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Drumming fingers while awaiting Cisco's earnings seemed the order of the day. Is it me, or did the predominant financial media actually get it right today? By golly, maybe we were waiting for CSCO. Personally I didn't start writing until after the bell because the market tomorrow is hinged on their results tonight.

If there is good news, it is that CSCO "beat" their own recently revised and lowered estimates of $0.02 by a penny, coming in with a profit of $0.03. I can just picture the Buy recommendations tomorrow by fictitious broker/analyst, Joe Bull of Dewey, Cheatem, and Howe noting, "CSCO Beats by 50% and is a compelling value/screaming Buy - buy all you can with both hands!" More on that in a minute.

But first, the economic news that kicked off the morning. Remember those fabulous productivity gains that we all came to expect as a by-product of the "new economy?" You know, the thing that the Fed used to justify its position that inflation was in check, meanwhile raising interest rates last year? Yes, THAT productivity. How many ways can you spell P-O-O-F, as in vaporized, gone?

Well, it is. For the first time in six years, non-farm productivity actually fell 0.1% instead of posting a gain. Nonetheless, manufacturing productivity squeaked ahead by 0.3% thus maintaining the positive trend. Note however, that quarter over quarter labor costs are on the rise and accelerating. This has got to have the collective Fed's knickers in a wad about future rate decreases since these numbers are now considered inflationary.

Rising energy cost to the consumer for electricity and gasoline are also BIG issues on the inflation front, but not widely spoken in the same sentence with "inflation". When these two get connected in the same sentence, look out. We are already seeing signs of stagflation, where consumer and business demand weakens while prices rise - not healthy for the future. It places some doubt as to how much the Fed will be willing to cut rates going forward.

Now back to CSCO and what it means for the market. As of this writing at 5:30 ET, we do not know, but so far from the conference call, there are no real surprises. Here is what we know. CEO, John Chambers says, "the quarter ended up pretty much as we outlined", that the quarter was "dramatically more challenging" than first thought, and that the "book to bill ratio is approximately 1", the latter suggesting that the quarter was stable with neither accelerating nor decelerating order flow. So, do not let the inventory writedown issues cloud the outlook

So far, so good, but borrowing from Jerry McGuire, "show me the visibility" questions have produced no clarity from management. Believe me, if they had it to share, they would. But it appears they do not, preferring instead to defend the 30-50% growth rates overall while offering no evidence for the forecast. As the price falls after hours, it appears that there is little reason for optimism, and the markets may have to face the idea that the economy has not bottomed yet. Chambers noted late in the day on CNBC "all of us are struggling to determine when that should occur".

Just how long hopeful investors remain optimistic with their heads planted ostrich-like firmly in the dirt, I have no clue. Perhaps the FOMC meeting next week where investors will be disappointed if cuts do not happen as expected? Or perhaps, "sell the news" will take over from there.

Do the charts tell us anything new? Nothing we don't already know - that there is a bucket of indecision and a bucket of resistance to get through until the markets advance to the next level. Volumes are low, daily oscillators are still overbought and the VIX remains flat around 27.54, but could be setting up for another rise. Nonetheless, cup and handle formation (very bullish) remain intact. Let us take a look, NASDAQ-100 first.

NASDAQ-100 chart (QQQ as proxy):

Tough to learn anything here. A case could actually be made for an ascending wedge on the daily chart. That is where bulls step in at increasingly higher levels to buy; meanwhile overhead supply is reduced at roughly the $48.50 level as the last of the sellers step away. When that happens, buyers are usually able to spark a breakout as they buy above the last seller. In short, a bullish breakout is possible. On the other hand, the gap from two weeks ago needs to be filled to give the daily chart meaning, but support is just over $47 and a rate cut is supposed to be on the way. Oscillators too suggest bulls are still in control.

Note the tight range over the last two days though. Much as I want to trade the QQQ options, $1.50 range offers very little return for even the experienced day trader. Unless you are a gunslinger, you will sooner lose money here than make it.

Verdict: directionless, and rising in agony. Perhaps reaction to CSCO will get QQQ off the dime. I do not see a play here right now.

Dow Industrial chart (INDU):

Not much different here, except resistance at 10,900-11,000 is formidable on the daily chart. Even so, 10,825 seems to be holding support well on the shorter time frames. Daily oscillators though overbought are holding and the shorter time frames are showing a move back up is likely too. Call me an idiot, and as much as I do not want to believe it, the charts are showing the Dow wants to rise. It could break 11,000 by the Fed meeting though I would still expect big resistance and a rollover at roughly 11,050 following the Fed meeting.

Verdict: My opinion is buy the rumor, sell the news. Use dips as a buying opportunity in front of the FOMC meeting, and be much more willing to take put positions then.

S&P 500 chart (SPX):

The story on the SPX is not much different either. Again, the bulls could take SPX over 1270 resistance, but the daily oscillators in overbought suggest downside is more likely. Yet again, the 60/30 chart oscillators show a decent uptrend into the close. Bulls are stepping into every pitch the bears throw and getting hits. As earlier noted, I am feeling almost incredulous that these markets continue to rise in the face of inflationary pressure, reduced consumer confidence, contractionary NAPM figures, job layoffs, productivity losses, and higher energy costs. Hmmm. . .let us rally? I just cannot pull the trigger no matter what the charts say. However, skilled daytraders with cat-like reflexes can pull 20-25 points per day out of SPX.

Verdict: A professional's game with great returns for the quick, but a money pit for the inexperienced or hesitant.

In the end, we see charts that look bullish, but are begging for relief from their rise in agony against the fundamental issues. It cannot last this way forever and certainly looks top-heavy now. The charts would suggest positioning for the next downdraft, however those have proven short-lived prior to another anticipated Fed rate cut. But nothing yet screams "imminent rollover" before the market has a chance to rise higher. Not even CSCO and John Chambers can shed any light on the future, which in my book says belief in second half economic recovery is worthy of a trip to the couch at McShrink's.

Impatient types just entering the trading business may be muttering disdainfully at the lack of plays available right now. But know this: our first job is to preserve capital by trading only when it is profitable to do so. In playing anything but high odds entries, we greatly reduce our chance of success and almost guaranty failure. Money in the account is better than money lost to the market on a high risk/low reward play. In the end, trading is not about gambling, but about risk management. There are days to sit out and this was one for me, and I am sure many others.

We promise, just as soon as charts align for a high odds entry, we will be there to bring it to you. Until then, volatility and time decay will insure that if the trade is not going in our favor, it is working against us. Let the market prove itself worthy of holding our capital, not whether or not we are worthy of trading this market.

Watch CSCO in the morning for guidance, as it will likely set the tone for the day. See you at the bell.

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