my bids never got hit. If we see weakness in the morning I will be buying.

I shorted some QQQQ into the morning ramp and hopefully it will ramp back to the 37.25 area where it always seems to find a top.

TIME?

The markets are off their highs as it looks like traders saw the old 1280 resistance line on the SPX and many decided to beat the rush and sold.

Market internals are no better than they were at the open so maybe a tell there that this rally will not last much longer.

My plan is to scale out of the SMH position and scale into a short QQQQ position as the volatility indexes slump further bringing them to 7%/8% below their 10 day SMA's. The VXN, the volatility index of the NAZ 100, is down 8% on the day and is 13% below its 10 day SMA; so some sell signals definitely appearing.

In addition, Nasrallah says its the "wrong time" for public discussion on disarming Hizbollah, and they "can't be disarmed by force." So we will have some interesting stuff going on before you can say Ahmadinejad.

TRADING PLAN

Markets continue higher led by techs, semis, trannies and retailers with oils and metals still at the back of the train. The internals continue to be a bullish tell with 2,300 more winners than losers, but I don't see them improving as the markets move higher.

Also, check the VXO as it slumps down to the 13.35 level or about 6% below its 10 day SMA. The general rule is that the markets rarely make much upside progress when the volatility indexes trade more than 5% below their 10 day SMA.

The SMH, which I bought on Friday is now up 2.25% from its Friday close and is the best performing major market ETF on my screens. Hopefully it has a little further to run.

I am looking to buy the oil patch today as the XLE and OIH are getting pasted and now have very low RSI readings. This has been a pretty good buy signal in the recent past and I don't see why today will be any different.

OPENING LOOK

Markets open higher with leading sectors being airlines, trannies, retailers, semis, brokers and biotechs while metals and oils lag.

Market internals, a bullish 2,200 more winners than losers and I will be keeping a close eye on SMH, IWM, GOOG, AAPL, GS, BKX and XBD. If these stocks/indexes start giving it up, I will be looking to short pullups as it already looks like we opened at the highs and have been coming in since. Fleeced again?

GAP UP

Markets are set to open higher on the cease fire news out of the Middle East. The good news, Monday gaps fill only 65% of the time according to John Carter's book, the bad news, cease fire's in the Middle East have a worst record with about a zero% chance of a long term hold.

Oil prices down this morning also on the news out of Lebanon and on the news of no new hurricanes. My take is that this is somewhat akin to buying oil stocks in the winter on the forecast of warmer weather and selling on the news of colder weather. The cold weather coming includes; hurricane season not quite over, Iran nuclear talks back on the front burner at the end of August and the almost forgotten North Korea missile tests.

SLICK

The new number 1 stock on the IBD 100 list, FTO, the oil refiner which is joined on the list by a bunch of other oil patch companies including VLO(50), XTO(77), HOC(14), SU(82), PWE (85) and RRC (91). Aside from these well known companies, there are more on the list, so you get the picture.

The gold stocks, GLG (21) and GG(75) also made the list.

Just not sure how bullish for the Major Market indexes to have the commodity plays back as the market momentum leaders.