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Market Wrap

Interesting Day Continued

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      05-01-2002          High     Low     Volume Advance/Decline
DJIA    10059.63 +113.41 10086.61  9830.67  1.45 bln   1929/1215
NASDAQ   1677.53 - 10.70  1687.56  1643.24  2.18 bln   1649/1850
S&P 100   538.53 +  6.13   539.58   526.43   Totals    3578/3065
S&P 500  1086.46 +  9.54  1088.32  1065.29             
RUS 2000  510.83 +  0.16   512.07   502.58
DJ TRANS 2743.66 + 38.94  2760.45  2654.20
VIX        22.26 -  1.25    24.33    21.92
VXN        44.00 +  0.24    45.56    42.95
TRIN        0.61
PUT/CALL    0.72

Interesting Day Continued
By Buzz Lynn
Click here to email Buzz

Hope you caught Monday night's Wrap that suggested despite the Dow's move under 10,000, it was looking like it was ready for a bullish move. Boy, Howdy!

Now, I haven't changed my stance one iota that this is a bear market. I still think that. But, I am also mindful of the fact that "markets fluctuate", as J.P. Morgan used to say. There are always bullish moves within a primary bear market just as there were bearish moves within the primary bull market of yesteryear.

So how did we know a bullish move was coming when all the market was in despair? We didn't know for sure, but the charts were pretty telling that the near-term bear needed a rest. We'll get to those in a minute.

But what exactly happened today? In a nutshell, bad (OK, mildly negative) economic news failed to spark a continuation of yesterday's rally. The ISM numbers, where purchasing managers weigh in on the future of their business took a small dip from 55.3 to 53.9. This was a bit more than expected, but still better than the neutral of 50.0. In other words, the economy is still anticipated by production managers to grow. But bears, being what they are, tried to capitalize on the bad news.

Right along with that "bad" news came news that construction slowed a bit, Sun's (SUNW) COO would resign, and that ORCL's estimates were cut by Lehman. Using that as some semblance of an excuse to sell, sell they did to where the Dow as down nearly 130 points from yesterday's close while the SPX dropped nearly 10 points too. But the bears simply lacked the horsepower (conviction) to pull the indexes down past yesterday's lows - in other words a higher low.

If you are trading for the moment bearish and see that the market isn't going to fall below previous support, and the candles form a higher low, what's the first thing you do? Right! Cover! Remember, this isn't about investing, this is about trading. In case anyone is wondering, speculation is alive and well, which acts as a reminder that the bears' job is far from done.

In fact, it will not be complete until every last pair of horns has been clipped and bulls are long gone from the market. You'll know a true bottom when stocks actually represent good business VALUES with an economic return and are not treated as speculative pieces of paper (which is still all they are in the current environment). Give it a few years. Until then, mini-bulls and mini-bears will ensue until the values are firmly in the basement. Sorry to sound harsh, but I was right to sit on and break my rose- tinted lenses a year and a half ago.

So is it back to the bull market with party hats and horns, "Happy Days Are Here Again", and 20% daily moves in the market darlings? No way. The bear is patient, and being that this is a bear market, it's just another opportunity for the bears to short deep into their dens once oscillators reach overbought. But until then, Goldilocks can hang with the wrong crowd and party with the three bulls.

On to the charts!

Dow industrial chart - INDU (weekly/daily/60):

Quick comment: upturned over 20% daily stochastic, higher low, break over previous 10,040 resistance. Bullish, but waiting for a 60-min stochastic return to oversold at or near candle support to enter calls.

NASDAQ chart - COMPX (weekly/daily/60):

Comment: Not so hot here - debatable as to whether or not this is a higher low. However, stochastics have turned up from overbought, but with less vigor. I'm staying away from tech stocks, as I believe they have much more to correct given pervious (and still) lofty multiples. Bullish play if you want to risk selective issues. See call entry comments in the Dow industrial section above. Not my favorite.

S&P 500 chart - SPX (weekly/daily/60):

Comment: Similar to the Dow. Higher low, daily stochastic break from oversold above 20%. Levels on 60-min chart are tradable in my opinion. Call entry criteria same as above.

Bullish for life? NOT! The VIX has shed 4 points in 2 days - way too optimistic in my view. While volume was strong, the advance/decline line is not convincing. However, the daily stochastic coupled with the daily candles' desire to return to the mean might keep call traders happy for a while. Still the 60-min charts stochastics suggest waiting for an intraday break to oversold before call entries becomes prudent. Bulls will be bulls, but the bears still rule. What appears to be tradable bullish run will ultimately end up a short opportunity for those who recognize the underlying and patient bear. If support gets broken, I would take that as a cue to consider exiting calls, the reason being that the bear will have likely head-faked us again, which is not all that surprising.

Think of this as the dawn of Spring. Those cute little green sprigs popping up on brown branches will be toast with one night of frost. The green needs some seasoning before it can withstand the unexpected cold. It's too early to start counting the cash from the crop that has yet to mature.

See you at the bell.

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