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Index Wrap

We Can't Hold Altitude

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       8-30-2001          High      Low     Volume Advance/Decline
DJIA     9919.58 -171.32 10117.54  9869.14 1.16 bln   1065/2021 
NASDAQ   1791.68 - 51.49  1833.29  1777.11 1.71 bln   1245/2371
S&P 100   574.38 - 11.96   587.96   572.41   Totals   2310/4392
S&P 500  1129.03 - 19.53  1151.75  1124.87             
RUS 2000  468.06 -  5.28   473.34   465.42
DJ TRANS 2806.84 - 21.03  2844.12  2779.29
VIX        28.08 +  2.35    28.67    25.97 
VXN        52.28 +  3.00    52.68    51.15
TRIN        2.26 
Put/Call Ratio      0.94

We Can't Hold Altitude
Contact Support

"She's breaking up! She's breaking. . ." Those were the last words uttered by Steve Austin, test pilot turned crime-solver in the cheesy 1970's drama titled, "The Six-Million Dollar Man" just before his experimental military aircraft exploded, nearly killing him. If remaining bullish market participants are not dead from today's action, they probably wish they were. Put players, on the other hand, are the ones sitting on that smoldering cash pile ready to rebuild dead bulls just so they have someone to trade against. Maybe time to cover.

Most of you reading this already know what happened today - a hemorrhage of index points with the patient in critical condition. Suffice it to say that the big economic picture is lousy and not about to get better anytime soon. That is the background under which we will profit if we acknowledge it.

But for those just getting caught up on day, here's news re-cap. We are going to remain brief tonight on commentary in order to get right to the charts. Here goes.

Last night, SUNW disappointed with its mid-quarter update by warning that revenue expectations of $3.7 bln would fall short and so would earnings. Orders are not coming in as expected. SUNW finished down over $2 at $11.07

Second, Corning cut another 1000 jobs and noted that glass fiber sales would be 15% lower than originally guided. GLW closed down $2.55 at $12.05.

Third, Schwab is eliminating another 2000+ jobs due to drop in client activity. This is getting truly ugly, business-wise, for the brokerage community. Mark my words. The brokerage/finance industry will soon begin using the "D" word - Depression - just as the real estate market did in the early 1990's when its bubble popped. SCH has not traded this low ($12.05) since November of 1998, with support nowhere in sight.

Fourth, the European Commission was stepping up anti-trust pressure on MSFT. Meanwhile, Dell had its hands full trying to live with reports that the Asia-Pacific region technology spending was likely to be cut even more. Asia was one of DELL's bright spots just three months ago.

Want more? OK, selling efforts intensified as the Help-Wanted Index sank to its lowest level in 10 years.

Damage: The Dow struggled to keep over 9900, let alone 10,000, which quickly gave way this morning, down 171 to 9,919 on 1.17 bln NYSE shares traded. NASDAQ-100 fell to 1453, down 45 on 1.73 bln. The S&P 500 dropped 19 to 1129.

Permit me just one more soapbox minute. There is much history, including a popular trading almanac, to suggest that September is the worst month of the year for profits. That may be true if you had been bullish in September of almost every year since the 1929. But if you were short or in puts, September was likely the most PROFITABLE. Now everybody is gearing up for that possibility just as the markets approach oversold stochastics and bad news abounds. If the whole tribe turns to face the noise in the jungle, there is no longer a threat from that direction and it is the threat that nobody sees over his or her shoulder that eats us.

That said, Let me offer up here that September might turn into a month of bullish opportunity just because nobody expects it. The market is about human psychology and sentiment and has nothing to do with the position of the Earth in its orbital cycle around the Sun. Market stuff does not happen just because it is September. It happens due to human cycles of emotion. Play the emotion, not the calendar.

OK, now for those charts, Dow first.

Dow Industrial index (INDU):

How about that? Blind squirrel finds acorn as 10,000 breaks and the Dow approached interim support around 9800 on the weekly chart. We had no idea it would happen so fast, as 9869 was reached today. Weekly chart has stochastics still pointed bearishly south. Daily too has psychological 10,000 support broken with 9800 laying in wait as the stochastic points down. But the 60/30 charts are so far oversold, they are due for a springback any time. It would not be a surprise to see a short- covering rally going into the long weekend.

NASDAQ-100 chart (NDX):

NASDAQ too reflects severe negative sentiment in the weekly/daily stochastic, yet support at 1440 (1438 actually) was reached today. 1350 is still possible in the long run, as it represents the intraweek low in March. Daily stochastics are still pointed south too with the downward-sloping lower Bollinger band inviting the candle for a lower dip. Long-term bear is still intact, yet the 60/30 charts point to the real possibility of a bounce back soon, maybe tomorrow should short-covering take hold prior to the long weekend.

S&P 500 chart (SPX):

A better representation of the real market comes through the SPX though. While weekly and daily stochastics both show a strong nosedive in progress, both are nearly at support, which can be found at 1117 and 1100, and neither are far off. Not only that, but the 60/30 charts, like their sub-index siblings, are buried in oversold just aching for relief. With long-term support not far off, a short-covering rally in front of the long weekend could spring these oscillators loose for a nice bullish play even though long-term stochastics are still down. Think "near support, short- covering, profit-taking, reflexive rally".

The VIX too, now at 28.08 confirms the fear in the market that has finally shown itself. Still, that is a previous point of resistance, which could turn the VIX back and drop the fear level. With so much profit made to the downside this week, it would be no surprise to see the VIX fall back as the shorts cover and the bulls mistake it short-term for a return to long-term price rises going into the long weekend.

Notice a common theme? Long weekend ahead could easily cause a short-cover rally. Immense downside profits this week along with a law of averages that says prices cannot move forever in a straight line, coupled with a short-term stochastics dying for a break paint a strong picture for an up day tomorrow.

It will not likely be the beginning of a brand-new bull, but could easily be profitable for long/call players looking for a day or swing trade - something we would not mind ourselves, just to break up the monotony.

However, there is probably more downside to come as indicated by the weekly and daily stochastics. Just do not expect that to last much longer either since the indexes are close to some strong interim support. Once the oscillators enter oversold, we could actually see a September rally, contrary to popular belief.

Rest assured, that day draws nearer and readers should keep that in mind. We should never forget the purpose of the market - to humiliate as many market participants as possible to the greatest extent possible. That is why Ken Fisher calls the market, "The Great Humiliator". Expect the unexpected.

Last housekeeping item: For those wondering, Austin will be back in the Wrappin' chair for the weekend and back to regular Monday and Wednesday Wraps beginning Wednesday of next week. That puts me back on schedule under the Sector Spotlight on Wednesday too.

Make a great weekend for yourselves!

See you at the bell!

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