08.15.04 - Technical Bounce Due?

Olympics This week has a few significant economic reports on the boards as well as some key earings reports. The Empire State Manufacturing index and Treasury International Capital reports start the week off followed later by the CPI report and Philadelphia Federal Reserve survey. On the earnings side the key reports to watch are Applied Materials(AMAT), Brocade(BRCD), Home Depot(HD), Nortel(NT) and Novell(NOVL). Other potentially market-moving news includes the SEMI Book-to-Bill Report and CS First Boston Small Cap IT Services Conference.

The market is setup for a oversold reflex rally, but terrorism fears associated with the Olympics in Athens and the upcoming Republican National Convention should cap any enthusiasm. The shorts also have had a good run during Jul and Aug and may begin covering some of the positions to lock in profits. Also, the Sep-Oct timeframe typically sets up a seasonal low and with the 4-wk average Specialist Short Sales to Total Short Sales at the lowest levels since at the 1960s, the pros are telling us that the selling may be overdone. Bottom-line: a low set up in the next 4-8 weeks should present a low risk entry point for a year-end into early next year rally.