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Index Wrap

Summertime Green

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Summertime Blues
Austin Passamonte

Is everyone enjoying their summer so far? CNBC reports each day being the lightest trading volume this year in an endless string of low-volume sessions. Last Friday's NYSE market interruption notwithstanding, it's safe to assume traders on and off the floors have been wooed by warm rays of sun.

Closer to home, Buzz is at the beach, Russ is in Calgary and Molly is headed to Mexico. Me? Well, I'm the backup plan to cover all shifts and that's normally not a big challenge. However, a computer worm wiggled its way past Norton Anti-Virus, burrowed into the hard-drive of my primary tower and waited in a cocoon for me to reboot the system. That happened midnight Sunday and six hours later when I arose on Monday to man the website it had fledged, spammed my Outlook Express box and corrupted Windows files beyond repair.

Dead tower, hundreds of manhours worth of documents & chart work destroyed with two of my four computers are presently defunct. And how was your day? No worries... I have the corporate firewall to work behind from here and my own as well going forward. Email is once again and forever more a safe communication venue.

Leaving my technical travails at rest, shall we turn to the markets ahead? I'm afraid we'll be without charts tonight due to circumstance detailed above and likewise no Market Sentiment production. Rest assured we shall be at full capacity again on Tuesday ready to trade and report normal content from there.

Not that the charts have much to offer on a short-term basis. There is an absence of buyers boycotting the market early each session as sellers stake claim to the early shift only to see rally attempts blossom into each afternoon session these days. Trying to stake a play & go is challenging for all but seasoned day traders right now.

Which leads to the next question: are you as tired of hearing that as I am to write it? Wouldn't you love to read something like the following? "Markets are trending beautifully right now with classic pullbacks to let us in with ease. Almost too easy hitting these entries and raking in the dough from successful trades". Lord knows I'm dying to write anything even close to that if it were true!

But it's not. These are choppy, drifting markets that I believe will flutter to lower levels with sudden bounces all along the way for awhile. Weekly charts give a long-term technical picture of overbought conditions that need to cycle down. Fundamentals afford little sign of an economic turn in a business production sense in the foreseeable future. Who wants to loosen purse strings at a time like this?

I was visiting with a long-time fundamentalist trader this weekend who raised a very interesting point. He believes the next major market catalyst will not be improved corporate spending for goods & supplies, it will be for other failing companies instead. His point being that there exist too many competitors in most technology sectors with chips, fiber and telecom leading the bloated pack. Some of those second & third-tier companies will fail and be absorbed by others or turn to dust along the way. Lucent quickly comes to mind.

Think it can't happen to many of the once mighty techs? Heck, it's happened to far more solid companies at one time or another in history before. No one thought shipping, steel or automobile sectors would suffer fallout and consolidation in their glory days but time and hindsight proved otherwise.

Meanwhile, "The Market" remains confused. Opinions are torn between going long or short from here. We saw Bernie Shaeffer on CNBC this morning and he opined we are in the midst or nearing the end of yet another bear market rally. I have the utmost respect for Bernie at all times and tend to agree with him now as usual. He is a veteran technician and market timer I find to be accurate more often than not.

Other fundamentalists interviewed are saying the upturn's right around the corner, buy now. Which party is right? Probably both.

Buyers want to buy and summertime rallies are more common than absent. Look back at the charts last July & August for a refresher course. From late May 2000 forward we rallied & sold off a few times before September arrived and the big boys came back to play. Remember all the analysts in August goading retail buyers to get fully invested before the pros came back to ratchet markets ever higher "chasing" those runaway stocks? INTC at $75 comes to mind.

Which Way Tomorrow?
We still lack a defined catalyst to move markets firmly in either direction. What that will be and which way we go is elusive tonight but rest assured it will come. It always does. For now I must remain near to mid-term bearish as the Dow trades below 11,000 and even 10,950 area. The Nasdaq below 2200 is weak on the tech side as well. All indexes are flirting closer with those daily-chart head & shoulder bearish reversal patterns depicted in the weekend Market Sentiment charts and currently watched by every technician in the market.

That being said, all 60/30-minute chart signals are currently stuck in oversold extreme for the past couple of sessions and due for release. At least one session this week will be to the upside and I would relish that as the next great put-play entry from here. It might be prudent to buy ATM option contracts, use wide stops on fewer than normal to expose less overall capital and hold for a bit. Keep in mind that every expiration week offers at least one high-odds entry that ends up offering 200+% - 1,000+% gains on contract cost. Let's do our part in hitting that when it arrives and taking a solid chunk from the middle for ourselves!

Best Trading Wishes,

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