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NAPM Numbers

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   9-04-2001          High     Low   Volume Advance/Decline
DJIA     9997.49 + 47.74 10182.38 9894.88  1.18 bln 1626/1458 
NASDAQ   1770.78 - 34.65  1836.19 1770.76  1.50 bln 1417/2225
S&P 100   577.75 +   .64   590.71  574.34    Totals 3043/3693
S&P 500  1132.94 -   .64  1155.40 1129.06
RUS 2000  466.96 -  1.60   472.81  466.91
DJ TRANS 2835.65 + 22.24  2865.83 2807.76
VIX        28.55 +   .70    29.83   26.84
VXN        57.15 +  4.29    57.15   54.96
TRIN        1.09
Put/Call Ratio 0.83

NAPM Numbers
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Wahoo!! PARTY!!! (Not!!) Hewlett Packard (HWP) buys Compaq (CPQ). Yawn. . .DELL wins and Michael Dell appears to be Nostradamus in disguise. The 233-point gain on the Dow looked like a great start for the bulls, but turned into an equally good picnic for Yogi and Boo-boo (Bears) later in the day, as the Dow shed nearly 200 points off its high.

Let us start with HWP's merger agreement with CPQ. Michael Dell was not only right, but also prescient, two years ago when he showed a cost structure chart of DELL vs. Brand C, and predicted that Brand C would be out of business within five years, as it was losing money on every sale. Everyone knew at the time he was referring to CPQ though it was never stated outright. And they thought he was audacious for it. Today, Mr. Dell has one less competitor as predidcted.

HWP was hammered for a $4.21 loss to close at $18.95. Meanwhile, CPQ was clobbered for a $1.27 to close at $11.09. The street is unimpressed with this deal even though combined revenues would make the new company as large as IBM. Difficulty integrating the two units was most often cited for the cool response.

The big winner? DELL, up $0.93 to $22.35

Next came the NAPM numbers to save the day, or so many thought, and launch stocks into orbit at the expense of bonds. While the overall number came in well under the 50% mark at 47.9%, which indicates that production managers believe the economy is still contracting, it was well above the 44% estimated. Things in the manufacturing sector are not as bad as originally thought. Still negative, but looking up. Not only that, orders were at 53.1% and production at 52.2%, both above 50% for the first time in six months, and the highest jump since 1996. Pretty bullish!

That announcement at 10:00 ET got the markets hopping and took the Dow back over the 10,000 psychological barrier to 10,182, and the SPX up 22 points over Friday's close to a high of 1155. As might be expected, the NASDAQ-100 was dead, tacking on only 33 points at its high of the day at 1502. In the end, the Dow gave nearly all of it back to close up just 47 points at 9986, the S&P 500 down fractionally to 1132, and the NASDAQ-100 down 45 to 1424.

What caused the selloff to happen? No way to put our finger on it now, but it was rumored that ORCL might pre-announce its quarter. Negative Dan Niles comments on a TV appearance today regarding semis and GM's (a big Dow component) announcement that car sales had fallen 20% in August may have contributed to the slide.

In fact, in earlier comment that went largely unnoticed by the general media this morning, Dan Niles cut earnings estimates on INTC and suggested they would guide downward at Thursday's mid- quarter update. SOX got slammed hard for a 19-point loss, down 40 points from its intraday high of 573 to close at 543.

While nobody could foretell the magnitude of the selloff, there were some early warning signs that showed the rally had no legs, and Austin rightly suggested snugging up those call stops as the indexes hit resistance.

Here were the signs. Ready?

First, no followthrough at resistance. Second, lousy internals. At the peak of today's market action, advancers and decliners were about even. Last, volume was weak up to that point. But, selling volume was rather strong and helped the NASDAQ make up lost ground to record a mediocre 1.5 bln shares traded, while the NYSE eked out 1.2 bln shares. Sellers made the bigger contribution.

Up, down, sideways. . .what's the point? That is exactly the point! We can profit in markets that go in all three directions because we are market agnostics. EVERY direction is a potential nugget of gold, except perhaps for markets that do not move at all. There should be no long faces except for those who did not use stops, or got married to a position and forgot good money management skills in the euphoria.

Soapbox time! This is a bear market and will remain so for some time to come. Neither a published statistic, nor the end of a holiday, nor the position of the Earth in its orbit around the sun changes the economic picture or the market overnight. While human emotion as registered on oscillators will show bullish trades to be taken, this is not a bottom and we must view ALL rallies as potential failures - a shorting/put opportunity until proven otherwise because it is a bear market. The long-term knife is still falling. There is no "ground" yet for the long-term player.

Ok, charts please!

Dow Industrial chart (INDU):

The Dow offers a simple and clear picture. Weekly trend is down as shown by the stochastic. The daily chart shows a clear violation of 10,000, an important psychological support, now resistance. The daily stochastic with the fast line (blue) pointed up early in the day as the Dow cleared 10,100 is now pointing down for failing to hold. That is one clear example why we tend to trust the slow line (red) for a more definite sense of the market's direction - down in this case. Don't look for support on a vertical lower Bollinger band either. 9900 is the next line of support and the short-term (60/30) stochastics are pointed down. Any rally that gets these back into overbought but fails to take out today's candle highs will find me shorting with gusto.

NASDAQ-100 chart (NDX):

On the NDX, notice the candles laying on the bed just waiting for someone to pull the plug and put it out of its misery? It will either make a new recent low or bounce for the second time at weekly support of 1425. That it shed over 75 points from today's high and closed at its low does not suggest the latter is likely to happen. Note the daily candle has been unable to clear 1500 and the stochastic is pointed down. In fact, stochastics across all time frames are pointed down! Buy puts? If you dare, and only after the 60/30 chart stochastics cycle back up to overbought. For daytrades only, I will be looking to short any gap open or any failure at 1440. 1350 is the next stop in the big picture.

S&P 500 chart (SPX):

Finally, we turn to the real market, the SPX. Just like the NDX above, SPX is near support and threatening a new low. Downward sloping stochastics across all time frames suggest it will get there. Look for minor support of 1127-1128. A bullish swing trade might be in order then if the 60/30 stochastics have cycled to oversold and reversed at that point.

While the daily chart shows candles have resistance at 1155-1158 (green circle on daily chart), support is around 1127-1128 over the last three days and the daily stochastic is showing some willingness to reverse back up. While we would urge caution either way at this critical point, the 60/30 stochastic suggests more downside to come in the immediate future. Breaking 1125 might have me in puts after amateur hour even if the daily and weekly charts are oversold.

The VIX too is showing signs of real fear with a 28.55 reading. 28 has held as resistance in the recent past, but a higher reading into the 30's, 40's even 50-60 is possible should candle support fail on the indexes.

What of tomorrow? The weak close causes me to think more of the same immediate downward pressure can be expected. But if not, I stand ready to buy puts in short order at any point of resistance and overbought 60/30 charts. The bear still owns the predominant trend, NAPM numbers or not. This is not a long-term traders market as a bullish rally will result in failed rally poised to reverse to new lows until every bull has walked away from the market thinking it will never return. That will be the time to buy and hold.

Until then, shorting failed rallies is where the money is. Taking swing or day trades to the bullish side will also work of we are quick on the trigger. Just remember that nothing goes up or down in a straight line and if we want to be successful to the bullish side in this market, we cannot stay married to the position very long.

See you at the bell.

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