NEAR CLOSE

Leaving a bit early today but clearly the afternoon trade provided very little as the markets chopped around under the morning highs. Big winner the DJIA and the large caps while semis and small caps lagged.

NAZ internals recovered to the flat line but hardly inspirational to the bulls or the bears.

Sector leaders were internets, brokers, metals, biotechs, and retailers while the losers included INTC, KLAC, EBAY, airlines, and AAPL.


It may be just a sign of rotating market leaders, but again today the New High list is kind of skimpy with 150 new highs (early afternoon) as opposed to about 220 in the middle of last week when the markets were lower. One would have expected with the markets so close to new all time highs on the DJIA that more individual stocks would also be approaching all time highs but obviously not the case.

Lots of chatter also about how the back end of September and the week after options expiration is negative for the markets and it would not surprise me as we are do for a pullback in light of the recent bull run and joyful outlook.

LATE NOON TAKE

The DJIA continues higher this hour as the other indexes struggle to stay green. Market internals are flattish with NYSE +325 and NAZ -400.

Sectors holding up include brokers (fading), banks, tech, homies and the hated oil service group (flipped green); laggards now include oils, KLAC, GS, drugs and retailers. Bottom line, kind of a mixed bag as the SPX futures are about flat and all the folks who bought the open are a bit unhappy.

Today is probably a perfect image of why many traders such as Mike, Kirk and others refuse to trade triple withing days. I believe they are correct and have not made a single trade today, yet anyway.

And isn't interesting the Bill Griffith finally decides to televise from the NYSE exchange because we are getting so close to the all time high on the DJIA. I just wonder why they don't rerun some of the tape from early May, the last time these "journalists" were giddy about the DJIA.

Benet Sedacca at minyanville.com had an interesting take this morning on why he is reducing his equity exposure:

"Can the market go higher" Of course it can. To me, the risk/reward ratio is simply deteriorating to the extent that the downside risk now feels much greater than the upside potential. Sentiment is now heading towards extreme optimism. The seasonal pattern that everyone was positioned for and got wiped out with is now the pain trade but in reverse. In other words, people have seemingly given up hope on the September low theory. We think this pushes seasonality out to the future once everyone closes out the losing positions. Inflationary forces are being replaced with deflationary forces. Valuations are silly again. Volatility at ridiculous levels."


I guess that sums up the bear case for today.

LOOK THIS WAY

Don't tell anyone, but after hitting a high of $35 this AM, the SMH has traded straight down and seems to be bringing the rest of the NAZ along for the ride. As I type, the NAZ internals have flipped to red as has the IWM.

Not sure if this is/was just another gap fill trade or ominous signs of lower prices to come, but this is just a heads up as the action in NAZ internals/IWM/SMH are generally leading "tells" of market direction.

GIDDY HAINSEY

Markets open higher with the BIG CAPS leading the way. Notable action in the 10 year Bond as it trades with a 4.75% yield on the heels of the tame inflation report.

Market internals not so great as 900 more winners than losers on NYSE and 450 more winners than losers on the NAZ.

Sector outperformers include semis, GOOG, KLAC, arilines, tech and financials; worst groups are metals, oils, drugs and trannies.

The IWM, one of my proxies for real market direction, is up 15 cents as I type, so a little less optimism for the small caps. The QQQQ was up near 40.4 but has already lost some of those gains. The SMH is acting best, up over 1.5% and threatening the $35 level.

I am in no rush to buy this pullback as the internals look pretty crummy in light of the futures action. If I start to see improvement there, then yes, buy the pullback probably becomes the trade of the day.

PRE MARKET LOOK

One thing that one notices after trading for many years, markets go up a lot higher than one thinks possible and markets go down further than one thinks possible. That is why the most important aspect of trading is discipline and safeguarding capital. Everyone has screwups but the trick is keeping them to a minimum. This morning pop may cause many a bear to cover shorts as some of the highs from May could get taken out. The high was 1327 on the SPX on May 9.

THE CLOSE

Markets closed about where they started with chop the most descriptive word for the action.

Airlines, brokers, retailers, SOX, techs were the best performers while oils, metals, trannies, and small caps underperformed.

Market internals improved during the day but never got to green and closed with 1,000 more losers than winners.

Volatility indexes didn't budge much and remain oversold as many including this trader expect lower prices before long. The catalyst is the question and my guess for now is the post expiration action next week.
From there, preannouncements and who knows what but it is always something.

NOON TIME LOOK

Markets are meandering as there is not much follow through in either direction. NAZ over SPX seems to be the trade as tech hangs in while most issues don't. MSFT probably holding up the QQQQ with some help from the SMH.

Market internals still show about 1,600 more losers than winners.

Oils have flipped red while trannies, retailers, small caps, cyclicals and drugs all trade lower. Brokers have flipped to the green led by MER and MS.

EBAY DNA AMGN BLUD standout winners while KLAC INTC GLD GOOG stand out as losers.

I really don't have much of clue for direction today so maybe just a bounce around where nothing much gets accomplished either way.

OPENING CHECK

Markets open lower with most sectors in the red. Market internals also red with about 1,600 more losers than winners so not quite at the Farley rule of shorting pullups in the major indexes when losers overwhelm gainers by more than 1,000 issues on each exchange.

Sectors barely in the green include oils, AMGN, DNA and C. The big losers on the day include GOOG, retailers, trannies, small caps, internets, brokers and drugs.

Question on most traders minds is how quickly the dip is bought by those who felt left out of the rally. I will be watching the IWM and the SMH for clues on the dip buyers.

REVERSION TO THE MEAN

More chatter all morning on the bubblevision about only 150 points away from the all time highs on the DJIA. Just wondering if anyone remembers what happened the last time we had all that chatter. Anyhow, since the markets trends only 15/20% of the time according to most experts is there any chance of a reversion to the mean trade developing on SPY and OIH? Nah probably will never happen.

MORNING AMUSEMENT

Just as I flipped on CNBC this morning Becky is about to run a Cramer blurb about YOUTUBE. Jimmy says you can't buy YOUTUBE but you can play it through LEVEL 3 (LVLT), which recently made a deal with YOUTUBE. Back to Becky we go and she brings up a big chart of LLL and notes that it really hasn't reacted to the YOUTUBE news.

From the folks who droned on a few days ago about YHOO and SEEKING ALPHA, complaining to the YHOO folks "how could they possibly link up with bloggers who obviously know nothing and where a limited number of editors are available to review information and check facts."

Just wondering where the CNBC editors are when a) they didn't listen to what Jimmy said or b) can't tell the difference between a large defense company and a small telecom company. I guess its the same editors who stood and watched Jimmy say yesterday that he always hated AOL/TWX and its CEO Bob Pittman.

SAME OLD SAME OLD

Markets closed higher again in spite of a few blips during the afternoon but still fairly strong.
Sectors leading the way today included oils, GOOG, brokers, AAPL, GS, retailers, smallcaps, metals and airlines. On the darkside were semis, biotechs and drugs.

Market internals held steady most of the day and even improved near the close to 2,000 more winners than losers.

Not sure if I can quantify it, but the market seems to be running out steam as the IWM and QQQQ started selling off in the afternoon but still closed fairly well.

The VIX pictured above is telling in that it is approaching its recent lows under 11 and when it gets there it is 1) hard for it to go lower and 2) if it goes higher, the markets have to go lower.

The OIH rebounded nicely today although not finishing at the highs. I am very curious to see if this is a dead cat bounce or something with more legs. I suspect legs.

And did anyone note the Cramer take on TWX today and how he said he always thought Pittman was a bad CEO. If so, I suggest you check out this article written at the time of the AOL/TWX merger. The title of the article "State of the Web: AOL-Time Warner, the Great Corporate Story of This New Century." I do not understand why no one challenges this guy on any thing he says. He could say anything and the fine folks at CNBC will take it as gospel.

SELL SMELL?

The picture of the QQQQ chart is interesting as it runs smack up against its 200 day SMA.

It is also very extended above the upper bollinger band and trading with a 2 day RSI reading over 90. MACD Histogram also giving a bearish divergence as MACD was higher when QQQQ was much lower.

On another front, SMH is trading in the red and the semis usually lead the QQQQ around by the nose, so lets see if it brings the Q's lower today. Breadth however hangs tough at the +400 mark as the QQQQ pulls back slightly in the afternoon trade.

NOON LOOK

Markets are modestly higher as we hit the noon hour with the NAZ leading followed by IWM. The SPX /DJIA combo , also known as the large caps are bringing up the rear. Any recent word from the CNBC journalists about the recent outperformance of the small caps?

Sectors leading the way higher are oils, trannies, brokers, metals, airlines and reits; losers inlcude semis and the biotechs. On a bullish day, one generally doesn't want to see those two sectors at the rear.

Market internals continue bullish with +1,000 positive on the NYSE and +475 green on the NAZ. Volume is running very bullish with up/down volume over 2/1 green.

For whatever reason the markets refuse to pause/pullback and let in anyone who wants to buy pullbacks in spite of the plethora of sell signals. I guess the same old story of strong bull markets won't let folks in and strong bear markets won't let folks out.

Volatility indexes beginning to sink again with the VIX down 4% and trading at 90% of its 10 day SMA.

THE OPEN

Markets open ever so slightly higher led by OILS, airlines, metals, trannies, GOOG, AAPL, and small caps; lagging are drugs, biotechs, consumers, GS and internets.

Banks and brokers are flat and semis and techs are selling off as I type.

Market internals are somewhat bullish with about 800 more shares higher than lower.

The surprise of the day is probably the move in oil stocks as the OIH is up almost 2% on the heels of a 35 cent jump in crude. Crude inventories are due out at 10:30 and I suspect the reaction will be bullish regardless of the numbers as many try the reversion to the mean trade.

More food for thought; Why does CNBC constantly remind me that we are only 250 odd DJIA points away from an all time high while they never tell me that we are 2,910 points away from an all time high on the NAZ COMP. We trade at 43% of the NAZ COMP all time high and need to go up 131% to reach the high from March of 2000. I guess news is only supposed to be cheery and wonderful no matter what an investors pockets may contain.

MORE TRADER FOOD

Looks like another cross of the 50 day SMA over the 200 day SMA, sometimes referred to as the "golden cross." I tend to agree with Trader Mike who says buying and selling these crosses is getting in late in the game. Witness the "kiss of death" when the cross went the other way back in mid July. A sale then as the 50 crossed under the 200 pretty much nailed the bottom of the recent range. And with CNBC's Carl Q asking the prescient question of whether now is the time for the consumer to buy an SUV; Who writes this stuff for these "journalists."

TRADER ALERT

Trading sell signals are now kicking in as 2 day RSI on SPY hits over 90, VIX about 9% below its 10 day SMA, five day RSI on VIX under 30 and overhead resistance galore.



One other thing that Dougie Kass used to say, Whose more scared the longs or the shorts?

THE STREET

I have been reading thestreet.com since its inception in the 1990's when Jim Cramer proclaimed the company would eventually be the standard for financial journalism and overtake the WSJ as the dominant player. I don't think it has worked out quite as Jim expected but from time to time there is some valuable information.

Today, Alan Farley, a technical trader who has been writing at realmoney.com for a long time penned a column that echoes my thoughts on daytrading. Alan identifies "tells" for the trading day and he specifically mentions market breadth as offering the best signal of strength or weakness for the day. He suggests buying midday pullbacks when the advances minus declines l are plus 1,000 on each of the exchanges and when upside volume is better than 3:1.

I also like to watch the NAZ/SPX futures and the action in the BKX/XBD/SMH and the IWM. It will not be often that everything lines up exactly but when it does it is generally a good time to press to the upside on pullbacks. Also, watch the trend of the TICKS. Today it has rarely "ticked" below the ZERO line.

Today is one of those days where I expect we ramp back up to the highs of the day as just about every tell is lined up. The one fly in the ointment, the QQQQ, which has hit its high near 11:00 EST and hasn't been back since. But its always something.

SIGNAL UPDATES

Markets continue higher as the morning gives few if any pullbacks. We are however, approaching substantial resistance on various major indexes such as 131.85 on SPY, 39.5 on QQQQ and 34.5 on SMH.

The prices of the ETF's are also heading into overbought territory as most now trade with 2 day RSI's near the 90 level. Volatility indexes however still fairly tame as the VIX/VXO tandem continue to trade near their complacent 10 day SMA's.

Market internals continue strong with 2,5oo more winning issues than losers.

Sector winners that lead the way include airlines, retail, brokers, trannies, tech, semis, internets and drugs. Laggards are biotechs and oils which look like they are about to turn lower.

Metals have staged a rebound today as the major metals indexes, HUI and XAU are both up more than 1%.

Last note, the IWM is +1.3% compared to SPY+.58%, so it appears that when the markets move up the small guys outperform and vice versa when the markets turn lower.

HIGHER OPEN

Markets open higher with sectors benefiting from lower oil prices leading the way such as airlines and trannies acting best with tech, drugs, and retailers also doing well.

GS and the brokers are also higher on the nice earnings report and news of the big buyback.

Biotechs and internets are a drag while the oils opened higher but are coming back near the unchanged lines.

Market internals are strong with about 1,700 more winners than losers.

Volatility indexes have not dipped much on the recent move up in the markets and the VIX/VXO tandem are each a bit under the 13 level.

RUDE CRUDE

OIH is a mighty ugly chart as the ETF hits its lowest price since last December. The volume, highest in a while also as it traded over 10 million shares today.

Now the good news, if you like to buy lower, it is now stretched about 17 points or 12% below its 200 day SMA and about $10 from its 13 day SMA. Sounds like short term way oversold to me. In addition, it gapped down today form Friday's close at 131, so probably also a gap fill play before too long.

Stochastics are hitting about the same low levels as when the OIH turned higher on the last few dips. So if one is convinced that oil stocks are a longer term buy, perhaps an area where one can start the process. Just keep some ammo available as scaling is probably the best strategy at this point.

CLOSING THOUGHTS

As soon as I write about the tight trading range in the SPY the market decides to prove me correct about volatility returning to the usual. Only problem, we really didn't get a handle on the direction as the market was volatile with a $1.20 range but ended the day one dime above Friday's closing price. Buying breakouts and selling breakdowns continues to be a poor trade.

Oil stocks were crushed again as the OIH closed down about $6 near the $126 level and the GDX, an ETF of precious metals stocks, closed near the low down 7.5% on the day.

Sector winners included semis, retail, tech, trannies and consumers; losing groups besides oils and metals included Indian stocks, cyclicals, biotechs, brokers and biotechs.

Market internals were all over the board starting out at 2,000 more losers than winners, flipping to green and closing with nearly 750 more losers.

Volatility indexes also a mixed bag with both the VIX and the VXO closing near the 13 level which is a bit overbought on a short term basis. Other short term indicators have the SPY and QQQQ near the middle of their recent ranges and I am focusing for now on the oils and the metals as I expect to buy again at lower prices.

WHIPSAW

The markets have turned around and are now slightly higher led by Semis on the heels of the Freescale rumors.

Retailers, tech and consumers have led the way back up while metals and oils have come up off their lows but are still way down on the day. Other sector losers include biotechs and airlines.

Market internals are still red but way off their worst levels as there are now just 600 more losers than winners.

My purchases on the day, OIH and GDX.

NOW THE TIME?

Metals are getting crushed today and it may be a good time for the longer term bulls to buy the dip. GDX is an ETF that owns all of the big metal players and its now down about $10 from its recent highs. I intend to scale in and buy as the markets permit.

There is not much doubt in my mind that something will show over the near term which will cause gold and silver prices to rise. I would also opine that over the longer term the dollar will continue its slide which will lead to higher commodity prices.

EARLY LOOK

Markets are lower led down by oils, metals, airlines, internets, smallcaps and biotechs. Fighting the trend and slightly higher are Semis, retailers and CONSUMERS.

Some key stocks include KLAC +1%, GOOG+.5%, C slightly higher and GS slightly lower, PG, MRK and PFE slightly green.

Market internals point lower as there are 2,500 more losers than winners.

My take; short rallies until/ unless the market internals improve.

TECHNICALS-SPY

Not sure if its evident from the picture, but the markets have traded in a very tight range over the last seventeen days. During that period, the high has been 131.85 and the low has been 129.04, so $2.81 over 17 days. The average range has also been very tight as well as over the last 10 days the average difference between the highs and the lows has been 76 cents. It wasn't that long ago when the daily range would average well over $1.25 so we are probably setting up for some wide ranging days and a decent directional move as volatility tends to revert to the usual.