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  John Seckinger   1/2/03,  11:51:56 PM
Pivots/Levels Friday's S2, S1, P, R1, R2 are as follows

Dow Indu. (INDU): S2=8,253, S1=8,430, P=8519, R1=8,696, R2=8,785

SPX: S2= 870, S1=890, P=899, R1=918, R2=928

OEX: S2= 440, S1=450, P=454.5, R1=464, R2=469

NDX: S2= 970, S1=999, P=1013, R1=1042, R2=1056

QQQ: S2= 24.04, S1=24.73, P=25.14, R1=25.83, R2=26.24

  Jeff Bailey   1/2/03,  9:35:14 PM
Forest Labs (FRX) $100.00 +1.81% .... stock jumps to $104.50 in after-hours after guiding higher on quarter. I discussed a trading outline for a bullish trade in FRX in the 12/24/02 market monitor at 06:11:32 PM and would view an opening trade above $101.25 as bullish. Link

  Jim Brown   1/2/03,  8:14:09 PM
I am pretty comfortable with the 8600 entry point I was discussing earlier today. I am going to raise my stop loss for that short to 8700 after I finished my research tonight. The longer term down trend should provide resistance in that area. We could see some follow through in Europe/Asia and a potential gap and crap on Friday.

I am especially comfortable after seeing the TRIN close at .22, which is the lowest close since Oct-28-1997. This indicates a VERY overbought market and a complete lack of sellers. We all know what happens when everybody runs too the same side of the boat. Friday will be interesting but it is not critical. Monday is when the real market returns with all traders back at their desks for the new year

  Jim Brown   1/2/03,  5:47:44 PM
Win $2003 in 2003 ! We are going to close the year with a Guess the Dow for 2003 contest. We are going to give away $2003 in cash to the top 3 guessers. Place your guess now. You can change it as much as you want until the entries close on Sunday. Click here: Link

  Jeff Bailey   1/2/03,  5:47:07 PM
Philip Morris (MO) 40.35 -0.18% .... Only Dow component to not finish in the green today. Was the bullish "laggard" at mid-session (see 01:00 PM intra-day update). Link

  Jeff Bailey   1/2/03,  5:24:26 PM
Home Depot (HD) $24.87 +3.58% ... Company guided down for 2003, seeing EPS of $1.53-$1.55, which isn't that much below consensus of $1.57. Company said reason for lowered guidance was due to slowing sales during the month of December.

HD will report 2002 Q4 and full year 2002 earnings in February. HD's fiscal year ends January 31.Link

  Jeff Bailey   1/2/03,  4:11:37 PM
Hmmmm... Please believe me when I say that my 03:15 intra-day market update and levels of 8,500 and 8,700 were from the p/f chart and daily interval bar chart. I had not yet punched in the daily pivot analysis stuff. As such, I'm pretty comfortable right now with analysis being Dow range of 8,500-8,700. I am more bearish now than bullish.

Tomorrow's thinking is this.... if markets open flat, I'd be willing to be short-term bullish if today's high is taken out, but get very cautious and looking to sell short-term bullish profits on a Dow Indu near 8,700.

At same time, bearish side of me will look for this.... a decline near Pivot or 8,500 and to see Dow hang around there for about an hour, then to short/put... see a GRADUAL advance back near current levels of trade, then "failure" back lower. Then short/put, stop above 8,700.

  Linda Piazza   1/2/03,  4:07:57 PM
As I scan through some of the issues today, I note that many of today's gains were made on volume below ADV. Notable exceptions were GM, C, COF, and AFL, among others. Most financial stocks that I checked traded above ADV.

  Jeff Bailey   1/2/03,  4:04:27 PM
Interesting observation by Jonathan in XAU.x and HUI .... if nothing else, extensive short-covering there. I'm sure U.S. Dollar strength had a lot of shorter-term gold equity bulls selling on stronger ISM data as perhaps the thinking became "we aren't going to he@@ in a handbasket." However, longer-term bears that have been short, used some of the short-term selling to cover into.

  Jeff Bailey   1/2/03,  4:00:07 PM
Daily Pivots I've quickly punched in today's high/low/close for the Dow as follows. 8,607.24, 8,342.38, 8,600 (guessing at a close).

This would give the following for tomorrow's daily levels. S2=8,251.68, S1=8,425, P=8,516.54, R1=8,690, R2=8,781.

Per 03:15 update.... commonality at 8,690 or 8,700? As such, not eager to put on short/put into close. If shorter-term bull, can hold over the close, with support at pivot of 8,516.

  Jonathan Levinson   1/2/03,  3:58:00 PM
Precious metals have staged a surprising recovery, given the US Dollar strength. HUI is currently +1.49 and XAU is +.95.

  Jeff Bailey   1/2/03,  3:55:47 PM
The 3:15 PM Intraday Update has been posted. Link

  Linda Piazza   1/2/03,  3:45:35 PM
Here's a reason why I'm waffling on the long side today, as Steven mentioned he was doing: The SOX still hasn't climbed above its 50-ema, although other indices have, showing some divergence in this leadership index. Also, as I look at the chart, I see a bearish 20-ema/50-ema crossover. Admittedly, (5)(3) stochastics are turned firmly up, but I see multiple instances over the last weeks when the SOX printed big white candles (although perhaps not quite this big) with (5)(3) stochastics firmly turned up. Those candles mostly turned into one-day wonders, however. The SOX could push above this MA tomorrow or even in the next 30 minutes. Markets could move up for the rest of the week. Perhaps the SOX will play catch-up tomorrow. Something doesn't feel right just yet, though, and until I understand what's at work, I'll stand aside and watch.

  Mark Phillips   1/2/03,  3:41:46 PM
There's the trade at 8600 on the DOW, which is now on a fresh PnF Buy signal.

  Mark Phillips   1/2/03,  3:39:52 PM
New Buy Signals It has been a very bullish start to the new year, with the DOW and S&P indices tacking on better than 3% gains today. While one day does not make a trend, by any stretch of the imagination, it is worth noting that the S&P500 (SPX) traded above 905, generating a new PnF Buy signal on the standard 5-point box scale. Link.

The DOW is still struggling with the 8600 level, so far printing a high for the day of 8597. Should the bulls manage to put together a trade at 8600, that would confirm the early bullishness in the SPX, by putting the DOW on a fresh PnF Buy signal, with a vertical count of 9325. Link

I'm not advocating new bullish positions here, especially not after such a strong one-day move, but bears need to be aware that the trend over the past month may be changing. As I pointed out earlier today (and John just reiterated in his 15:26 post), there has been a powerful assett allocation shift out of bonds and into stocks. It may turn out to be a one day wonder and we'll need to see more action on Friday to give us a better view. But given the very lopsided tape today with advancing volume outpacing declining volume on the order of 10:1 today, I will be hesitant to short into the teeth of this rally today or tomorrow. The dominant trend is still down, but after a month of declining, the bears may be due for a rest.

  Linda Piazza   1/2/03,  3:32:56 PM
Here's the latest update on market breadth: New high/new low figures are 54/11 for the NYSE and 50/20 for the Nasdaq. Adv/dec figures are 3.26 for NYSE-traded issues and 1.96 for Nasdaq-traded ones. Up/down volume certainly has changed, with up volume at 12.6 times down volume on the NYSE and 9.4 on the Nasdaq.

  Steven Price   1/2/03,  3:31:26 PM
Swing Trade Signals
With the Dow now testing its high of the day, I am targeting the 8625-8650 range in the Dow and the 910 level in the SPX for strict observation. If we get a failure at those levels, it might be a good point for a low risk short entry, with a very tight stop. If we blast through them, then I'll look for 8750-8800/925 as the next possible entry from the short side ahead of heavy resistance. Bearish resistance lies at Dow 8750 and SPX 925, with breakthroughs coming at 930 and 8800.

Why am I waffling on the possible long entry side of things? As Jeff has correctly pointed out, the bullish percents are in retreat mode, suggesting overall weakness and higher percentage plays to the short side. However, if we do get a pullback and bounce off of a higher level of support, the plan can always change.

  John Seckinger   1/2/03,  3:26:10 PM
A 'limit move' in the 30-year is 3 full points in one session. The exchange will then halt the contract on a drop of that magnitude. Today, bonds fell 2 full points and 20/32nds to 110'02. This is one of the more impressive moves seen in a while. Cash absolutely flowed into stocks, and not just a little bit. I cannot stress how important it is to continue watching the asset allocation from bonds to stocks. This week's pivot is at 111'24, and Support 2 comes in at 109'20. Look to see if this level holds tomorrow if bonds continue to fall.

  Linda Piazza   1/2/03,  3:17:05 PM
Valero Energy: VLO +$0.98, 37.92. After consolidating in a bull flag pattern, Valero again broke out above the neckline of its out-of-proportion reverse H&S formation, best seen on the weekly chart: Link As can be seen on the chart, MACD and RSI look bullish. VLO had also printed an inside week and today moved above that level, so that those who trade inside days or weeks have another reason to consider VLO. Also to be seen on the weekly chart is a bullish 10-week/30-week crossover. It's on a P&F buy signal, and today for the second time in three weeks, it briefly broke above the 38 bearish resistance line on the P&F chart. The last time that happened, VLO quickly sold off below its 37.50 neckline, but today, the sell-off was not as strong. The three-week (and many month) high for VLO is 38.55. I've been following this stock since December 16, when it first broke above its 50-dma and that 37.50 neckline. Disclosure: I have a bullish position.

Cautions include the following: Today's volume isn't as strong as I would want to see on a breakout move. I'll be watching that closely, as I believe it's a danger signal. Also, the (5)(3) stochastics is nearly at levels indicating overbought conditions, although not yet turning down. Although VLO indicates that the Venezuela strike has opened new markets and improved margins, and that it has enough supplies to last through January, geo-political developments may impact this stock in ways I don't understand. I'm looking at this from a technical standpoint only. VLO reports January 28, I believe, so traders should factor that into any decision they make. Also, VLO tends to drift up and down with the broader markets, so factor that into your decision. In addition, as a reader reminded me to point out again, as I did in mid-December when first discussing the stock, a pattern that requires several months to complete can't be expected to meet its target for several months, either. Plan accordingly if this stock interests you.

  Jonathan Levinson   1/2/03,  3:15:16 PM
The put to call ratio has printed another reading at .78, but the TRINQ continues to reflect extreme buying pressure on the COMPX. My 1377 level seems to have been exceeded, but not by much with the current day high at 1380, and so I'm waiting to see if the move is just a headfake. However, the low TRINQ could be telling us of further strong upside, such as we saw at the outset of the October rally, when the TRINQ got similarly buried and just stayed there for day after day.

  John Seckinger   1/2/03,  2:52:46 PM
Per 09:37:55 Post, I talked about my five-minute pattern and that if 8387 was not hit to expect the market to close near the highs of the session. This could happen. It is amazing how much information I can get from five minutes of trading. Ok, I admit it doesn't give an objective; however, I do like to use 2x the first five minutes. That level comes in at 8522, which matches up well with 8525 and a level that has held as support once broken.

  Linda Piazza   1/2/03,  2:48:49 PM
Reader Question: I appreciate your comments greatly. I was reading your 10:52 MM post re ADX or DMI. Could you direct me to where I can find intaday charts [on marketwatch.com].

Response: The process is a little convoluted, so I thought other readers might have this question, too. After signing onto marketwatch.com, you enter the symbol of the stock or index that interests you in the quote block to the left. That will call up a detailed quotes page. To the top right, you'll see a place where you can click on "chart." Then you'll click the "Advanced" feature. That gets you a chart that looks like this: Link To the left of this chart, you'll see a sidebar that lists several options. One option is for time. You can find a pulldown menu there for charting your stock or option in intraday intervals. I like to look at ten-day charts, for example, so I might pull down the ten-day time period, and then use the next pull-down menu to click on hourly intervals.

Now, to the DMI. Further down on the sidebar, you'll find a pulldown menu under "Lower Indicator." Just choose DMI there, and it will create the chart for you. I hope this helps clarify my earlier comment for those of you who might not have access to intraday charts and might have had difficulty locating them on marketwatch.com.

  Jeff Bailey   1/2/03,  2:45:02 PM
Trend lines What are the rules for adding support and resistance lines to a PnF chart. For instance on a traditional chart for IBM why is a resistance line run from the August high of 82 and none is shown from the Dec high of 89 or even the more recent high at 82?

Here's the p/f chart of IBM. Link

The "rules" are simple. Only when a trend (bullish or bearish) is broken, does a new trend become established.

As such, the current trend on IBM is bullish (bullish support at $65) and it is that very trend, which a BEAR must break to get the trend solidly in his/her favor.

Now.... this doesn't mean a trader can't "envision" that the bullish support trend gets violated. Today's 3-box reversal high to $79, completes the bearish vertical count column of $69. Hmmmm.... if IBM is going to $69, that might not be enough to get the stock below longer-term bullish trend. Time will pass, and most likely IBM will build new columns of X and O. I can still start "envisioning" a bearish resistance trend by placing a "dot" at $90, just above the "rec C", then extending a series of "dots" at a 45-degree trend lower.

If I were to do this, what might IBM look like? Isn't IBM a Dow component? Here's a chart of the Dow Industrials (INDU) Link

  Jonathan Levinson   1/2/03,  2:36:46 PM
The HUI and XAU actually flashed some green for a few seconds there. As well, the put to call ratio just came in at .78. If not for the TRINQ being so persistently low at .21, I'd be pretty well convinced that the bounce is on borrowed time. As well, the QQV is still quite low, -1.01 on the day, and the FVX is still up 24.4 bps. A confusing day, but a lot of bullish energy has been expended so far. Tomorrow should be a telling day.

  Jim Brown   1/2/03,  2:23:35 PM
Steve and I were just discussing the potential plays and my aggressiveness. My ideal entry would be a short at 8600 with a stop at 8655 but my impatience keeps getting in the way. I see the historical bullishness the first three days of January but I also see the strong overhead resistance. I still remember vividly the huge drop from Dec-2nd and the weakness over the holidays. This recent memory is coloring my view of the possible entry points. I am afraid the markets will not reach that 8600 level and leave me hanging when the drop occurs. My fall back position would be a short entry at 8625 but then I would be at risk of a rebound from bargain hunters waiting for the same pullback.

Obviously there is no magic answer and there is risk in every entry. My thought process on an entry at a higher level near 8600 is that while I am shorting a rising rocket the risk is less due to strong resistance at the top of an unsupported spike than trying to jump on a downhill sled. Because traders are bullish in this three-day period that downhill sled could be a bumpy ride as dips get bought.

Traders should take the different viewpoints from the market monitor analysts and decide which view they agree with and trade accordingly. Just remember to match the timeframe with the view. My timeframe is currently three weeks. This means that while I expect the markets to be lower three weeks from now there is no assurance that it can't go higher first. Historical analysis supports this possibility. If your timeframe is to be out of the market by Friday afternoon then my view would be wrong for your trade.

  Jeff Bailey   1/2/03,  2:18:23 PM
The 1:00 PM Intraday Update has been posted. Link

  John Seckinger   1/2/03,  2:17:38 PM
Short-term retracement analysis can really be helpful at times. I like to do retracement analysis between my Resistance 2 and Support 2 levels (see Futures wrap article). The ES contract has adhered to resistance at the 161.8% area above R2 (905). I understand that Q-charts gives nine retracement levels, but one is the pivot (50%) and the others are treated as market maker levels. From 127.2% to 161.8% was 10-points, so not too bad of a range. I like this tool, and if one level is broken I look for a test of the next retracement area. For more insight into this metodology, see article: Link

  Mark Wnetrzak   1/2/03,  2:16:14 PM
Covered-Call Portfolio
The new year has the bulls charging out of the gait quickly; hopefully not into an arena with a crowd shouting "ole"! A good day to re-evaluate stocks which are acting weaker than expected. Viisage Technology (NASDAQ:VISG) and Zix Corp. (NASDAQ:ZIXI) continue to edge lower and should be monitored closely as they test key support areas. Another early exit candidate, XM Satellite Radio (NASDAQ:XMSR), is acting a bit worrisome today and may retest the November low. Generally, if a stock moves down through the top of a support area, the probability rises that support area will fail.

  Jonathan Levinson   1/2/03,  2:15:16 PM
The CBOE put to call ratio has been fading, and just printed its latest reading at .80. Bulls should be feeling some dismay to see it fading off those high readings as quickly as it is- too many cooks. Despite this, the COMPX is printing new highs, and looks like it's about to take out the descending upper trendline on the 60 minute chart. A critical moment here.

  Steven Price   1/2/03,  2:12:04 PM
Another indication that has me concerned about going short here is at best tenuous, but here it is. I went skiing on New Year's Day and ran into a friend of mine who I stood next to for 4 years in my pit at the CBOE. He said it was one of the most expensive vacations he had taken, and had lost thousands being long premium in Wal-Mart. The premium levels were sinking and no one was coming in to buy any downside ahead of the holiday, nor was the stock giving up its previous support level. That was a bullish sign, as volatility either holds or goes up when there is downside fear in the market. The current VIX reading is back below 30, at 29.46, and approaching recent support at 29.33. This is certainly not an exact indication of where the market is heading, but has me thinking twice about being short.

  Steven Price   1/2/03,  2:02:05 PM
I think Jim has a good point about resistance levels just above. I'm a little concerned about entering the short, as we've erased the last week and a half of drops in one move and we could be seeing a trend reversal in the short-term. However, if aggressive traders want to short from here, I have no argument with heavy resistance above.

  Jonathan Levinson   1/2/03,  1:54:42 PM
Happy New Year Was watching issx sure jumped up today.Would this be abreak out or a short.Was OI call play few weeks back. As allways thanks for any help.David

Like the QQQ, ISSX hasn't even made it past the 20 day EMA. It's not a breakout. It *is* on a stochastic buy signal, but the MacD has yet to confirm. If you're long, you can move up your stop or set a trailing stop. I would not dive in here if not long already. The 20 day EMA is at 20.06. A move above that would be needed to confirm that today's action has any legs.

  Kent Barton   1/2/03,  1:53:23 PM
Is this rally sustainable? That's the proverbial $25,000 question right now. If one relies only on historical patterns, the answer is "yes...but not for more than a few more days."

Dragging an $INDU daily chart backwards, we can see that the first 3-5 sessions in January have had a bullish bias since 1998. The slight exception is 2000, which saw a strong rally take hold after moving lower during the first two days. (2001 saw a huge spike upward on the second trading day of the year, thanks to a surprise fed rate cut). However, the markets have tended to move lower following the initial New Year's bounce. Over the past five years the Dow has completely retraced its early-January gains.

This tendency could be a result of tax selling, which depresses the market in late-December as investors bail out of losing positions for tax loss purposes. The removal of this artifical pressure can give stocks a powerful (and temporary) bullish bias.

Traders may want to keep these historical patterns in mind as short-term technical indicators (such as stochastics) approach overextended levels.

  Linda Piazza   1/2/03,  1:47:52 PM
Does it bother anyone else that while the major markets took out their 50-ema's this morning (according to the figures provided by stockcharts.com), the SOX failed to do so? On previous rallies, the SOX has tended to lead the charge. Noting this divergence from recent patterns and remembering some of the tactics Jeff has taught us lately, I looked at the relative strength of the SOX as compared to the SPX and then to the COMPQ on P&F charts. The charts show that while the relative strength of the SOX is on a "buy" signal in relationship to both the SPX and the COMPQ, relative strength reversed into columns of "O's" on each chart, with that column coming perilously close to giving a "sell" signal. Link Link If I'm trying to resolve the divergence from historical patterns, I can come up with two possible scenarios. One is that the markets will move into a new model for a rally, with the SOX not being the market leader. The other is that the SOX is still leading--not so happy a conclusion for those who might be trading bullish. The SOX relative strength in comparison to these markets has not yet shown a "sell" signal, so as of yet, this is all just thinking out loud.

  John Seckinger   1/2/03,  1:45:03 PM
A reader wondered why Qualcomm (QCOM) is not participating in today's rally. Basically unchanged on the session (36.42), shares look for finish its sixth consecutive session in the red. This morning, news from China reported that its third-generation mobile technology is still in testing and will not be available until 2004 at the earliest. The government-backed standard, called TD-SCDMA, is a potential rival to Qualcomm. Note: Only five companies within the Nasdaq-100 are under performing more than QCOM. A trade of 35 would seem to be bearish, with support below at 29. Risk to the upside from 35? It looks like a trade of 40. Therefore, 6 points reward for 5 points risk. Worth it? I don't think so. I would personally wait until one of these levels are hit.

  Jim Brown   1/2/03,  1:41:01 PM
The Dow is sure starting to look heavy. There are several chinks in the foundation beginning to form. My 10,3,5 Stochastics on the 60 min chart are rolling over. The A/D line is losing strength and the S&P futures and the NDX futures are both trending down now. Aggressive traders could be looking to short here with confidence that there is strong resistance overhead at 8565, 8580 and 8610 with a stop at 8650. The TRIN is obscenely low at .30.

  Steven Price   1/2/03,  1:37:41 PM
Swing Trade Signals
My thoughts on the current rebound: We have rebounded into resistance and there is something to be said for entering a short position here with resistance at Dow 8625-8650, as well as the 50-dma around 8550. However, with the strength of today's bounce having taken out several intraday resistance levels, I'd rather wait to see if rally holds, or if this is just the oversold bounce that was due after a 700-point sell-off. Aggressive traders can certainly enter short, as we have yet to achieve buy signals on the PnF in the Dow (8600), SPX (905), or OEX (460 on the 2.5 box), with stops above 8650. I would still prefer to wait for more information, before deciding if the bounce is for real. The current level was my initial target when playing long (50-dma) and it would not make much sense to enter long at my initial target without evidence of support somewhere along the way. If this bounce takes us through 8650, then the next entry would be resistance around 8700-8800.

  Jonathan Levinson   1/2/03,  1:34:42 PM
The ten year yield (TNX) seems to have broken out of an ascending wedge early and bounced from the 3.75% (37.5) line. The test of the lower ascending trendline will come just above 4.15% (41.5) or so, depending on the speed of the climb higher. Given today's action, it could come soon.

  Jonathan Levinson   1/2/03,  1:29:47 PM
The US Dollar Index has now made it to north of 103, an astounding move. However, precious metal stocks continue to regain lost ground, with HUI -1.1 and XAU -.52 on the day. Note that the forex markets are the largest there is- some manipulation is possible, but not for long, as the numbers are just too large. I forget the George Soros quote- upon being told that the BoE had 4B pounds or so (hazy memory here) with which to intervene, Soros replied, "What'll they do after the first half hour over?" Precious metal stocks are a miniscule market, a small fraction the capitalization of the Dow, for example. My guess is that we're seeing foreign buying of USD, and domestic buying in precious metals stocks. Didn't the BoJ say something last night about selling yen?

  Kent Barton   1/2/03,  1:22:01 PM
A glance at the major sector indices shows green across the board, save for the XAU.X gold/silver index. Tech is leading the rally with the networking (NWX.X), wireless (YLS.X), and semiconductor (SOX.X) indexes displaying the largest gains. Laggards include the Utility, Oil and Defense groups.

  Jonathan Levinson   1/2/03,  1:13:47 PM
Adv Volume keeps its relentless march higher, just watching it increase over the last 3 hrs is amazing. Is one indicator that meaningful to these people?! Also how is it that Europe was up this morning, who told them? Collusion

The markets were oversold on the 5 day and 5 week stochastics, and on the shorter oscillators. Shorts and other traders were watching those indicators and waiting for a bounce, and that made it happen. The news is at best a lightning rod for the chart trend and cyclical forces at work. Or, on the other hand, perhaps Al Green donned his cape and pointy ears and got on the bat phone to the ECB, as the "PPT" spotlight shone out over Gotham. One never knows.

  John Seckinger   1/2/03,  1:11:48 PM
It is amazing that the Sox rallied over 5.5% to 305 and is still under some solid resistance levels (308, 310, and 320). One thing I am happy about today is that the weekly bullish divergence seen in the dollar last week (discussed in the Monitor on a number of occasions) might not disappoint after all. The Greenback is currently at 103.61 and higher by 1.32% on the session. The week started out at 102.83. I am still looking for a move to 104.25.

  Jim Brown   1/2/03,  1:04:53 PM
We are starting to see the excitement fade in the A/D line and the advancing volume. The S&P futures have been trending down slightly for the last 45 min but the NDX futures are still trying to add to their gains. The 50 DMA for the Dow at 8550 is providing strong resistance to this short covering bounce. This spike may not be over yet because there are probably even more shorts still in denial of the bounce. The 30 DMA at 8580 could be the next spoiler if that 50 DMA is broken. In short, there is plenty of overhead resistance and the path of least resistance from this level is down. However, last January we rebounded +400 points in the first three days before beginning a protracted sell off. I believe this bounce is will fail despite the ISM report. The next two weeks will be full of earning warnings and plenty of uncertainty and this fact has not been forgotten by professional traders. All the negativity of the last month did not disappear overnight. In the time it took me to type this there was a spike in the internals once again but I am still not a lng term believer. 8580 and 8610 are still strong resistance.

  Linda Piazza   1/2/03,  1:04:14 PM
Delving further into the performance of various sectors relative to their 50-ema's, I note that while the GSO (software index) and utility indices are above their 50-ema's, the SOX remains below its 50-ema of 310.92 (as reported by stockcharts.com), as does the RTH (retail), with a 50-ema of 73.06.

  Jonathan Levinson   1/2/03,  12:54:54 PM
The put to call ratio has at last blown off some steam to a not-so-high reading of .91. The TRINQ has compressed further, however, to .18. So far the descending trendline on the 60 minute COMPX has held. Precious metals have come back further from their lows, showing stunning resilience given the industrial production data and the ramp up on the USD. New shorts on a failure below the trendline would be an aggressive play, but it's still too early to declare this bounce done, particularly given the bullish crosses on the 5 day and 5 week stochastics.

  Linda Piazza   1/2/03,  12:52:58 PM
Steve mentioned the importance of the 50-dma's earlier, and this morning sees indices pushing above some of those 50-dma's. Here they are, on an exponential basis, as reported by stockcharts.com: SPX 896.34, OEX 455.23, COMPX 1369.10, NDX 1017.77; DJI 8489.21. Simple dma's will be somewhat different. Checking deeper, I noted that the Transportation Index was also above its 50-ema, as was GM. However, bellwethers GE (at least, former bellwether) and MSFT remained below their 50-ema's as of this writing.

  John Seckinger   1/2/03,  12:51:57 PM
Bollinger Bands on a five-minute chart are beginning to compress, and the Dow seems to be gravitating not far from the profiled 8525 area. That is what "efficiency" is all about (read: this is just a short to intermediate efficient area, not long term). Looking at the 30-year (110'09), I have a daily "efficient" area down at 108'28.

  Jim Brown   1/2/03,  12:47:44 PM
The new jobless claims this morning are being ignored completely in the face of the ISM numbers. The numbers for the holiday shortened Christmas week were revised up to 390,000 from 378,000 and the current holiday shortened week came in +23,000 over consensus at 403,000. I would strongly expect this number to be revised upward next week as well. The four-week moving average, which is designed to smooth out the reporting problems, rose to 418,750 from 407,500. Since most people are more concerned about the holidays than filing for unemployment there is likely to be another bounce next week as those year-end terminations finally start the search for a new job. Also, there are usually numerous mass layoffs the first two weeks of January, which will feed the number as well. They may be ignoring it today but it will come back to haunt us later.

  Jeff Bailey   1/2/03,  12:36:47 PM
30-year YIELD Calls .... I'm still holding partial positon in past profiled 30-year YIELD calls for March expiration. Based on the p/f chart of this YIELD, I'm going to be looking to sell some YIELD strength back near 5.1%. While there has not been a "Yield sell signal" which would have taken place at 4.7%, the lower high of 5.15% in December (red C) tied in too well with the bullish % data, where money may have indeed flowed back toward Treasuries. As such, with plenty of time to March expiration and not using a stop, might get that bounce back toward an exit point. Still longer-term bullish on the 30-year YIELD calls, but the lower high and matching low have me a little more cautious toward these calls. As such, same goes with stocks, only the indexes have shown ability to break trends and give sell signals. Link

Speaking of Treasuries..... sometime back I mentioned that the Treasury bond market "dwarfed" the equity markets. On Tuesday, a subscriber picked up on a CNBC comment which said that the U.S. Treasury market was approx. $20 trillion vs. equity market $10 trillion.

  Linda Piazza   1/2/03,  12:35:00 PM
The VIX has collapsed with today's upswing in the equity markets, down 2.58 to 29.45 as of this writing.

  Steven Price   1/2/03,  12:31:00 PM
Swing Trade Signals
If we get a close above Dow 8500/SPX 900, we may finally be seeing a trend reversal and the shorts I talked about earlier my not be my favored play. If I see a reversal, then a possible entry on pullback above support from the long side may be my preference. As I noted earlier, it is the first trading day of the year, which can lead to some strange occurences, so I'm going to let this one shake out before coming to a conclusion. The levels I noted in my last post to the upside would still be considered strong resistance (Dow 8625-8650/ SPX 910), so any long plays will have to contend with getting through those marks.

  Jeff Bailey   1/2/03,  12:28:11 PM
Daily Pivot Levels ... short-term traders have seen all of today's "pivot" levels taken out to the upside. This is now when the Weekly Pivot Levels may be needed.

For example... using same formula as John posted Link in his article, a trader can enter into his/her spreadsheet LAST WEEK's (high, low, close) to establish a bit of a longer-term pivot analysys. By "longer-term" I mean the difference between daily and weekly. One could then extend further if they wanted to monthly, taking December monthly high,low, close. I would think a "true" swing trader is using weekly and monthly data for levels to be monitoring.

  Mark Phillips   1/2/03,  12:23:49 PM
SNPS $46.65 (+0.50) Still trudging higher, and hitting a new recent intraday high today at $47. A look at the price chart shows that buying the breakout attempts has not been the way to go, but patient traders that have legged in on dips to support are building a decent position in anticipation of an eventual breakout. Additional rebounds from the vicinity of $46 look good for new entries. Once SNPS clears the $47 ressitance, it will have to contend with more of the same between $48.00-48.50, the lower edge of which corresponds to the top of the December 5th gap.

  Jonathan Levinson   1/2/03,  12:20:48 PM
The COMPX is approaching descending trendline resistance on the 60 minute chart, with previous highs on Dec 17th and Dec 26th. The TRINQ is still in extreme territory at .19, QQV now down 1.03 to 39.65, and FVX sticking at 2.967%, up 23.7 bps. Precious metals are clawing back a bit of ground, XAU -1.07, HUI -2.44. A test of that trendline is going to be important- 1377 looks to be the level from here.

  John Seckinger   1/2/03,  12:19:03 PM
Despite the rise in IBM back to 80, it seems like all today's rally did is put these shares back in an "efficient" (read: hard to trade) area. 83 would give a buy signal, while the bearish vertical count still stands at 69. There will be some new "x's" on the P&F chart, but traders aren't given any good indication of future movement. The company is still in a 'non-favored' sector (computers).

  Linda Piazza   1/2/03,  12:08:12 PM
Steve, I'm glad you brought up the differences in opinions, too, in your 11:50 post. As I'm looking over Monitor entries today, I wondered if readers might be confused by finding both bullish and bearish comments. As has been mentioned in the past, not only do some of us have different viewpoints--offering readers a variety of opinions--but also some of us look at different time frames. As I pointed out when discussing MSFT a couple of weeks ago, it was possible for a daytrader to capitalize on some sharp updrafts, but when I look at charts, I'm thinking about trades that last at least a couple of days and maybe longer, and I'd seen weakness that did materialize over that time period. That doesn't mean that I was right or the reader who wanted to enter bullish plays was wrong. Our time frames might have been different.

  Steven Price   1/2/03,  12:06:29 PM
Swing Trade Signals
Current levels: Dow 8554/SPX 901.94/COMP 1370/OEX 455.76

  Steven Price   1/2/03,  12:04:21 PM
Swing Trade Signals
The levels I identified earlier are still the ones I am keeping an eye on - Dow 8625-8650/8450, SPX 910/900. So far the SPX has been unable to get much momentum over 900, so I'm not a rally believer just yet. I am more inclined to play short on a failure below the lower ranges or at the higher ranges listed above, but after today's big jump I think letting the move digest is the prudent strategy for the moment. We will most likely get some pull back and I'd like to see if there is support for that pullback before jumping in.

  Steven Price   1/2/03,  11:50:56 AM
My earlier email from Denise was an opportunity to address an issue that has come up here at OI in the past week. Our analysts do not always agree on positions and I think that having different viewpoints for readers to analyze is one of the benefits of the site. I have certainly learned plenty from both Jeff and Jim since joining the OI staff and last week was a prime example of how we sometimes choose to play the market in different ways. Jim and Jeff both played profitably throughout the week, while I was left on the sidelines waiting for a bounce that took longer to materialze than I had hoped. Readers who took advantage of Jeff and Jim's advice certainly could have closed the year with a profitable play.

On the other hand, I gave up on my position a day too early after it appeared several failed rebounds had us headed lower. While it eventually turned in my direction, it was a prime example of the "a day late/a dollar short" scenario. There are many profitable (and unprofitable) moves in a volatile market such as the one we are currently in and those traders who are quick to harvest gains and manage positions properly (as Jonathan mentioned earlier) will usually come out ahead.

  Mark Phillips   1/2/03,  11:49:41 AM
ACS $53.85 (+1.20) Making another run at that $54 resistance level. Traders that took advantage of one or more of those dips down into the $50-51 area should have their stops tightened up to break even (at least) on today's stongly positive move in the stock. Momentum traders need to be on alert for the breakout, but don't jump the gun. Remember, we need a decisive move over $54 (read:volume) to justify a momentum entry, and so far, ACS' 400K volume doesn't come close to meeting the volume requirement, with an ADV of 1.7 mln. Of course, a surge in volume on that breakout move could be enough to justify new entries. My preference though, would be to wait for a breakout and then pullback to the $54 level, confirming it as support before taking a position.

  Linda Piazza   1/2/03,  11:48:46 AM
Market breadth has strengthened since my last entry. Of particular interest is the 37:8 new highs versus new lows on the NYSE, and 22:10 new highs versus new lows on the Nasdaq. Adv/dec (ratio method) for the NYSE has moved up to 3.12 on the NYSE versus 2.69 earlier this morning, and to 1.87 on the Nasdaq, versus 1.75 earlier this morning. Also particularly interesting are the up/down volume figures. On the NYSE, up volume now comes in at 8.6 times down volume, and on the Nasdaq, it now comes in at 9.65 times down volume. As these numbers have been moving up, markets have been unable to push past the next levels of resistance, which makes me watchful, but is this the buildup prior to another up move? Another question concerns whether these up/down volume patterns are sustainable. These are the strongest numbers I've seen in a while, but not stronger than I've seen in the past.

  Jonathan Levinson   1/2/03,  11:45:36 AM
The put to call ratio is off its highs, but persistently above 1.00, currently 1.08. This remains a bullish sign. The TRINQ is still indicating an extremely overbought COMPX at .20. QQV is currently down .76 on the day, also bullish below its 40 support level. I seem to recall that 1367 is a significant fib level. It's certainly been a key confluence level during this morning's action.

  Jeff Bailey   1/2/03,  11:42:51 AM
The 11:00 AM Intraday Update has been posted. Link

  John Seckinger   1/2/03,  11:40:49 AM
Interesting how the aforementioned 38.2% retracement level at 8525 has held temporarily as support. With the five-year note lower by more than a full point (32/32), it shouldn't be long before we find out if the bond positions are longs liquidating (read: bond prices will continue lower into the close and help stocks) or short positions (read: look for short covering in bonds which should pressure stocks maybe down to the 8450 area). Note: This 8525 is an extremely "efficient" trading area. Efficient, by definition, is the mid-part of the bell curve.

  Jonathan Levinson   1/2/03,  11:22:29 AM
The US Dollar Index has gone vertical this morning, currently trading 102.90, a huge move.

  Steven Price   1/2/03,  11:18:44 AM
Swing Trade Signals
John has a good point to keep an eye on the 50% Dow retracement at 8452, as support at that level could be viewed as a break in the trend of lower highs, as I discussed at 11:12:23.

  Mark Phillips   1/2/03,  11:18:33 AM
Along the lines of my last post, I'm seeing some strong upide action in a couple of the current OI Put plays.

AIG $59.26 (+1.41) After gapping higher and then filling that gap this morning, AIG is pushing up near major resistance. Both the descending trendline and the 20-dma are resting near $59.60 and the stock is already over resistance near the $59.20 level. There is some mild resistance just over the $60 level. If in a bearish position, I wouldn't want to remain in that position if AIG rallied through the $60.50 level.

BSC $60.66 (+1.26) Brokers seeing some decent buying today, and BSC caught a bounce from the $59.50 level and is challenging the 20-dma again. Be careful with a rally through the 200-dma ($61.11), as that could be an early sign of a more significant price recovery. A move through the $61.10 level will also break the descending trendline that began in late December.

  Jonathan Levinson   1/2/03,  11:12:41 AM
Denise's email underlines an important point. It's no secret that I've been not-bullish since last spring, when I liquidated most of my savings at Dow 10,500 or so and went long precious metals and short the COMPX. Whether one is bearish or bullish in the medium to long run, traders need to watch the tape and trade what they see. Bear markets are characterized by violent rallies and squeezes- look at a chart of the Nikkei to see what I mean. I don't counsel anyone to blindly go long puts/short calls and hope for the best. We must always use stops, never overleverage, and take profits when we have them. These are the rules.

  Steven Price   1/2/03,  11:12:23 AM
Swing Trade Signals
I mentioned last week that the target on the previous long signal would have been the 50-dma, which the last few rallies have broken and then failed. That pattern is repeating itself this morning. The 50-dma in the Dow sits at 8545. The high today is 8561 and we currently sit at 8525. I would probably be looking to enter short if we fail here and fall back below 8450. On a closing basis, that would still constitute a lower high on a rebound, which is what we got on the Dec 26 rally to 8564 that eventually failed. That intraday candle looked very similar to what we are seeing today, which appeared as though we had a reversal in the trend. IF this rally fails like that one did, then I'd be comfortable short from here.

  John Seckinger   1/2/03,  11:09:31 AM
Looking at the Dow, 50% of the current range comes in at 8452 and is still above the Resistance 2 level at 8434. Therefore, there is a good chance dips will still be bought today. Especially with the 30-year imploding; down 2'14 at 110'08.

  Steven Price   1/2/03,  11:03:42 AM
You were right after all. I stayed long and thank you as I just sold calls bought for 6.80 at 12.80! thanks! I believe you just succumbed to heavy bearish pressure at OI. I chose to stay with your analysis and thanks! 8546 here!

Thanks Denise. In a shameless attempt at self promotion I'm listing an e-mail from a reader who stuck to her guns after last week's commentary. I will say that this is a lesson in staying with what you believe, although my switch on Friday failed to fulfill that lesson. However, while I pretty much sat on my own island last week with the long position, I think some of the other staff at OI had very good points and certainly Jim's bearish entry at 8450 was profitable by over 200 Dow points at one time. Interestingly, we bounced at 8242, just 2 points above my original stop-loss on the long signal. After gaining input from my cohorts and eventually giving up on the long signal, I certainly wish I had stuck it out on the long side, but timing is truly everything. Throughout last week's wraps, I did say that I believed the bounce I was playing was just that, a bounce from strong support and that it would eventually fail. I think those readers who are still long should be keeping a tight trailing stop on the rally.

  Ray Cummins   1/2/03,  10:54:48 AM
Spreads/Combos/Premium Selling - A Big Day!

The first session of the near year unleashed a flurry of pent-up buying among investors and there are a number of issues in our portfolio enjoying large gains. Some of the notable movers include: Danaher (NYSE:DHR) +1.85 to $67.50; Golden West Financial (NYSE:GDW) +1.37 to $73.18; Fannie Mae (NYSE:FNM) +$1.62 to $65.95; Omnicom (NYSE:OMC) +1.26 to $65.86; Stryker (NYSE:SYK) +1.03 to $67.15; Eastman Kodak (NYSE:EK) +0.96 to $36.00; Amgen (NASDAQ:AMGN) +$0.93 to $49.27, Lockeed Martin (NYSE:LMT) +0.80 to $58.55 and Valero Energy (NYSE:VLO) +0.74 to $37.68. The activity is favorable for bullish traders, however those with "short" calls should monitor their positions closely and consider exiting or adjusting any plays in which the underlying approaches the sold strike. Some of the candidates on our watch-list are: General Dynamics (NYSE:GD), 3M Corp. (NYSE:M), Wal-Mart (NYSE:WMT), and UBS AG (NYSE:UBS).

  Linda Piazza   1/2/03,  10:52:21 AM
Often since I began writing on the Market Monitor, I've mentioned that I like to use stochastics, but that oscillators are not useful in a strongly trending market. Now, John has shown us a tool to use in order to determine when a market has begun trending strongly. (Other than observation, that is.) Here's John's excellent explanation of how to use ADX for this purpose: Link It occurred to me that some of you might have trouble finding this information because different charting services refer to this indicator by different names. If, after reading John's article, you want to check ADX on stockcharts.com, you'll look for "Wilder's DMI (ADX)." If you don't have a paid charting service that allows you to study intraday charts, you can find intraday ADX on marketwatch.com intraday charts (free, but you have to register) by looking for DMI. Incidentally, that marketwatch.com chart showed DMI (ADX) moving strongly above 20 on the hourly charts, showing a trending market. Since we know from observation that the current trend is up, don't look for the hourly stochastics to provide good sell signals as they turn down, then, unless you see the DMI move back down below 20. What looks like a sell signal may be nothing more than a signal of an impending shallow pullback or consolidation. John suggests moving to MA's for market guidance rather than oscillators in a strongly trending market.

One observation I've noted: In a strong uptrend, oscillators don't give good sell signals, but sometimes they do give reasonable buy signals. If I wanted to enter on a pullback (not recommended for today with markets already up so strongly), then, I'd watch for an intraday oscillator to become oversold and turn back up. Similarly, in a strong downtrend, oscillators don't give good buy signals, but they sometimes give reasonable sell signals. Often, I'll dial down to a smaller intraday increment and watch the oscillators there, too, always cognizant of the shortcomings of oscillators in a trending market.

  Mark Phillips   1/2/03,  10:50:47 AM
Wow! More poor employment numbers were good for a mild pop at the open and it looked like the rally attempt would fail before it got started. Then better than expected ISM numbers lit a fire under the broad markets and this one actually looks like it might stick. Why do I say that?

A big part of it is the huge rally in bond yields, with all of the maturities (yields) trading at or near their highs for the session. We actually got a hint that this could happen on Tuesday, with bonds trading strong in the afternoon and closing near their highs. But it's the magnitude of today's move that really catches my attention. The yields on the 5-year, 10-year and 30-year, have all moved above a lot of near-term resistance and are trading at levels not seen since December 19th. I woudn't say it's a certainty, but it looks to me like another asset allocation began taking place on Tuesday and is continuing today.

The major indices provide further evidence of a sustainable move. Linda mentioned the clustered OEX resistance at 453-454, and we have the OEX trading 455.24 as I type. Next important resistance at the 50-dma, which now sits at 459.20. I'm having trouble with my charting service today, so can't get a view of how the other major indices look (won't paint the daily candle for today), but you get the picture. We've blasted through several intermediate levels of resistance this morning, and that is a significant divergence from the action we've seen over the past 2 weeks. Bears need to be careful about blindly shorting this rally -- we might finally have that year-end rally at hand

  Jonathan Levinson   1/2/03,  10:45:39 AM
JPM has reopened for trading, announcing a settlement with 10 of its 11 insurance companies, currently +5.42%, up 1.30 to 25.30.

  John Seckinger   1/2/03,  10:43:31 AM
I talked about the Directional Movement (ADX) oscillator on Tuesday and how the NQ contract showed a reading of 19.5 and close to the 'magical' 20 level. If the ADX moves from below 20 to above 20, thoughts of a trend and not a range trade takes form. Stochastics would then be replaced by moving averages as the primary sentiment barometer. However, the 20 level was never hit and the possible trend not confirmed. Currently, the ADX on the NQ is at 19.05. I will be watching this number closely this week.

  Jonathan Levinson   1/2/03,  10:38:28 AM
Peroni was taught by his father his charting methods. He has always done his chart analysis with paper and pencil. Actually a good way to get a feel for the stock you are following.

Thanks, Rick. My comment was tongue in cheek, but I agree. Most of my best writing is done the old fashioned way, too.

  Jonathan Levinson   1/2/03,  10:37:32 AM
The CBOE p/c ratio opened at .93 and has climbed to 1.17, good news for bulls. The COMPX is looking good, fighting resistance at 1360-65, QQQ just below resistance at 25.24. All that bearish speculation as reflected in the p/c ratio is quite bullish. The TRINQ is in extreme territory at .21, but can stay there, while the selling continues in bonds, FVX +22.1 bps.

  Jeff Bailey   1/2/03,  10:36:38 AM
S&P 100 Index (OEX.X) 454 Link ..... Per Index Trader Wrap and $2.5 box. Bears short can remain patient here. Per p/f chart, rally brings OEX right back up into resistance. Nothing "unusual" at this point as it relates to past rallies. Resistance should be rather firm at 465.

I've talked with Steve Price via phone this morning, while swing trade model got stopped out and a bit frustrating at this point, I just don't think a trader can be "bullish".

One subscriber asked May I ask for a quick clarification on something? On the December 30 Index trader you mentioned that a trade of the OEX at 400 would give a triple bottom sell signal. It happenned exactly as you said. OEX traded 439.57 as you mentioned in yesterday's write up.

The question I have is, do you still expect some weakness in the beginning of the year due to continued tax selling or do you expect a scenario where the OEX trades up to 455 first and then a reversal?

Thank you for the awesome education you have given us throughout 2002, and for your valuable and timely advice dispensed with so much care. Let me wish you and yours a very happy, healthy,prosperous, and a peaceful year in 2003.

This subscriber obviously read the index trader wrap, and question has already been answered by today's trading.

Steve and I actually discussed this on Tuesday and were wondering.... "Is it worth putting on a bearish trade (or any trade) with 2-hours left in trading before holiday?" Our "gut" feel was NO, it wasn't worth it. However, there was also the "what if Thursday morning, indexes gap lower on weaker jobless data, then what?" Technicals were/are obviously bearish short/intermediate/longer-term and good for 1/4 or 1/2.

I personally would not have a problem trading 1/4 or 1/2 short/put index puts while using the POINT AND FIGURE charts, with stops at 465. If YOU have a problem trading this way, too much risk, then traders that feel that way, DON'T take the initial swing-trade short/put, and look for higher entry points.

Steve and I both liked 1/4 or 1/2 bearish on Tuesday, but RISK was assessed back near 455, to compensate for potential bounce as has been seen 3 other times in OEX.

  Linda Piazza   1/2/03,  10:31:13 AM
I waited until now to look at volume patterns, since the release of the economic numbers would probably overrule anything showing up in early volume patterns. Those volume patterns currently show buying this morning, with adv/dec numbers at 2.69 for NYSE-traded issues and 1.75 for Nasdaq-traded issues. New highs outnumber new lows, by 23:6 on the NYSE and 22:10 on the Nasdaq. Up volume is 4.81 times down volume on the NYSE and 7.6 times down volume on the Nasdaq.

  Steven Price   1/2/03,  10:28:53 AM
Swing Trade Signals
Looks like we finally got that rally I had been looking for on the long position last week. Whole lot of good that does us now. We have now taken out numerous intraday resistance levels after plenty of technical levels were broken to the downside last week. I'm not going to jump on long after a gain of alomost 200 Dow points. As Jeff has noted, when looking at the 2.5 box on the PnF OEX chart, 455 is heavy resistance. Failure there would be yet another lower low on a rebound and the curent level on that chart of 452.50 could be seen as a possible short entry. However, if that Santa Claus rally that appeared dead is actually just delayed, then the rally could certainly continue. The next level I am watching is Dow 8625-8650, which was my target on the previous long signal and a point of heavy resistance. It also correlates to SPX 910, which has been strong resistance, as well. Let's watch for action at that level, or the development of new intraday support/resistance now that we have cleared out levels from the last few days.

  John Seckinger   1/2/03,  10:25:08 AM
The XAU index is lower by 1.44%, 30-year lower by 1'24 (1.55%), and the Dollar is higher. The Utilities Index is close to the 260 level as well. Additionally, the Dow is right at at weekly 38.2% retracement level of 8525. It is a retracement calculation from the March to October fall. A close above 8525, to me, would be significant.

  Steven Price   1/2/03,  10:16:31 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
We were stopped out on the 1/2 short position after the ISM data was released at 10:07:58

  Linda Piazza   1/2/03,  10:13:49 AM
Over the last ten days, I note some previous OEX support at 453 and 454, with a descending trendline also hitting at about 454. Watch for resistance at those levels. If the OEX climbs above those levels (as it's doing now with 453), watch to see if they provide support on pullbacks.

  John Seckinger   1/2/03,  10:10:15 AM
Per 09:37:55 Post, the Dow pulled back to 8388 and missed the 8387 50% retracement by one point. Just another reason to believe market makers (read: specialists, institutional traders, etc.) love retracement analysis.

  Jonathan Levinson   1/2/03,  10:08:02 AM
Al Green has dumped a payload of $8B from his cropduster, 8B via overnight repo, refunding the 7.5B expiring today and then some, for a 500M addition. With yields now up hugely on the day, I'd expect to see some buying in bonds.

  Linda Piazza   1/2/03,  10:04:11 AM
The ISM at 54.7 indicates expansion in the U.S. economy, but stands in contract to comparable European and U.K. numbers that came out today, indicating contraction in those economies, as I reported in my 7:43 post this morning. (The U.K. is not one of the countries using the euro, so its numbers were calculated separately.)

  Linda Piazza   1/2/03,  9:58:25 AM
I have to admit that I hadn't considered that interpretation of the analyst's comment about drawing their own charts, Jonathan! Perhaps that's because when I first began trading, I spent a few days furiously compiling my own data before I realized handy programs could do it for me. Perhaps I'm still trying to justify my ignorance. However, compiling that data for myself did give me insights I don't think I would have formed as quickly about trading cycles during the day.

  Linda Piazza   1/2/03,  9:54:50 AM
Jeff's intraday update mentioned the labor news released this morning. Over the weekend, we were visiting with a neighbor who reported that his company had reorganized and that Friday had been his last day at work. (He was a VP with the company.) He's a new neighbor, buying the house after the previous owner's company reorganized and he was forced to take a transfer out of the country. We've lived here only ten months, and the previous owner of our house confided that immediately after his move, his company reorganized and he was suddenly out of a job. In the neighborhood we left behind, COMPAQ and Enron had been big employers, and you can imagine what's happened with those jobs. My son-in-law (masters in software engineering) is employed this year, but his company hangs on by the skin of its teeth, never sure if it's going to get funding past the next few months. My daughter is an attorney for a prestigious law firm, impacted by the loss of business clients, as is her mother-in-law, who is an IP attorney. Either we're like the cartoon character who carried his little black cloud along with him wherever he went, or else this might be an indicator of what's happening this last year across the country.

  Steven Price   1/2/03,  9:52:49 AM
Swing Trade Signals
I've considered adding to the short position on the failure at 8400, however, with the ISM number coming out shortly, we may get another move up and a re-test of the earlier noted pivot of Dow 8434, if the news is good. We are already short and if the news is bad, more aggressive traders can add to the short position on a move back below 8350. I also find the current hold over the R1 pivot of 8388 to be interesting for thsoe looking at bounce levels.

  John Seckinger   1/2/03,  9:52:40 AM
Interesting note: The Dow has fallen for three consecutive years; however, the only time it fell for four years in a row was from 1929 through 1932. The Great Depression.

  Jonathan Levinson   1/2/03,  9:52:18 AM
Maybe the bucket shop for which that analyst works can't afford to buy computers yet :)

  Linda Piazza   1/2/03,  9:42:55 AM
This morning on CNBC, an analyst mentioned that his group drew their own charts rather than relying on computer-generated graphs. Why would someone do that when a computer-generated chart takes just seconds to produce and is accurate? Those of you involved in education know that some people are auditory learners, some are visual learners, and some are tactile learners. Most of us learn by a combination of methods. Occasionally charting by hand--or at least drawing support, resistance, and trendlines by hand on a computer-generated chart--can provide an inherent feel for how a stock or equity trades.

  Steven Price   1/2/03,  9:38:57 AM
Swing Trade Exit Point Alert - OEX/SPX/DJX/DIA/SPY
The current stop on the 1/2 short signal is set at Dow 8465.

I started with a 1/2 position due to the possiblility of a New Year's bounce, and it appears that was a prudent strategy (although not as prudent as waiting an extra day to close out the long!)

  Jonathan Levinson   1/2/03,  9:38:54 AM
Bulls should eyeing that opening gap nervously as the 60 minute opening candle begins to print a gravestone hammer with the COMPX trading off its opening highs. Bonds are still getting sold, though, and I'll bet that Easy Al will be unleashing a large repo to cover the expiring 7.5B. Expect those funds to go into bonds to bring the yields back under control, but in the meantime, FVX is up 11.2 bps on the day.

  Jeff Bailey   1/2/03,  9:38:03 AM
JP Morgan (JPM) $24.00 ... Halted, News pending.

  John Seckinger   1/2/03,  9:37:55 AM
For those of you that watch the "open to close" five-minute patters, the first period range in the Dow certainly didn't disappoint. The low is 8342 and the high 8432. 50% of that range comes in at 8387, which should be an inflection point between the two levels. Note: If a a pullback fails to come to 8387, start to expect a close near the highs of the session. Especially with bonds coming under solid pressure.

  Jonathan Levinson   1/2/03,  9:32:13 AM
11 point gap up open to 1346 COMPX, TRINQ .29, QQV +.96.

  John Seckinger   1/2/03,  9:30:56 AM

Thursday's S2, S1, P, R1, R2 are as follows.

Dow Industrials (INDU): S2=8,197, S1=8,270, P=8315, R1=8,388, R2= 8,434

SPX: S2= 865, S1=872, P=877, R1=885, R2=890

OEX: S2= 437, S1= 441, P=443, R1=447, R2=450

NDX: S2=969, S1=977, P=985, R1= 993, R2=1,002

QQQ: S2=24.02, S1=24.19, P= 24.45, R1=24.62, R2=24.88

  Jeff Bailey   1/2/03,  9:27:12 AM
The 9:00 AM Intraday Update has been posted. Link

  Steven Price   1/2/03,  9:25:42 AM
Swing Trade Signals
After finally punting on the long signal Tuesday, getting new PnF sell signals in the SPX, OEX and Dow and seeing several failed rallies run out of steam, we switched sides and put on a 1/2 short position. As I said Friday, we could see some strange trading to start the New Year and the rally on disappointing jobs data would fit into that category. If I am stopped out on the 1/2 short position at Dow 8465, I will still be looking for a breakdown after all of the technical damage the last few days. For those readers who maintained the earlier long signal, I'd be quick to tighten stops on this morning's rally.

  Jonathan Levinson   1/2/03,  9:24:57 AM
As we know from follow the Fed's open market operations every day, the aged but groovy Al Green has been circling the sky above the stock exchanges in a cropduster, raining bales on money down on his 22 primary dealers with which to purchase securities. On rare occasions, he gets a little stingy. There are 5 billion dollars in 28 day repurchase agreements expiring today, for which the fed has just renewed only 3B via 28 day repo, for a net drain of 2B. There's another 7.5B in 7 day repos expiring today, but the fed's going to wait to see how the markets open before announcing their intentions with respect thereto. More to follow when the announcement is made.

  Jonathan Levinson   1/2/03,  9:10:45 AM
We've been noting that the 5 week stochastic was oversold and ripe for a bullish reversal. Seeing the market treat bad news (initial claims) as good is a tipoff that this longer cycle is starting to turn. Bears beware and keep on your stops. Bulls should also beware, however, of buying a lofty gap up open on bad news.

  Jonathan Levinson   1/2/03,  9:01:20 AM
Initial jobless claims came in at 403K for the week, 13K more than expected. Bonds are selling off, with FVX +9.1 bps, TNX +7.9 and TYX +5.1. QQQ is up 37 cents to 24.74 on Island ECN. The US Dollar Index made it down to 101.80 before getting ramped to its current 102.25. Despite this buying, gold, which had been sold down to the 342 level overnight, is trading back above 347/oz.

  Linda Piazza   1/2/03,  8:05:18 AM
To add to the Kondratieff wave discussion, I wanted to mention that some time ago, a helpful reader referred me to discussions about T-theory (thanks B.G.R.), which purports to discover waves longer than Kondratieff's 50-60-year waves. One important bit of information mentioned in the discussions about these even longer cycles is that when Snyder wrote his introduction to the English translation of Kondratieff's book, he extrapolated Kondratieff's theories to equity markets as well as commodity markets. Kondratieff's original work was apparently done on commodity markets (using wholesale prices, according to Pring). Pring comments that K-waves have also been found in studies of bond yields and interest rates. Pring also extrapolates, if I'm reading correctly, to include equities among the markets that see K-waves. Perhaps that's where the error lies? Or perhaps, as T-theory proponents say, the importance of Kondratieff's theories lies not in the actual timing, but in the realization that bubbles will end due to fundamental factors such as the debt Jonathan mentions.

Perhaps because it's my love of mathematics that makes me so interested in the markets, I'm trying to time these waves more precisely than it's possible to do. I certainly perked up when I read that Fourier series could be used to study market cycles, but then was disappointed when Pring disparaged that method since it hinted that market behavior was more precise than it actually was. He recommended simple observation over Fourier series. However, my question now is this: what good are studies that purport that market behaviors move in recognizable waves or cycles of certain durations, if we then have to chuck out the timing aspect and say you can't time it? It's not that I want markets to obey some absolute laws of market physics (well, actually, wouldn't that be nice), but if the whole point of a theory is to discover some timing that repeats itself, it seems to be arguing wrongly to then propose that the timing isn't important, but rather just the cycle of events that is important.

  Linda Piazza   1/2/03,  7:43:55 AM
On hopes of an economic recovery and profit growth this new year, European markets shrugged off the release of troubling economic numbers this morning. Reuters Group Plc's survey of purchasing managers manufacturing index shrank to 48.4 from November's 49.5, rather than growing slightly as analysts had expected. Because this number is below 50, it indicates a contraction. In the U.K., a separate index also indicated a contraction, with December's number falling to 49.5 from 50.1.

As of this writing, the FTSE 100 was up .22%, the CAC 40 was up 1.40%, and the DAX was up 2.96%. The Nikkei did not trade.

  Jonathan Levinson   1/1/03,  11:45:47 PM
Reply from Jonathan

Linda, This'll be too brief, but what the heck: I've been studying Hurst's cycle timing method for about 6 months. Bear in mind that cycles are nested within each other. A 5 hour cycle is nested within the longer 1 day cycle, which itself is with the 5 day cycle, etc, all the way up to the K-Wave. Note that the wavelength is NOT determinative of time, which is to say that a sufficiently strong move can max out a long-term cycle within a day or a week by drilling price to the outer band that delimits the cycle. In the case of the K-Wave, as you'll know from the interview you've read on financialsense.com, Click here: Link

Greenspan's thinking from the 60's to today was to defeat the K-Winter by flooding the system with fiat money. The relentless interventions by the fed, Freddie and Fannie, etc., have deformed the cycle by extending credit far beyond what would normally occur. In other words, don't sweat the timing too much. It needn't be exact.

The fact is that rates are very low, debt is very very high, and productivity is insufficient to sustain the debt, let alone pay it down. Household savings at record lows, household debt at record highs, M3 money supply at record highs, purchasing power near record lows, USD on the way down, commodities already climbing, personal and corporate bankruptcies already climbing. Other than for technical/chart reasons, I see no way out of it- the K-Wave Winter will run its course and cleanse the system of debt, period. Good, bad or ugly. The bulls are spitting in the wind. None can explain how current valuations will be dealt with to usher in a bull market.

I warn that Jonathan is somewhat a perma-bear right now and he constantly chastises me for even considering a bullish potential for 2H 2003. We have email duels about the underlying economic fundamentals. I think it is good to have competing mindsets because iron sharpens iron as they say.

You have now seen the beginning emails and the stage is set. Take aim and fire those emails at Linda and Jonathan and let the learning begin. Jim

  Linda Piazza   1/1/03,  11:37:28 PM
Email from Linda

Jim/Jonathan, I've just spent the better part of the afternoon trying to reconcile what I learned previously about Kondratieff cycles (Martin Pring, Technical Analysis Explained) with the interesting article from Financial Sense, and I can't get the two timetables to reconcile. Jim Puplava states unequivocally that we're in/moving into a Kondratieff winter, yet Pring's discussion and graphs tap the 1970's as a Kondratieff peak, marked by a peak war, with a trough to be expected near 2000, with an expected trough war (interesting, right, in light of Iraq, etc.) to move the markets out of the trough. He marks peaks at 1814, 1864, 1920, and early 1970's, for example. When I look at Puplava's circle graph at the beginning of the article, I see the last Kondratieff spring beginning in 1949. Adding 50-60 years to that gets me 1999-2009, so Pring's trough near 2000 still seems possible from that calculation, and if you stick to Kondratieff's actual prediction of 50-54 years, that puts the upper limit more like 2003 for the trough, and for the beginning of a Kondratieff spring.

Any ideas on what I'm not seeing here? It's not that I'm wedded to the idea that markets have bottomed and are now going to begin moving up. It's that I'm wedded to the idea that I have at least normal intelligence, and I can't reconcile the differences in the two accounts, and have no way of weighing which is most valid. I don't have any difficulty admitting that this is all new material to me, but I can add and this isn't adding up! I must be missing something vital.

Also, a question about gold and how it relates to the other financial markets (not necessarily in the Kondratieff cycle, but in a normal market cycle). In the Financial Sense article, Ian comments that gold tends to perform in opposition to paper and stocks. In fact, he calls it "the complete opposite." Yet Pring states that at some points in the economic cycle, all instruments (gold, bonds, equity) are rising or falling, but that gold tended to lag. In fact, about recoveries he says, "After the recovery has been under way for some time, investors start to feel uncomfortable about the outlook for inflation; therefore a bottom occurs in the gold asset markets if it has already not done so already. At this point all three financial markets are in a rising trend." About declines he says, "Because the peak rate of price inflation is typically experienced around the beginning of the recessionary stage of the business cycle, theoretically the cyclical high in the price of gold should be achieved several months ahead of the point at which the rate of price inflation turns down. Once this juncture is reached, all three financial markets begin to fall."

Does the Kondratieff cycle undo some of these normal relationships?

Very good questions Linda! Anybody want to address these issues please send her an email and she will feed it to the monitor. Jim

  Jim Brown   1/1/03,  11:33:03 PM
Kondratieff Winter - I mentioned this economic cycle in the Tuesday night market wrap. I have been corresponding with several readers over the last couple months about various cycle theories and this one keeps popping up in the conversations. I will be the first to tell you I am not a cycle conspiracy theorist. However, there are many valid points for being aware of their existence. My problem is that these long-term cycles tend to be very long term. You can be off a year or two and still be very accurate when looking back at them. Trading them in advance is a different problem. It is one thing to try and pick a market/stock direction over the next 30 days, 30 hours or even 30 minutes. It takes a lot of conviction to go short for a year or two when we have seen bear market rallies of 15% - 20% in the longer term down trend. I think the best use of cycle theory is to give us an overall view of the market and then trade that view within the internal cycles.

I am going to print a couple emails I received on Wednesday from Linda and Jonathan. They have put far more research and effort into the cycle work than I have. It appears I have struck a cord with them and that makes me think there are probably a lot of readers who have been doing this research as well. By printing these emails I am opening up the monitor on Thursday for a discussion of cycles by Linda and Jonathan and anybody else that wants to join. Please direct your emails to them and lets see if we can come to a general consensus of where we are. (give or take a year or so - grin)

  Jim Brown   1/1/03,  11:20:56 PM
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  John Seckinger   1/1/03,  11:20:45 PM
Futures on the Market Monitor We have just about completed the changes to the new Market Monitor and we will be starting to test the Futures page next week. Our plans are to go live with futures trades on the E-Mini on the following Monday Jan-13th. We are going to be offering two types of trades. Position trades and scalps. It is entirely up to the reader which style they participate in. Each will be clearly defined. We suggest you paper trade them for a week or two until you convince yourself which is most profitable.

  Steven Price   1/1/03,  11:20:25 PM
The Swing Trade Game Plan has been posted: Link

  John Seckinger   1/1/03,  11:20:05 PM
The Futures Trader Wrap has been posted: Link

  Jim Brown   1/1/03,  11:19:41 PM
Yesterday's Market Monitor has been archived. You may view it and any previous days here: Link


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