SEMI TOUGH

Michael Santoli, a wonderful journalist at Barrons, noted the observations of one of the strategists at Credit Suisse about the relationship between The Software Holders ETF (SWH) and the semiconductor Holders ETF (SMH). Here is the meat of what he wrote:

"The quantitative and derivatives strategists at Credit Suisse took note last week of the severe outperformance of software versus semiconductors in the past nine months. The Software HOLDRS exchange-traded fund (SWH) has outperformed the Semiconductor HOLDRS (SMH) by 25 percentage points since spring. In the past five years, these ETFs have had an 80% correlation, but with wide swings in relative performance over shorter periods.

The CS researchers were recommending buying the SMH and shorting the SWH to play a reversion to the sectors' average relationship over the next eight to 12 months. These swings can always go farther than expected, but the current divergence is nearing extremes hit only twice in the past five years, after which it reversed dramatically.

There are reasons to explain the latest trouncing of semis by software, including the revival of Microsoft (MSFT) shares, the continued monopoly franchises in software contrasting with stiff competition in semis, and the attractiveness of software to private-equity buyers.

But, for traders willing to bet that this rubber band will retract rather than snap, the time might be right."

I have been long the SMH for a while and wrote about it a few points lower and I agree that the SMH does look good here relative to the SWH. In addition, the other chart comparing the QQQQ to the SMH also shows how lousy the semis have done in relation to the overall NAZ, so another reason it may be time to buy.

THE RIDE

One DJIA Futures trade from 12,025-12,055 support to pivot and right on schedule. Maybe the upgrade of CAT had something to do with it as that stock is now about a buck off the afternoon low.

Interesting also how the opening gap lower has been filled in spite of CAT being down $9 or 13%.

Market internals still about 1,000 to the red with NYSE over NAZ and best sector performers remains airlines, drugs, trannies, consumers and brokers.

Simple answer, there is just demand for stocks. Don't know why, don't know when it ends, but in the mean time buying every dip seems to work.

NOON CHECK

Markets are trying to stabilize and maybe put in a little afternoon rally as internals gradually improve. The TICK has also started to give some bullish signs with almost all of the numbers falling above the flat line.

Stocks/sectors looking good today include GOOG, WMT, airlines, INTC, AAPL, retail, brokers, consumers, trannies and drugs. The loser list contains oils, metals, KLAC, YHOO, semis, small caps, financials and homies.

Market internals were about 1,800 to the red and have steadily improved to about 1,100 red as I type.

The DJIA has been gaining ground most of the morning with the Futures now down about 20 points after being down about 50 earlier. Resistance should be at the daily pivot of 12,050 on the futures and 12,000 on the cash index.

And can Cramer do any worse on the OIH. Every time he calls for a buy or a sell it seems to be exactly wrong. Just the worse.

LOWER OPEN

Markets open lower on the heels of the CAT blow up as the stock is down almost $8.5or 12+%.

Other stuff on the radar include lower semis, cyclicals, small caps, oils, biotech, retail and tech. Higher, GOOG+7%, brokers, internets, consumers, airlines, banks, drugs and trannies.

Market internals show about 1,700 more losers than winners and NYSE doing a bit better than NAZ.

DJIA 12,000 now firmly in the rear view mirror at 11,967 and all of a sudden the NAZ Futures are down 14 points. If the carnage continues, a strategy may be to scale into some ETF's on the probability of a Monday ramp. Right now, waiting it out as the crummy internals are giving me the wait till later signal to buy.

That strike 3 looking by Beltran last nite was not a pretty site but it was a heck of a pitch.

TECHNICALS -OIH

The OIH is crawling higher again with yesterday's close above the 50 day SMA and it looks like 135/140 may be in the cards for next week. Of course now that we have Cramer saying the reason for the move higher is the value guys have gotten involved and never mind my other predictions, lets go with my new prediction. Adam has been following the Cramer nonsense on this one and its pretty good amusement. Also interesting how the OIH is considerably higher (lows were under 120) than it was when crude was higher (crude near lows).

Back to futures trading, the DJIA Futures are down 42 as I type (12,015) and I expect the dip buyers will get busy early and buy this gap open. The pivot is the 12,050 area and support is at 12,025 (1) and 11,990(2). NAZ and SPX futures slightly lower and the SMH is set to open unchanged to slightly higher. Also keep an eye on the brokers as they have started to lose the recent jig.

TECHNICALS-GS

Philly Fed numbers coming out in a few moments and the last time they showed the markets sold off plenty hard.

Today we continue to find the markets mixed with the major indexes flat and market internals a bit bullish.

Lagging like a soar thumb are the brokers and the financials with red figures for C JPM BAC GS MS and MER. Not sure what it means but the continuous winning streak on GS is over and I sold mine yesterday. Of course looking to buy back at lower prices.

Strongest sectors continue to be internets, metals, oils, airlines and biotechs. To the dowside, finanicials, wintel, semis, tech, retail and consumers.

DJIA winners include T GM KO MO HPQ VZ and IBM. Losers, HON MCD MSFT INTC JPM AIG and GE.

Market internal a green 1,200, so don't be surprised by higher prices later on this afternoon.

OPENING CHECK

Markets are a bit lower this morning but I caution any one who wants to short as the market internals are a bit green and I suspect a snap back rally may appear before you suspect.

Sectors/stocks acting well today include AAPL EBAY PAAS metals, internets, oils, GOOG, drugs, and biotechs. To the downside - semis, INTC, banks, brokers, cyclicals, consumers and tech.

I suspect the semis may be putting in a temporary bottom as the bad earnings news is now out of the bag.

The brokers are acting doggy out of the box and that could be a bit of a fly in the ointment as they have led this rally.

Market internals now +330 on NYSE and +230 on NAZ.

DJIA winners include T KO MO GM VZ PFE and XOM. To the downside, HON INTC MCD JPM UTX and C.

Note the OIH back over $130 in spite of crude at/near new lows. OIH hit the $117 area a few weeks ago when crude was much higher. What gives?

And was Faber dumped from Squawk because his pom poms were too small?

TECHNICALS-QQQQ

The recent news out of the tech sector has not been that encouraging and it has put a bit of a damper on the NDX/QQQQ. AMD MOT and INTC (CAP EX) have all put pressure on the NAZ causing it to be the underperformer lately. However, pullbacks to the 2 day RSI area of 15 or so has been a good place to buy. In addition, dips back to the 13 day SMA have also been good spots so we may on the verge of two entry signals on the NDX.

HISTORIC

HISTORIC, that is what Dylan Ratigan of the bubblite sect just called the markets today. Of course we have the DJIA +40, NAZ COMP-8 and the SPX+2. Not sure I would call it Historic, a better term for the day is probably ho hum as IBM drove the DJIA with a $2.87 advance after being up more than $4 for most of the day. The other twenty nine issues kind of meandered while the techs were lower and the SPX was slightly green.

The NAZ and tech were down most of the day with the semis the biggest drag in light of the INTC CAP EX cut back.

Market internals, +400 on the NYSE and -115 on the NAZ.

Sector/stock leaders included airlines, drugs, brokers, retail, consumers and biotechs. To the downside semis, metals, oils, internets, tech and cyclicals.

DJIA winners, IBM JNJ DIS PFE and MRK; losers JPM CAT AA MMM XOM T and MCD.

Volatility indexes were unchanged as usual sitting near their recent lows near the 11+ level.

Tomorrow's pivot point on the YM is near today's close of 12,040 and I expect another choppy day. For what it is worth, the OIH continues to hang in near the 130 level in spite of lower crude and the IWM did finally underperform today.

Tonite is earnings from the likes of AAPL EBAY JNPR and COF.

TODAYS TRADE

After watching the markets for most of the day I finally dipped in and bought the pullback on the YM at the 12,002 level, just a few ticks above the YM pivot. Stop level set at 11,985 and as usual I sold too early at the 12,020/12,025 levels. Keep trying to justify the early sells with the job is to make money not catch the bottom or the top. Well I caught the bottom just didn't come close to catching the top.

I suspect we get lots of volatility before the day is over and I am done for the day and happy with the trade.

Sector leaders remain DJIA stocks, biotechs, drugs, brokers, retail, consumer and airlines. Losers continue to be techs, semis, metals, oils, trannies and and GOOG.

Market internals continue to be mixed with +370 on NYSE and -70 on NAZ.

IWM now underperforming and I don't think that is a good sign. And do or die for the METS, good luck to the Carlos's.

NOON CHECK

Markets continue to bounce around with the DJIA stocks outpacing NAZ stocks as techs/semis spit the earnings bit and underperform.

Acting well are drugs, airlines, retail, biotechs, consumers, brokers and small caps; to the dowside- semis, techs, internets, oils, trannies and financials.

Market internals hang in with about 1,400 more winners than losers with most of the winners on the NYSE. Again, most (80% plus) of the TICK readings have again been above the zero line giving me confidence of another move higher.

I haven't made a trade yet but plan on buying an afternoon dip (hope) for a ramp back up near the morning highs on the YM; I admit to being asleep at the switch for the long trade pullback at the SPX pivot at 1364.

And yes I think the guy in the picture would do just as good a job as a CNBC anchor as the guys/gals that are on now.

CNBC NONSENSE

Markets continue to bounce around after fleecing the opening print buyer. DJIA back to 12,000 and holding, NAZ red and SPX slightly green. Congratulations to all the traders who shorted the opening exhuberance.

Sectorwise, leading higher include drugs, retail, a recent flip to green for oils, biotechs and brokers. Leading lower are tech, semis, internets and financials.

Market internals are flattish on the NAZ and green by 900 on the NYSE- kind of weird to be that different.

As for the charts, note the recent outperformance of the small caps in spite of what Haines, Burnett et al tell you and check the outperformance of the big caps between May and August, yes, they outperformed but still went down and you would have done better with cash. I repeat, if you think big caps do better than small, go to the 5% money market fund.

OPENING UP

Markets open higher with the all important DJIA crossing the 12,000 line for the first time.

Mark and his compadres have the odd view of wondering where the individual investor has been and if they will buy in to the markets now. Well breaking news for the CNBC shrewdies, where exactly do they think employee 401k's are invested? I can assure them they are not invested in soybeans or wheat futures. And for those looking for the big cap leadership, I dare you to check the price of the IWM, yes, it is outperforming again up about 1%.

No mention of what is underperforming and yes it is internets and semis. Not exactly what one wants to see in a record breaking market.

QUICK 25

OK, out of half the trade and a QUICK 35 points on the YM's from 11,975.

So we get this big rally of 70 DJIA points and Erin et al basically ignore it and discuss all kinds of other useless nonsense over the past hour.

The winners are still biotechs, drugs, MER, JPM and airlines. Biggest losers continue to be semis, metals, oils, trannies, brokers and retailers.

It seems to me that CNBC is just clueless. They will tell us all day long about GM and F nonsense or IMCL stuff, but tell us that markets are having a big rally off their lows and hardly a word. How about some information on best and worst performing sectors or sectors gaining and losing ground or even some technical setups on individual stocks. No shot as they continue to grill us with useless information that will never help anyone with a profitable trade.

And how bout Maria sucking up to Abby telling us how great that she was bullish. What nonsense as forget how bullish Abby was when the SPX was 1,560 and the DJIA was 11,700 six years ago. Great stuff from Abby and the bubblites.

BLOG WHAT

Markets look like they want to bounce and I am long some DJIA Futures with a fairly tight stop as I don't generally like to fade poor internals. Anyhow, looks to me like the "buy the dip" crowd wants to buy this dip as the TICK has suddenly seen some high numbers.

Market internals now red by about 2,300 issues and worst performers continue to be tech, semis, oils, trannies, metals and brokers. Only green VIX/VXO biotechs, airlines, drugs and some banks.

BULLISH BUY

As one can clearly see, the markets are having the down day no one expected to happen ever again. Well maybe its just a one day wonder, but market internals are giving the indication that this market will close at/near the days lows as there are over 3,000 more losers than winners. The brokers are also having an ugly day as they are down 2% on the heels of great numbers this morning from MER.

If you are bullish, buying the brokers is probably one of the best ways of playing a further rise in the market. We all know that every strategist on the street expects the SPX to finish the year near or above the 1,400 level; and are they ever wrong?

The IAI ETF is a nice way of playing the brokers without actually buying each of the big ones. Its biggest components include MS (8.5%), MER (8.5%), GS (8.1%), LEH (6.9%) SCHW (5.45%), BSC (5%), and LM (4.7%).

OPENING VIEW

Sure enough the markets have opened lower, much lower with market internals about as bad as they get. The DJIA -52, NAZ-27 and SPX-8. I guess all the sellers decided to pull the trigger at the same time.

Market internals are red 1,400 on the NYSE and red 1,450 on the NAZ.

Sectors/Stocks in the green include drugs, JNJ, MER, MRK, PFE and some biotechs. Leading to the downside include semis, metals, brokers, techs, oils, cyclicals and small caps.

Big losers on the DJIA include INTC HD CAT MCD BA DD C and GM. The only winners are JNJ MRK PFE DIS and IBM.

So far no sign of the "buy the dip" crowd but the VIX/VXO tandem is rallying to the tune of 7% and 9%, so a few days of selling like this and a real buy signal may appear.

And to all NY Jets fans, how about that guy last night. How would he have looked in green for 10 or 15 years?

RUDE WEATHER

Marekts look to gap lower at the open (SPX-5.25, NDX-12, DJIA-37), on the heels of crummy inflation numbers and a host of downgrades including INTC and YHOO. Overseas markets also lower.

Not sure the dip buyers are going to let this market fall to far as there are plenty of folks who feel/felt they were/are not long enough.

In light of all the DJIA 12K predictions on bubblevision yesterday, I have a few of my own; crude will hit 60 before 50; gold will hit 600 before 500 and the DJIA will hit 12k before 11k or even 13k. And to really go out on a limb, OIH will hit 140 before 120.

Support on the DJIA futures should hit at either 12,000 or 11,970 so watch those numbers for a bounce if indeed it plans to bounce today. And kudos to the Shark Report for being the first and only investment blog to report on turnaround Tuesday on Monday (laughing out loud).

CLOSING EARLY

Out of my DJIA Futs trade at 12,030/12,035 after seeing a little selling in the NDX and the Semis after they were the strongest major indexes earlier. Something not passing the smell test so I am running with my $$$$'s early.

Market internals told the story early without budging when the markets had a little (very little) noon time dip. Currently a +1,600 on the internals with oil service, trannies, semis, cyclicals and small caps leading the way. To the downside, banks, airlines and retail with worst performing DJIA stocks being T HD GM GE JPM MO and C. XOM looks like it is ready for $70 again leading the DJIA higher along with AA CAT MRK KO UTX HON and IBM.

Volatility indexes continue to trade near the 11 area and up to down volume on the NYSE 740/342 bullish. Tomorrow is Tuesday and it would not surprise me to see Turnaround Tuesday (lower) as the NAZ Futures are giving up some of their early gains.

JIMMY CRAMER FANS

It is a very boring day so I couldn't resist. For all the Cramer fans, here is what Jimmy wrote on October 9, about the OIH and how it was unownable:

"Now the Oil Service HOLDRs (OIH) is just plain pathetic. It's down, for heaven's sake. down! On a day when oil is supposed to be on fire!

I continue to believe that this is the most dangerous sector for the next month, meaning that I think there's still some downside. The fact that the downside is buyable is irrelevant. The truth is that this level is not sustainable.

I think that people are so wishful about this oil group. Everywhere I go, people are reminding me that it the weather here in the Northeast is supposed to get cold at the end of the week.

For these stocks to heal, we'd need an ice age.

I'd sell until the OIH broke $120 on the way to $115, and then we'll recalibrate."

Not exactly an ice age outside although the OIH has lifted over the $130 level in one short week. Thanks Jimmy.

And just another reminder on the DJIA picks from back in January- Jimmy picked MRK and GM as his two worst DJIA stocks for the year with December 31 targets of $25 for MRK and $20 for GM. Of course they are the two best performing DJIA stocks for the year. Congrats again to Jimmy.

NOON LOOK

Markets continue to bounce around with a definite bullish bias. NYSE internals continue to show that a rally is in our short term future (this afternoon) as there are about 1,000 more winners than losers on the NYSE. NAZ also bullish with about 670 more green than red. Up volume to Down volume on the NYSE also a bullish 371M to 201M. I would not suggest shorting the rallies today as higher looks most probable.

Sectors looking the best include semis, oils, trannies, cyclicals, small caps, airlines and drugs. On the red side, YHOO EBAY AMGN HD GE JPM GOOG internets, metals, banks, and retailers.

Volatility indexes barely bouncing in spite of a new week in the front view and OIH trying to snap back to the $130 area on the heels of lower crude.

And the markets are not the only thing that is resilient, how bout those AMAZIN METS.

OPENING LOOK

Markets open mixed with best acting stocks appearing in the metals, oils, semis, drug and airline sectors. To the downside we find, biotechs, retail and small caps.

Lots of DJIA 12K predictions and yes I will throw my hat in the ring and say we will get there. But like all good prognosticators, I want give you a when.

Market internals are a bit bullish with 950 green on NYSE and 500 green on NAZ. And like most days, just about all the ticks coming well above the zero line and that has been a pretty good "tell" of which way the markets are heading.

GS started the day in the red but has now flipped to green as has MER.

The SMH looks to be leaving the old $35 level of resistance in the rear view mirror as it is knocking on the $36 area with help from INTC and KLAC.

Stocks acting funky include HD AMGN EBAY JPM WMT GE BAC and LEH. Also looks like another day where the small caps will outperform.

STRAIGHT UP

Markets continue on their vertical flight higher without pull backs or a down day. The overbought reading continue to abound with 2 day RSI readings of 94 on the DJIA and IWM, 91 on the SPX, and 97 on the NDX.

The VXO has dribbled down to 10.26 and is about 7% below its 10 day SMA. Of course the VXO dribbled down to these levels back in the middle of August and has stayed low ever since so taking the low VXO readings as a sell signal has not been a great strategy. No doubt, one day the VXO/VIX tandem will rip higher and there may be a great race to the exits which could cause a market melt down. That, however, is a story for another day, as for now the bulls continue to run without a worry to be found.