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Dancing on Other People's Graves

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Over 223,000 people lost their jobs in April. The stock market celebrated and sent stocks higher as people know that the market is the great American savings account and their Fed savior, Alan Greenspan.com will foot the bill for the protective put if the market goes down on petty news such as that. It's money in the bank. The market has continued its winning ways since the lows of April 4, now over a month ago. News wires are awash with the good news that the market is holding strong in the face of the continued onslaught of bad news and stocks continue to go up because they're going up.

Bad news would be things like 3Com laying off another 3,000 workers, Dell laying off another 4,000, gas stations are ordering the number "3" so they can put $3.XX per gallon of gas on their signs, the non-manufacturing NAPM is at historical lows and there are cracks in consumer confidence facades. That sort of thing. Oh silly Molly, that is soooo yesterday! This is as bad as it's going to get, right? Well isn't it?

I, for one, will be most interested to see the CPI numbers out the 16th show. Has anyone noticed price pressures? I have. Even my boys have. When my yayhoo's notice something like that, I have to raise an eyebrow. Of course they were talking about the amount it costs to get into Six Flags for this year but nevertheless, in the real world outside the fairy tale land of the stock market, inflation is happening.

Meanwhile, the horns are still blowing for the upcoming Fed meeting. That CPI report won't matter because the Fed meets and will have announced any change in policy the day before anyway. The Street expects another 50 basis point cut - which would be the fifth cut this year, lopping a full two and a half percent off short term interest rates. The Fed has demonstrated that they're willing to go the full nine miles to get Joe Consumer and Corporation Mary to get borrowing and

Anyway, all the liquidity is a boon to the market. Even if every talking head on TV is going ga ga over the Fed's ability to pull the rabbit out of the hat, the simple matter is that it's a rally out of an oversold condition, a monetary sparked impulse and a psychological recovery of fear back to greed. Don't buy their lies that stocks at these prices represent great long-term values. They don't. They're expensive but they're getting more expensive and that's all that matters at the moment.

Speaking of the moment, isn't it time to check in on the investor sentiment? Sure it is. Oh. My my my. No bears to be found here. The weekly survey of the American Association of Individual Investors was released last Thursday. How about that? Sixty-four percent surveyed are bullish. That's higher than the bullish percent back during the highs of January. In fact, that's the highest it's been thus far this year. Same thing for the Consensus survey.

When Austin and I went to that Larry Williams seminar back in February, Larry emphasized that when you look at a chart, observe times that the oscillators or readings appeared like that previously and then correlate that to whatever happened next. You be the judge for yourself but since I get to write this to you, I get to mark it up the way I see it:

Just remember, when everyone is standing, there is no one left to stand or in this case, buy to carry it higher. Of course, there is but still, extremes are often punished by the market. People are just a little too worry free now in this "the Fed will make everything all better" mentality. It's time to start shaking the trees.

On the other hand, sentiment is a powerful thing. People I know are talking how pleased they are that the market is "getting back to normal now." I always find that so interesting. Who am I to get in their way? Have at it and let me come along for the ride. But let's be quick to switch our allegiances as it can't be this easy for the bulls. They've enjoyed a cool 40% gain in a matter of a few weeks. I think I smell a little set back in the works.

Today's Market

Zzzzz. Zzzzz. What a snooze. The Dow got within five points of 11,000, got scared and ran away. It didn't run far though. Bulls are hanging on tight for their Promised Land and bears weren't brave enough to sell her down just yet. All three of indices made a bit of an intraday double top. The Nasdaq seemed to have the least amount of steam behind the second top but all three ultimately rolled to negative territory.

In the end, the Dow was set back 16 points, the Nasdaq down 18 and the S&P 500 was down 3 points. The VIX closed at 28.11. The dollar was up a smidge but that daily chart is looking weak. Warning bells.

I just heard Sue Herrera say it was a nice day of consolidation. Ahh. So that's what it was.

Seems to me that all three of the indices and the futures went from changed to unchanged a number of times. When that happens after a nice rally like we've had, I think it's a short to intermediate term top. I'm loath to say that as I've told you how many times now that my money is on the Downside for the next day? It gets embarrassing. The herd goes on to make a fool of me the next day it always seems.

Yet, I can give you some statistics to back up my claims. Here are three charts laden with bearish divergences on a thirty-minute time frame.

The low ADX, especially on the S&P500 points to a big move coming. The candles on the dailies, while not technically but essentially speaking are "inside days" which implies that the market is building up a head of steam. The market rose Friday on the lightest volume for a Friday in 2001. Today, the volume was even lighter (NYSE). In the past week, a series of large up-tick readings have been recorded. These are exhaustive to the market. The CBOE equity put/call open interest is a highly speculative .45, the same area that it was during the top of January. Furthermore, the PE of the S&P 500 is now at 26 as price has risen without a corresponding rise in earnings.

News items tomorrow? Cisco earnings! Vroom. Vroom. If John Chambers can eke out the slightest bit of good news you can just cancel my above paragraph. Everyone desperately wants to hear some good news from the likes of Cisco. Technicals be darned!

I don't believe the market will tank. Not this month anyway. There're enough buyers who missed the run and the market is going to back and fill so that they can get on board and suck in new money. AMG Data Services reported outflows from money markets to the tune of $14.7 billion and equity fund inflows of $8.6 billion, and the largest number of funds reporting inflows year to date. New blood.

Retrace now, go up into the summer and then we'll at least revisit those lows later this year. Don't be buying the dip too soon. Let the swoon happen. The market has some business to attend in showing those 64% bullish people who's boss. Several newsletters are rolling in right now and everyone is saying the same thing, that it was a nothing happening day, a consolidation if you will.

Ahh, is that what that was? *wink wink* We'll see. If I am wrong, Mr. Market, show me to the door.

See you Thursday.

MKE

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