i-Trader

08.31.04 - Pullback to Support

Support Test In Tuesday's report I stated, "...10150-10175 now strong intraday resistance....support is at 10075-10100 on the expected pullback from the 10215 level..."

Tuesday the DJU4 tested up to 10152 early before failing and trading done to 10073 intraday. The buyers stepped in at this key support zone and produced a 102 pts reversal in the final 90+ minutes of trading. The result was a close back above the key 10110-10140 zone but now the buyers must produce a close above 10225-10235 to resume the upward momentum. A close below 10095-10105 would be weak.

On Monday the US bonds and notes broke out of 4-5 day consolidation and the buying continued Tuesday. For the 5-year note, a close below 110'100 is necessary to stem the upward momentum while a close back below 109'300, basis the Dec 04 contract, would be a weak sign. A close below 109'200 would confrim at least a short-term top. In the longer-term, closes below 110'24 and 108'28 basis TYZ4 and USZ4 would be the first sign of a possible top. Closes below 110'00 and 107'24 are required to turn the momentum lower and confirm a top.

The US dollar was weak on Tuesday, closing back beloe the key level of 8935 as well as 8900. A close above 8950 is necessary to turn the short-term momentum higher while a close above 8995 will solidify at least a short-term low. A close below 8890 would be weak with a close below 8870 signalling a short-term top for the greenback.

Crude oil is a key support with Tuesday 08.31.04 being the 8th down day from the contract high set on 08.20.04 at 4837. Recall that in the 08.25.05 analysis I stated, "...though the close below 4400 is weak, a close below 4100 is necessary to confrim a short-term top." Monday and Tuesday CLV4 spiked to session lows of 4140 but closed nearly 70-100 pts off the low. This market continues to mark time as it is setup for a retest of the 4800-5000 level, again barring a close below 4100.

08.30.04 - The Pullback

Short-Term Top The last update was on 08.25.04 for 08.26.04 and stated, ""...the upside may be overdone in the short-term...one more thrust higher to the 10175-10200 zone....close above 10225-10235 maintains the upward momentum...back below 10095-10105 would be weak. "

Monday the DJU4 failed at 10192 after setting a swing high on 08.27.04 at 10215, only 15 pts above the specfied top of the expected short-term range of 9900-9975 and 10125-10200. The close back inside the key closing area of 10110-10140 on 08.30.04 is a warning shot for the bulls with 10150-10175 now strong intraday resistance. Initial support on this pullback, per the 08.24.04 report is 9975-10000.

The US bonds and notes broke out of 4-5 day consolidation and are trading higher, inversely to the US indices. For the 5-year note, a close back below 109'300, basis the Dec 04 contract, is necessary to stem the upward momentum with a close below with a close below 109'200 a weak sign. In the longer-term, closes below 110'24 and 108'28 basis TYZ4 and USZ4 would be the first sign of a possible top. Closes below 110'00 and 107'24 are required to turn the momentum lower and confirm a top.

The US dollar manitained closes above the key 8935 level in four of the past five days. Recall that this key closing level confirmed a short-term bottom in the US dollar. To maintain the upward pressure, the buyers must now produce a close above 8995. A close below 8930 would be a warning sign with a close below 8890 confirming at least a short-term top in the greenback.

Crude oil is a key support with Monday 08.30.04 being the 7th down day from the contract high set on 08.20.04 at 4837. Recall that in the 08.25.05 analysis I stated, "...though the close below 4400 is weak, a close below 4100 is necessary to confrim a short-term top." Monday CLV4 spiked to a session low of 4140 but closed nearly 100 pts off the low. This market continues to mark time as it is setup for a retest of the 4800-5000 level, again barring a close below 4100.

08.25.04 - The Real Test

Key Tests for Markets No time for a detailed update tonight. Quick recap:

1. DJU4 broke out and as this is being written set a session high at 10196, 421 pts off the 08.13.04 low and above the 08.02.04 pivot high of 10188.
2. The expected short-term range was now 9900-9975 and 10125-10200 and in last Friday's Outlook I stated,"...the upside may be overdone in the short-term...one more thrust higher to the 10175-10200 zone."

This upside area is now being tested and the close above 10110-140 solidifies the 08.13.04 low at 9775. A close now above 10225-10235 maintains the upward momentum. A close back below 10095-10105 would be weak. The market broke out of a 3+day range consolidation with upside targets on the DJU4, NDU4 and SPU4 at 10225-10250, 1400-1410 and 1110-1115 respectively.

3. The US bonds and notes are nearing a possible reversal point. Wednesday they tried to breakout of a 3-4 day consolidation and potentially failed, completing yet another interday compresssion pattern. Thursday (08.26.04) is setup for a range expansion. For the 5-year notes, a break below 110'200 or above 111'030 will be an early warning sign for the impending move with a close above 111'060 strong and below 110'260 weak. In the longer-term, closes below 112'16 and 110'16 basis TYU4 and USU4 would be the first sign of a possible top with a close below 112 and 110 a sign of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and confirm a top.

The US dollar closed 8935 confirming a bottom in that market and also possible top in bonds. (see other data).

4. Crude oil retraced for the fourth day Tuesday into support. The market is now set up for a retest to the 4800-5000 level, though the close below 4400 is weak, a close below 4100 is necessary to confrim a short-term top.

08.24.04 - Nothing's Changed

Consolidation A quick update today. The outlook for both equities and bonds is unchanged from the prior two days' analyses.

As stated in Monday's report, barring a close above 10140 required to solidify the 9775 low, a short-term pullback to the 9975-10000 level is likely. The major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff. The expected short-term range is is now 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top.

The buyers have been in control of the interest rate instruments. However, the US notes and bonds are at major resistance levels at the late-Mar 04 lows and breaking through this area will require substantial effort. Also the major players are showing signs that they believe a top is near. The US dollar also closed above 8935, reversing the damage from the 08.06.04 employment report. Friday and Monday may have been a warning shots for the longs with Tuesday consolidating to produce the third consecutive range compression day. Wednesday (08.25.04) is setup for a range expansion. For the 5-year notes, a break below 110'200 or above 110'300 will be an early warning sign for the impending move. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the first sign of a possible top with a close below 112 and 110 a sign of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and confirm the commercials positioning.

Note that crude oil retraced for the third day Tuesday into support at 4375-4475. The market is now set up for a retest to the 4800-5000 level.

08.23.04 - A Day of Rest

No News Last week saw the DJU4 post a 355 pts gains from the 08.13.04 intraday low of 9775. Monday exceeded that high by 2 pts before reversing to settle down 28 pts at 10081. The higher print came following an early test to 10128 with a mid-afternoon pullback to 10085, the Friday afternoon breakout area. The final hour broke this key support area at 10085 setting up 10085-10100 as resistance.

Monday's action did little to change the short-term outlook. As statedin Monday's report, barring a close above 10140 required to solidify the 9775 low, a short-term pullback to the 9975-10000 level is likely. The major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff. The expected short-term range is is now 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top. Note that Monday was a range compression day, a precursor to a trend type move.

The buyers have been in control of the interest rate instruments. However, the US notes and bonds are at major resistance levels at the late-Mar 04 lows and breaking through this area will require substantial effort. Also the major players are showing signs that they believe a top is near. The US dollar is also beginning to show signs of strength, but must close above 8935 to reverse the damage done off the 08.06.04 employment report. Bottom line, for a top to be complete in the interest rate markets, price action needs to confirm these leading signals. Friday and Monday may have been a warning shots for the longs; closing at or near its lows on Friday and leaving real gaps on Monday, the second consecutive range compression day. Tuesday (08.24.04) is setup for a range expansion. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the first sign of a possible top with a close below 112 and 110 a sign of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and confirm the commercials positioning.

08.22.04 - Interest Rates Headed Higher Soon?

Never Fight the Big Boys I was doing a quick scan of my charts for the upcoming week and came across one potentially ominous piece of information. I watch the committment of traders data in some markets for confirmation of possible market reversal points. The "big boys" (commercial traders) are rarely incorrect in their market assessments – when they begin taking a large position in one direction it’s time to sit up and take notice. By nature they have deep pockets and are therefore often early in establishing their play, but ultimately they win out.

This past week’s data demonstrates that the commercials are betting that interest rates are headed higher (bond and notes lower). As laid out in the Friday 08.20.04 update, US notes and bonds up against major resistance levels. The last time that commercials were this negative on US interest rates was in late Feb and early Mar 04, roughly 2-3 weeks before Treasuries topped out and reversed with the 30-year bond dropping over 13 pts during the next 1-1/2 to 2 months. Clearly, traders need to be on alert for reversal signals. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower and Friday 08.20.04 may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion.

08.20.04 - Outlook

How High is High A quick update this week. Last week I called for a short-term rally of 200-300 pts off the 08.13 lows. As of Friday, the DJU4 booked 355 pts, a 3.6% move in one week. Barring a close above 10140 (see below), a short-term pullback to the 9975-10000 level is likely though there may be one more thrust higher to the 10175-10200 zone.

Last week's outlook specified a 9800-9875 support zone and 10025-10100 resistance area. This week's action revises the expected range to 9900-9975 and 10125-10200. A close back below 10015-10025 would be an early warning sign for the buyers with a close below 9965-9980 signaling a short-term top. Given that the major indices are now up against signficant resistance levels and the DJU4 has retraced roughly 50% of the 06.23 to 08.13 selloff, a short-term pullback is in the cards until the market can post a close above 10110-10140 to solidify the 9775 low.

While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments. The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower. Friday may have been a warning shot for the longs. The session closed at or near its lows on a range compression day. Monday (08.23.04) is setup for a range expansion. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

As for crude oil, the rally continued with Oct crude, now the front month, tagging 48.37/bbl on Friday. Last week with the market at $46.02 on the close, I stated, "... CLV4 based in a 600 pts range for nearly 2-1/2 months before the breakout move. Therefore, the momentum is to the upside with a potential target of $48-50/bbl." Now support is at the mid-40s and though a short-term failure is possible at current levels, only a close below 4400 basis the Oct 04 contract would indicate a short-term top. Pullbacks to the 4400-4450 level must be considered a reaction to a major upmove. A close below at least 4100 is necessary to confirm a failed breakout.

08.19.04 - Quick Update

Consolidation No time for a detailed update tonight. From Wednesday evening's report, "...a short-term consolidation is likely now with the extremes set at 9975-10000 (early support at 10025-10050) and 10100-10125 on the upside."

Suffice it to say the the DJU4 traded within 15 pts of Wednesday's high and the tape was neutral-to-weak. The result was a drop down to the expected support zone of 9975-10000, setting a 9990 low, before reversing to trade 61 pts off the low in a late afternoon reversal. With no economic news on tap today, watch for the range to continue playing out. Recall that the longer term outlook is for a 9800-9875 support zone and 10025-10100 resistance area. A close above 10110-10140 remains necessary to solidify a low. A close back below 9965-9980 would be an early warning sign for the buyers.

08.18.04 - Rebound Continues

Time for the Real Test Wednesday saw buyers step in at the open as the indices opened lower from overnight pressure caused by the AMAT news and Asia. As stated in Wednesday's report, "...intraday 9900-9950 is support and 10050-10100 resistance...close above 9965 sets the stage for continued upside pressure...Wednesday is setup again for a range expansion similar to what occurred Monday...NDU4 still has a real gap at 1349-1353...providing some pressure to pull that sector higher." The market played out as expected and now its time for the real test.

Wednesday appeared to be a day initially propelled higher on short-covering but fueled by real buying as the session wore on, almost a "I've missed the low, I have to get on somewhere" type of day. By the close, the DJU4 hit an intraday high of 10090, the highest level since 08.05 (the day before the employment report). The market internals were strong as well with A/D at >+1500-1700, the trin at 0.50 and setting an extreme intraday NYSE tick of +1422. Note also that NDU4 finally filled its gap at 1353.

The DJU4 is now to the upper end of the expected 9800-9875 to 10025-10100 range. Furthermore, the buyers have posted three consecutive winning days, pushing the market 315 pts off last Friday's low. This past weekend I outlined the probability for a 200-300 pts rally. Having met the goal and based on the test to the key resistance levels, a short-term consolidation is likely now with the extremes set at 9975-10000 (early support at 10025-10050) and 10100-10125 on the upside. Recall that the longer term outlook is for a 9800-9875 support zone and 10025-10100 resistance area. A close above 10110-10140 remains necessary to solidify a low. A close back below 9965-9980 would be an early warning sign for the buyers. A potential pattern to watch for today if a reversal is to occur is a break above Wednesday's highs on neutral or weak tape and then fall back through the Wednesday high area of 10070-10090.

The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Wednesday posted weak daily patterns across the board but confirmation that the three-week move has run its course requires closes below signifincatly lower levels. Closes below 112'16 and 110'16 basis TYU4 and USU4 would be the warning shot for longs with a close below 112 and 110 signs of weakness. Closes below 111'04 and 108'28 are required to turn the momentum lower. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

08.17.04 - Dead Cat or AMAT?

Real or Fake? The rally continued Tuesday on a weak CPI report. All three indices snapped back from late session weakness in the NDU4 on Monday with the DJU4 trading back up above 10000 before stalling. An intraday high at 10015 was met by profit taking with the market falling back to breakout support by midday before stabilizing. The balance of the session bounced between intraday support at 9940-50 and resistance at 9965-9975 playing out the, "...given the trend-type move Monday, watch for a consolidation to setup today." specfied in Tuesday's report.

With the two-day trend move higher capping early Tuesday at 10015, 240 pts off the Friday lows, the expected 200-300 pts rebound be peaking out. It comes down to the Applied Materials (AMAT) earnings report and guidance. Barring a surprise and with no economic news on tap for Wednesday, the stage is set for another consolidation. Longer-term, the range is set at 9800-9875 for support and 10025-10100 for resistance. Intraday and short-term, 9900-9950 is support and 10050-10100 resistance.

The close above 9965 sets the stage for continued upside pressure though the market is moving into key resistance. Note that Tuesday's close was the highest since the last close above 10000, at 10105 on 08.04, two days beofe the employment report. The short-term potential is 10075-10100. A close above 10110-10140 remains necessary to solidify a low. The techs have to kick it in gear or else the market's stuck at resistance. Tuesday may have seen some reallocation as the techs were stronger than the broad market. Note that the NDU4 still has a real gap at 1349-1353 using the 08.05 low and 08.10 high providing some pressure to pull that sector higher. A close back below 9900-9915 would be an early warning sign for the buyers. Wednesday is setup again for a range expansion similar to what occurred Monday.

Nothing has changed in the notes and bonds. While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments. The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Closes below 112 and 110 basis TYU4 and USU4 will be a weak sign with closes below 111'04 and 108'28 are required to turn the momentum lower. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

08.16.04 - Reflex Rally

The Rebound In the reports for Monday 08.16.04, I stated,"...This type of pattern typically sets up an intraday trend type move...based on the analysis below, equities are setup for a rebound...with a minimum 200-300 pts rebound likely...short-term outlook is for continued range bound trading between 9800 and 10000 with buyers active at 9775-9825 and sellers dominating the action above 9900 with 9950-10000 major resistance." Tuesday the focus will shift to earnings from Applied Materials (AMAT) and the CPI report.

Monday the buyers stepped up to the plate and by mid-morning pushed the DJU4 up to the mentioned resitance level of 9950-10000, setting an intraday high of 9963, 188 pts off last week's lows. With this one day trend move higher and the market up against the 9950-10000 zone, a significant buying effort will be required to push through this level. Therefore a pullback to the 9900-9920 zone first is possible. The close above 9935 is a setp towards stabilzing the market. However, a close above 9965 is required to confirm it, setting up a potential short-term move to 10075-10100. A close above 10110-10140 remains necessary to solidify a low. The techs have to kick it in gear or else the market's stuck at resistance. Monday both the SOX and NDU4 were the anchor holding the broad market back. Neither of these parameters will be met unless this sector cooperates. A close back below 9900-9915 would be an early warning sign for the buyers. Given the trend-type move Monday, watch for a consolidation to setup today.

While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments. Monday, they took some profits. The US notes and bonds are at major resistance levels at the late-Mar 04 lows. Breaking through this area will require substantial effort. Closes below 112 and 110 basis TYU4 and USU4 will be a weak sign with closes below 111'04 and 108'28 are required to turn the momentum lower. As for the US dollar, it is at support again, but must close above 8935 to reverse the damage done off the 08.06.04 employment report.

08.16.04 - Gasoline Prices

Media Exaggeration This chart illustrates the fact that gasoline prices are NOT at record levels when adjusting for inflation. Prices would need to move another 70-80% higher to match the highs seen in the 1970s and 1980s. Refer to my recent article for more details.

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.

08.13.04 - Led Zeppelin Market

Friday 13th The omninous Friday proved difficult for anyone expecting another major move - in either direction. After the range expansion on Thursday's "dump", the market stagnated on weak, choppy price action but neutral to positive tape indications. The end result was a mild range compression and inside day for the major indices. This type of pattern typically sets up and intraday trend type move.

The song remains the same with the DJU4 continuing to trade 9800-9850 and 9950-10000. The NDU4 has a gap 40+ pts higher. With both sides of the 9800-10000 range tested now its time for one of the camps to take control. A possible scenario is for both the DJU4 and SPU4 to/through their 08.06.04 and 08.12.04 lows, 9776 and 1060 respectively and reverse, a pattern that would get some systems long. A break of these levels on extreme tape action (A/D <-1300 to -1500 and NYSE ticks of -1200 to -1500) would indicate a capitulation type move. The DJU4 needs a close above 9935 to stabilize the market; a close below 9775-9800 and the bears continue to control the market.

Continue to watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. First however, TYU4 must close below 112'00 and USU4 below 110'00 to place the buyers on defense. A close below the first numbers woould set up a move targeting 109'08-109'24 and 106'08-107'00 respectively. A close in the US dollar index above 8935 would confrim the setup.

08.12.04 - Post Market Reaction

The Dell Reaction Dell's (DELL) results were inline with expectations, helping the market recover some ground in after hours trading. Net income jumped 29% on strong overseas and server demand. The NDU4 is trading up 5+ pts as this is written with the SPU4 up 2.50 pts. Overnight resistance for DJU4 (i.e., YMU4) is 9850-9880.

Other closing comments: crude oil, basis Sep, closed at another record $45.50/bbl while the major indices were down 1-2%.

08.12.04 - Saved by Dell?

Heavy Tech Selling A quick update tonight; Thursday saw another day of heavy selling across the board. The NDU4 broke to its lowest level since late 09.03, trading through the 08.11.04 lows, while both the DJU4 and SPU4 held their 08.11.04 lows intraday though they were essentially tagged on a closing dump. After-the-bell, Dell was set to announce quarterly earnings. Will the market be "saved by the Dell" on Friday the 13th? With the Smith Barney upgrade this afternoon, one has to wonder if they have some postiions to unload.

The range continues for the DJU4 at 9800-9850 and 9950-10000. The NDU4 has a gap 40+ pts higher. With both sides of the 9800-10000 range tested now its time for one of the camps to take control. A possible scenario is for both the DJU4 and SPU4 to/through their 08.06.04 and 08.12.04 lows, 9776 and 1060 respectively and reverse, a pattern that would get some systems long. Friday the 13th will tell the tale. The DJU4 needs a close above 9935 to stabilize the market; a close below 9775-9800 and the bears continue to control the market.

Continue to watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. The upside reaction Thursday was muted considering the amount of selling in the indices. A close in the US dollar index above 8935 would confirm the move.

08.11.04 - Cisco and Crude

Opposing Forces Tuesday afternoon the market rallied strong after the 25 bps rate hike. After-the-bell however Cisco (CSCO) announce earnings inline with expectations. This wasn't good enough and tech stocks headed down hard overnight. Just as was the case Tuesday, 9870 proved to be the area to watch. A few wild gyrations in the energy pits saw the indices move inversely to crude pices, the most pronounced move mid-moaring follwing the API inventories.

The day sesison opened with price action trying to hold ground but the tape (advance-delcines, NYSE ticks, trin) was telling a different story. An opening pop met strong resitance and pushed the DJU4 down to 9835 in the first 30 minutes of trading. This low was 95 pts below Tuesday's session high on the market close. The sellers were in trouble however with the erngy marekt providing the fule for a rally. Following the weekly API inventory data, CLU4 tanked and the stock indices rallied. The DJU4 moved 80 pts higher, stalling just below the prior day high before stalling and falling back to key support at 9870 by noontime. A midday consolidation between 9870 and 9910 set a high probabilty pattern. In an online trading room, I posted this message with the DJU4 trading at roughly 9875-9885:

[14:29] ...seen today's pattern lots over time - trade lower overnight on post market news, try pop on day session open, then drop ; then wicked reversal followed by consolidation and a breakout later in day to new session highs
[14:30] if it plays out, poss 9950-9970 upside (has to overcome some heavy selling on A/D tho

Thirty minutes later the DJU4 had set a new sesison high of 9929 before trading up to 9947, 60+ pts from the "alert point" at 14:30ET. The day settled up 14 pts at 9931.

Wednesday continued to carve out the expected range consolidation between 9800-9850 and 9950-10000. The NDU4 still has an unfilled gap at 1346-1353. Will Dell's (DELL) news today provide the fule for the move? A close above DJU4 9965 would stabilize equities with a close above 10110-10140 necessary to establish a bottom. Note that the pre-employment number close was 9933. A close back above that level would be a short-term positive.

Continue to watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. Tuesday's reaction to the FOMC rate hike pushed the notes and bodns back to near their employment day (08.06.04) breakot areas. A close in the US dollar index above 8935 would confirm the move.

08.10.04 - The News

Another Rate Hike Evidently the FOMC sees something that the rest of the country is missing, besides inflationary pressures. The market however put a positive spin on the 25 bps rate increase.

The market broke out of Monday's consolidation range off the open and moved higher until establishing a late-morning consolidation. The range held into the FOMC news at 1415ET, preceding a quick 48 pts move lower for the DJU4 to test the breakout area. The buyers liked what they saw and just as quickly reversed the major indices higher. "...post-news levels to watch on DJU4 are 9770 and 9870...", with the buyers pushing the market easily through this upside level. By the final hour, the DJU4 set a new session high of 9930, before settling up 117 pts at 9917. Note that the pre-employment number close was 9933. A close back above that level would be a short-term positive.

In Tuesday's report I stated, "...in the short-term with a reflex rally meeting stiff resistance at 9900-9930... equate to 9925-9935." Tuesday's breakout pushed the DJU4 up to that resistance zone (recall that 9900 was major support prior to employment Friday). Also, the NDU4 and SPU4 gaps are being tested with the SP gap filled Tuesday and the NDU4 gap now down to 1346-1353. It's showtime for the buyers. A close above DJU4 9965 would stabilize equities with a close above 10110-10140 necessary to establish a bottom. Note that the pre-employment number close was 9933. A close back above that level would be a short-term positive.

Continue to watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. Tuesday's reaction to the FOMC rate hike pushed the notes and bodns back to near their employment day (08.06.04) breakot areas. A close in the US dollar index above 8935 would confirm the move.

08.10.04 - The Waiting Game

Holding Pattern Roughly 5 hours to go until the FOMC decision announcement. Also, after-the-bell today Cisco (CSCO) announces earnings with analysts expecting 0.20/share. The "whisper number" is $0.21. After the first hour this morning, look for a consolidation and choppy trading to develop as the players sit and wait.

08.09.04 - A Day of Rest

On Hold Two extreme moves to the downside at the end of last week, no key economic data on the table and the FOMC meeting on deck Tuesday, set the market up for a rest. As stated Friday, "... Monday will likely be a zig-zag consolidation day." After estalishing an early morning range, the major indices consolidated until a pop to new sesison highs in the bond markets' final hour of trading. The failed upside breakout produced a final hour drop thorugh the midday range's lows before the DJU4 finally settled unchanged at 9800.

Monday's action left the Friday closing analysis unchanged. Expect a consolidation to develop between 9800-9850 and 9950-10000 in the short-term with a reflex rally meeting stiff resistance at 9900-9930. Note that the NDU4 and SPU4 have unfilled, real gaps at roughly 1345-1353 and 1074-1077 as well. These equate to 9925-9935 on the DJU4. A close above DJU4 9965 would stabilize equities with a close above 10110-10140 necessary to establish a bottom. Expect another consolidation today until the FOMC news announcement at 1415ET. Key post-news levels to watch on DJU4 are 9770 and 9870.

Continue to watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. A close in the US dollar index above 8935 would confirm the move.

08.06.04 - Outlook

August Starts with a Bang The first week of the new month and quarter began wiht renewed threat of terrorist attacks in New York and Washignton D.C. This coupled with the weak economic reports put the sellers in control and the buyers scrambling for the exits. In last week's outlook, I stated, "...close below 10070 sets in motion a retest of the 9900-9965 area."

The DJU4 broke key support at 10000 and 9900, now major resistance levels. At a minimum, the bulls must regain 9925-9935 on a closing basis with a close above 9965 stabilizing the market. The short-term outlook is for a range to develop between 9800 and 10100.

The market is treading on thin ice now. Recent outlooks laid out three possible scenarios, one of which being a setup for another leg down. The closes this past week are providing evidence for such a development. The markets are oversold and a reflex rally at this point is possible, but until the DJU4 can recover 10110-10140 on a closing basis, the longer term momentum is down-to-sideways.

While the equity markets have been ruled by sellers, the buyers have been in control of the interest rate instruments and the US dollar. The buyers found reasons to add on the 08.06.04 very weak employment report and rumors of new terrorist threats. Spikes higher across the board into resistance at the Apr 04 pivot areas, partially reversed into the close. For now, the bias is up but closes below 111'04 and 108'28 basis TYU4 and USU4 are required to turn the momentum lower. As for the US dollar, it is at support again, but must close above 8930 to revers the damage done off the 08.06.04 employment report.

The energy market is another key part of the daily news. Crude oil broke out to record highs again this past week - though not on an inflation adjusted basis. CLU4 based in a 600 pts range for nearly 2-1/2 months before the breakout move. Therefore, the momentum is to the upside with a potential target of $48-50/bbl. Though a failure at the current levels is possible, pullbacks to the 4150-4200 level, basis the Aug 04 contract, must be considered tests of the breakout zone. A close below at least 4150 is necessary to confirm a failed breakout. Also, check out Barron's Online 08.07.04 Commodities Corner.

08.06.04 - Bad Number

Payrolls Grease Skids Rarely do I check in with CNBC, however this morning I happened to switch from Bloomberg to CNBC just after "the number". What I expected was the typical "spin" from CNBC. However, that's not what I heard. Economists were expecting 240K, 208K more than the government's reported number of 32K. On the news, host of Mark Haines, proclaimed, “This is a bad number. This is a bad number for the economy. This is a bad number for President Bush. This is just a bad number.” Surprise.

The DJU4 dropped 125 pts from an opening high of 9965 to 9840 in under 25 minutes with 107 pts of the move in under 3 minutes. Loads of stops were hit at Thursday's low as well as last Monday's low of 9900. A rebound back to this key area as the cash markets opened at 0930ET was met by more selling producing a new session low of 9835, tagging the 05.12.04 low. Except for an extreme trin reading off the open, the tape was only modestly negative with advance-decline readings substantially stronger than Thursday. A consolidation in the first 45 minutes' range with less volatile swings continued into mid afternoon. The selling resumed as the bonds market closed, setting a new session low at 9776. The day settled down 133 pts at 9800, the lowest close since 12.05.03. For the week, the DJU4 moved 412 pts high-to-low, down 3.3% on a closing basis.

Notes and bonds traded in the oppopsite directon on the news, slicing through key resistance and trading up to early April 04 highs before stalling. The 30-year bond, USU4, retraced 75% of the Mar-May 04 drop at Friday's high. The US dollar having languished in a roughly 100 pts range fro 7-1/2 days broke down 100 pts, a measured move, before finding support at mid-Jul levels.

The bulls suffered a severe blow Thursday and Friday and it will take time to heal the wounds. Expect a consolidation to develop between 9800-9850 and 9950-10000 in the short-term with a reflex rally meeting stiff resistance at 9900-9930. Note that the NDU4 and SPU4 have unfilled, real gaps at roughly 1345-1353 and 1074-1077 as well. These equate to 9925-9935 on the DJU4. A close above DJU4 9965 would stabilize equities with a close above 10110-10140 necessary to establish a bottom. With back-to-back active sessions Thursday and Friday, no economic news on deck Monday and the FOMC meeting Tuesday, Monday will likely be a zig-zag consolidation day.

Also, watch the US notes and bonds for signals of a reversal in equities. A close below 111'04 and 108'28 basis TYU4 and USU4 would be a positive development for equities and a reversal in the interest rate instruments. Such a move would target 109'08-109'24 and 106'08-107'00 respectively. A close in the US dollar index above 8935 would confirm the move.

08.05.04 - The Drop

Payrolls to the Rescue? The market broke down out of its consolidation on Thursday led by the weakness in the techs. Another new contract high in crude oil greased the slope as the sellers took control. The DJU4 minimum breakdown target of 9990 was easily surpassed as the longs scrambled for the exits. An intraday low of 9925 was tagged before settling down 172 pts at 9933, the lowest close since 05.20.04.

For the DJU4, 9900-9960 is major support based on the trading action last month. The breakdown area of 10070-10090 is major resistance. Therefore expect the buyers to attempt to hold the line in the low 9900s and sellers to step in the low 10000s (especially between 10010-10030). Watch the NDU4 for clues. It must hold 1300-1335 or else it may be on its way to the mid-1100s, the breakout area from early summer-2003. The market is very oversold and at major support. The closing advance-decline numbers of -1446 are at an extreme as well as the closing Trin at 2.85 with the 5 and 10-day Trins also never oversold levels. Bottom line, the payroll numbers hold the key to whether support holds and a reflex rally develops or this was the first leg down.

Another key indicator for today is the US notes and bonds. Once again the 5, 10 and 30-yr instruments are trading up to major resistance at FVU4 110'00, TYU4 111'16 and USU4 109'16. The employment report holds the key to US markets. A much stronger-than-expected report and bonds will reverse lower with equities finding support. A weak report and the bulls are in trouble in equities. Only 16 hours until the news is out...

08.04.04 - Ping Pong

Breakdown Failure Wednesday was a replay of Tuesday, only in reverse. In Tuesday's report, I stated, "...breakdown sets up a minimum target for DJU4 at 10030-10040..." The breakdown pattern that materialized late Monday produced follow overnight and early in the day session with the DJU4 trading down to 10045. The sellers weren't strong enough however. After a pop on the 1000 ET economic news and a retreat the market consolidated before and early afternoon rally that set new session highs. The DJU4 traded up to 10149, back into the 10130-10150 sell zone before retreating to close up 15 pts at 10105. Note that the big three (DJU4,ESU4 and NDU4) were virtually unchanged on a closing basis.

Monday the DJU4 broke 38 pts above its 10070-10150 consolidation range before failing. Tuesday's low was 30 pts below the range before reversing. This action changed nothing. A decisive close above at least 10140 on convincing market internals (advance-declines, up-down volume, NYSE ticks, etc.) is necessary to break the stalemate. A close above 10170 would be strong confirmation. The NDU4 continues to be the weakest of the three major indices, trading below its range of 1385-1415. Until this sector shows some real strength, the prior requirements will not be met and therefore, the the buyers will hold the line at 10040-10070:090 and the sellers 10130-10150:190.

08.04.04 - Oil - How Long?

OPEC Running on Empty? I found an interesting article in the latest issue of Popular Science magazine. Anyone familiar with the Hubbert curve?

It seems like many traders believe that oil is considerably overvalued and continue to short the recent breakout of a 2-1/2 month short-term consolidation. The upside target for CLU4 (Sep crude) is the $48-50/bbl level. However on a longer-term basis, the move may be in its infancy. On a real basis, crude would need to trade up to $60-90/bbl to match the highs set at the onset of the Gulf War and in the late 1970s.

08.03.04 - Take Me to the Other Side

Breakout Failure Tuesday had the bears playing Aerosmith as the major indices were anchored down by the techs. A potential breakout pattern on Monday failed to produce any followthrough early Tuesday and after a midday chop-session, support gave way. By the close the DJU4 slid back to its support zone at 10070-10090, setting a 10083 low before settling down 50 pts at 10090.

Tuesday saw divergences across the board with the NDU4 the weakest of the major indices and the SPU4 the strongest. As stated above, the DJU4 tested back to its buy zone while the Nasdaq 100 broke below its 1385-1415 range and the SPU4 held above its 1094-1096 buying area. Given that there were no confimring indications in the market internals this is not surprising. The market needs a catalyst to break out of this consolidation.

Until proven otherwise by covincing market internals (advance-declines, up-down volume, NYSE ticks, etc.), expect the buyers to hold the line at recent support zones of DJU4 10070-10090, NDU4 1375-1380 and SPU4 1094-1096. Abreakdown sets up a minimumtarget for DJU4 at 10030-10040 with a potential to test back below 10000.

Monitor the US notes and bonds for signs of possible turning points intraday. Tuesday the 30-yr bond traded through the spike highs from Sunday (08.01.04) evening's terrorist fears. The 5 and 10-year notes however failed to confirm the move so far. Key support levels to watch are FVU4 10916, TYU4 11100 and USU4 10816.

08.02.04 - Knocking on the Ceiling

Bulls Thumb Noses Another quick update today. The bears came in after Sunday's news about potential terrorist bombings in NYC, NJ and Washington DC licking their chops. The bulls refused to let them gain control. The DJU4 traded back down to the support zone at 10070-10090 and held once again, setting up a test through last week's high at 10158. As stated in the 07.30.04 wrap-up, "... an old traders' adage that there are double tops and triple tops but quadruple tops do not exist. Therefore, another test to DJU4 10150 should produce breakout, especially if confimed by the tape." Monday produced the confirmation with DJU4 trading up to 10188 before closing at 10163, on a final-hour 50 pts move higher.

The major indices broke out of 8-day ranges that began on 07.21 at DJU4 9900-10150, NDU4 1360-1416 and SPU4 1077-1107. However, by the close some profit taking failed to produce closes above the required levels to confirm the breakout move. The DJU4, NDU4 and SPU4 need closes above 10170, 1440 and 1112 to confirm the intraday strength. Obviously, the techs continue to lag, but if the buyers step up and hold the major indices into the close, the initial targets are DJU4 10250-10400, NDU4 1450-1475 and SPU4 1130-1140.