DULL MARKET THEORY

The market was certaintly dull till about 15 minutes ago when new highs for the day were made and the financials continued an upward trajectory. Semis have been green all day along with the NAZ.

A high tick reading of +1300 also hit the market as the highs were made so the 130.5 area on the SPY may turn out to be the high area for the day. I was tempted to short those high ticks but passed on the trade.

Sector leaders continue to be internets, semis, biotechs, retailers and tech. Laggards continues to be metals, oils and airlines.

Market internals continue bullish at +1,100 and the Volatility indexes are down 5%.

NOON LOOK

As predicted on the opening post the markets have gone nowhere today (so far) as the SPY has traded in an ultra narrow 34 cent range while the QQQQ is a little more volatile with a 23 cent range.

Sectors leading the way higher include internets, SMH, biotechs and retailers; leading on the downside include metals, airlines and oils.

Market internals basically flat with almost 500 more winners than losers.

The financials and the brokers still seem to have the key to the kingdom in my opinion and the way they break will be the direction of the markets.

I suspect lower from here and am leaning short with SPY and QQQQ.

OPENING CHECK

Markets opens a bit higher with the DJIA leading the way +25. Almost all the DJIA stocks are in the green led by BA UTX T MCD and IBM. The reds include AA GE and JNJ.

Market internals are slightly positive with NYSE +400 and NAZ +200.

Sector leaders include internets, oils, brokers, AAPL, semis and techs with losers being METALS and airlines.

SSRI was downgraded this AM and the stock is trading down 4% on the heels of that news and lower metal prices. I have mentioned many times that is one to buy on the dips.

Just on the wires, Fed's Pianalto says concerned about inflation and economic activity is moderating; and its appropriate for the FED to pause before judging if higher rates are necessary.

My guess is today the major market indexes just bounce around and don't get much steam in either direction.

BLACK GOLD

Here we go again, folks talking about the demise of oil as we enter the end of summer driving season, find a dearth of hurricanes to the delight of the insurance companies, and a brand new discovery of more crude than we could possibly imagine right in our own backyard. Oh and most of the oil analysts on CNBC are bearish.

My guess, rude crude is about to reappear as the charts suggest a bottom as we sit at the 200 day SMA on the crude chart. That area provided a pretty good entry point in the past.

In addition, the OIH is showing a bullish divergence as the momentum indicators make some higher lows as the price makes a lower low. My plan is to enter in the low 130's with a stop under 129 as the risk reward looks plenty good back up to the 145 area.

OIH is one ETF that always seems to overshoot in both directions.

THE QUICK

One had to be QUICK to find the entry but it was perfect as the SPY made its high of 130.57 around 2:00 this PM which closed the gap from yesterday's close at 130.53. Straight down from there as the QQQQ SMH also rolled down hill after making it into the black.

One only needs to follow the financials to find the real trend of the day. They had a blip up when the SPX closed its gap, but besides that blip, straight down. Also check the charts on GS and MER, they tell a similar story.

Market internals did flip briefly on the NAZ but couldn't hold as the sellers eventually overwhelmed the buyers. The close at 2,100 more losers than winners is better than yesterday so maybe we get a shot at another bounce tomorrow.

I haven't written much about the new high / new low list but I think they also tell an interesting picture as the best the new high list got was to about 170 between the NAZ and the NYSE at the markets high of last week, and today the list has more new lows than new highs. Doesn't give a lot of confidence in a market that is only X% off a four year high.

And does anyone really care about the Dick Grasso story besides Maria and Charlie? Why is that interview helpful to traders/investors?

TRADE THE GAP

The gap fill trade played out pretty well as the NDX filled a little while ago and the SPX, well we still wait for that one to fill but it is certaintly well off its lows.

The semiconductors were the lead tell as they flipped to green fairly early in the session. NAZ internals also improved all morning although they have not flipped bullish as of yet.

Market internals show 1,500 more losers than winners with the Volatility indexes backing down from their earlier highs. Best performing sectors as I type, the SOX, airlines, trannies and techs. Bottom sectors include metals, brokersk, internets and financials. Oils are flat with the refiners a tad higher and the service cos a bit lower.

The gap was a good trade, however its now back to the short term trend lower in my opinion as the banks, brokers and big caps don't give much confidence that we are going to make a complete about face from yesterday's ugly action.

QUICK TAKE

Markets open lower with all sectors in the red except for the oils which have opened flat. Worst of the sectors are metals, techs, small caps and internets.

Market internals show 2,800 more losers than winners which is a hair better than yesterday's numbers at this time.

Interesting how AAPL and KLAC trade near the unchanged line so maybe a little tell that a "snap back" short term bounce may be near. GE PG FTO VLO and USO about the only other green on my screen. When does Boone show up to give oil a little pop?

Volatility indexes really not jumping all that much as VIX/VXO both higher by 3% to 5%, so still not that much fear in spite of the calendar.

Six DJIA stocks are higher with PG XOM GE MO leading while CAT INTC MRK HPQ are the worst of the other 24.

Oil patch numbers due at 10:30 EST, so just a heads up.

PRE MARKET LOOK

Looks like the lower highs on the MACD Histogram finally kicked in to actually mean something as the SPY was down over a buck yesterday. Initial target looks to be the gap up from August 16 at the 129 level or about 15 SPX points lower than yesterday's close.

Futures are pointing lower by 5 as I type so another 50 cents closer to the target.

According to John Carter's book, Thursdays are excellent days to play the gap fill trade and I suspect today may fall in line and if the gap does fill, I will be shorting.

THE CLOSE

Markets have closed at/near their lows and the best predictor of the day turned out to be the market internals which never flinched as the markets tried to rally in the early afternoon.

Generally the NAZ COMP doesn't go lower than 40 points in a day and the SPX rarely goes under 15 and we have closed near those targets.

There are ZERO sectors in the green on my list with the best of the bad being banks, consumers, big caps, and metals. The worst of the worst are semis, small caps, oils, airlines and biotechs.

Market internals closed with 3,500 more losers than winners with five DJIA stocks higher and twenty five lower.

The question on most traders minds is whether this dip gets bought or if the remaining profits should be taken since we are in September and everyone knows the trading almanac for September.

My guess is we go lower and today is probably the beginning of a new downtrend. If one takes a quick look at the charts, we are back to where we were a few weeks ago and my downside target on the charts remains QQQQ 37.75 or NDX 1535(see it), which is the gap that remains to be filled from August 16.

DIAMONDS

Lots of traders are wondering if the buyers/dip buyers are going to come to the rescue before the close and there are a few crosscurrents giving good arguments to both sides. First, the internals have remained very bearish all day with well over 3,000 more losing issues than gainers. For the bulls, the banking index opened at its lows and has been climbing most of the day since and that is usually pretty bullish. The NAZ and the small caps are performing the worst and they eventually lead the markets in direction so my guess, they close near the lows.

I mentioned earlier that I was short the Dow Futures and have been for most of the day. If one
looks at the DIA interday chart, it is pretty clear that the ETF is oscillating between its daily support at 114.44 or 11450 on the futures and 114.15 or 11420 (daily double support) on the futures.

DOW futures have some added trading benefits- a) trading with a one point spread which is far better than the SP futures with a 2.5 point spread; b) one can follow the TICKI, which is the tick on the DJIA 30 stocks c) one can also watch the action of each of the 30 components at any time and make buy or sell decisions with much more information than on the NAZ or the SPX.

NOON UPDATE

The adage is that markets that are weak most of the day tend to close at/near their lows. Today should be an interesting test of that saying as the internals are skewed way to the bearish side (-3,300) led lower by small caps and techs.

The Volatility sisters are higher as fear abounds (hardly) with the VIX at 13.4 (+6.5%) and VXO(+11.4%) 12.5. Doesn't seem that high with the recent drubbing, but may be the beginning of a new trend with markets generally lower as the unfriendly month of September gets into high gear.

The only sector higher is the metals with the banks trying to rebound to the unchanged level. Worst sectors continue to be semis, oils, biotechs, internets and small caps.

If the oils gets drubbed a little more I will probably dip another toe into the VLO/FTO/XLE/OIH group.

For now, I have joined the downside bandwagon and am short the QQQQ, SPY and Dow futures.

OPENING LOOK

Seems like the folks who proclaimed "never another down day" will be rethinking their strategy this morning as the markets open lower by 1/2%. The question on days like this is when will the "buy the dip" crowd show and that will likely be the key to how far this selloff goes.

The best performing indexes yesterday, IWM and NAZ are performing the worst as the DJIA acts the least bad. No doubt the CNBC folk will be reminding us how well the big caps are acting.

Don't see too many best performing sectors, but the best of the bad are the consumers and the banks. Worst are the oils, semis, biotechs, techs, airlines and small caps.

Market internals are an ugly 3,200 more decliners than advancers and with internals that skewed, my bet is the day traders will be shorting into rallies.

Final note, Lebanon says that it will break the Israeli blockade if not lifted within the next 48 hours. That can't be good news.

DRIFTING

Another day of drift up action in the major indexes and another day of lower highs on MACD Histogram and ROC momentum indicators. Two leading technical analysis indicators that generally pre tell lower prices as they indicate that the market is running out of upward steam.

Volatility indexes continue to trade near their 10 day SMA's with little volatility as the slow pre Labor day trade continued ALD.

The 2 day RSI numbers on the major market indexes continue with sell signals as upper 90's and 99's prevail on just about all the major ETF's.

I am not sure what the catalyst will be for the selloff, but I am fairly certain one is coming shortly as the markets have had very few lower closes since mid July.

BORING

Bob Pisani seemed to be annoyed as the volume on the markets failed to pick up on the heels of the end of summer and the return of the big boys to the street. Seems like we are always waiting for something on the street and today we didn't get much of anything as boredom prevailed. New oil finds, new CEO at Ford, CEO firings at VIA and big job cuts at INTC couldn't help the day.

Small caps were the big winners as the IWM was up .8% and the DIA/SPX were flat to fractionally higher. Tech did well with SMH higher by 1%.

AAPL, the metals, oil service, brokers (GS), and the airlines were the best performers while drugs and consumers lagged.

Market internals closed with about 1,000 more advancers than decliners and the Volatility indexes closed higher as slow summer trading hopefully falls by the wayside.

BIG CAP BOOYAH

Another day of big small cap outperformance as the IWM is +.7%, DIA FLAT and SPY+.2%.

Sector leaders continue to be metals, oil service, semis, brokers and airlines. Laggards are drugs, trannies and consumers.

Market internals continue to be fairly strong at +1,100.

Volatility indexes are up a bit as one would suspect in light of the end of holiday trading and the beginning of "real trading."

New question is will the old support on the QQQQ (40) now turn into substantial overhead resistance? My guess is it will but that target is still more than 60 cents or 25 NDX points away.

Another question is are the refiners, which have been getting roasted lately, in buying territory with FTO near 30, and VLO near 55? My guess is yes again.

NOON THOUGHTS

So far, traders have decided to trade with the trend and buy the morning pullbacks; as many probably noted, the market internals never flipped to red and are now bullish with 1,500 more winners than losers.

Semis have also flipped to green as they are now leading tech higher. Other sector leaders include metals, airlines, brokers and retailers. Laggards include drugs and biotechs. Any chance that CNBC notices that small caps are leading as the markets are higher. Funny how when the markets go up IWM leads and when the markets go lower IWM leads.

Looks like some short term thinking may have also switched at the DJIA as CAT GM BA AA and HD lead and recent leaders MO PG PFE JNJ and MCD lag. Not sure if that is the soft landing theory or the reversion to the mean trade.

OPENING CHECK

Suprisingly the markets have opened a bit lower led down by tech, internets, biotechs, and drugs. Higher out of the box include metals, retailers, and brokers as GS has again recaptured the $150 line. Small caps are leading as the IWM is the only major index higher as I type.

Market internals are flat and the 10 year Bond is back over 4.75%. Just wondering if interest rates have put in a short term bottom which may also signal a short term top in the major market indexes as they bottomed back in June/July when the 10 year was trading at the 5.25% rate. My source at Minyanville.com suggests that commercials are now way net short the bonds and that is generally the smart money.

HAPPY HAPPY

The picture says sell or at least don't buy as the markets continue their drift up. The VIX sits at the 12 level which certaintly makes option buying look cheap. One suggestion in Barrons this weekend was to buy Treasurys and use the interest earned to buy puts or calls. Not sure that is what I am going to do as I continue to sell longs into this rally. My guess for today and this week is dips will be bought until or unless it stops working.

Another view from above is that the SPX picture will look like a cup and handle on a pullback or a breakout on a continued move higher. Happy bulls?

TECHNICALS-SMH

Just wondering if the end of the SMH run maybe be at hand. Back in July, I pondered a long with it appearing to have double/triple bottomed. Now, it also appears to be topping in the $34+ area where MACD Histogram is making a lower high as the price made a higher high.

Stochastics also looks overbought with the probable turn around lurking around the corner.

Another signal that the NAZ/TECH area may be topping is the recent lack of follow through on the ADV/DEC line. On Friday while the SPX and the DIA were moving up nicely, the NAZ advance/decline line was flat as it was on Thursday. I doubt any of the major market indexes are going to continue higher without the NAZ leading the way.

The action in the big financials continues to tell me that the markets are not home free as they continue to be a drag on the major indexes.