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If you scroll all the way down you should be able to click on some
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John
------------------ Reply Separator --------------------
Originally From: jcappello1@xxxxxxxxxxx
Subject: Index Funds Signals
Date: 07/28/2002 08:08pm
Index Funds Signals
ŪStockmarketTimer.com Home
Trading Signals for Monday, 7/29/02
MARKET COMMENTARY:
Friday's Action: After a choppy session, stocks saw a spurt
of buying in late trading Friday and managed to post modest gains to
end a roller-coaster week. Volume was light, with 1.80 billion shares
traded on the NYSE and 1.69 billion shares traded on the NASD. Market
breadth was positive, with NYSE advancing issues over declining
issues by a ratio of 1.36, and up volume over down volume by a 1.14
ratio. Nasdaq advancing issues over declining issues came in at 1.23,
and up volume beat down volume by a 1.44 ratio. Leading sectors were
drugs, +3.5%, internets, +2.6% and banking, +2.4%. Laggards were gold
bugs, -9.1%, gold/silver, -6.3% and telecoms, -4.7%. Nasdaq 100
futures closed 15.50 pts higher to settle at 912.50, while the S&P's
settled up 16.90 pts at 853.70.
Weekly Recap: Well, it sure didn't lack for excitement. After
plunging to new multi-year lows, the market staged a huge reversal
mid-week. On Wednesday, the Dow and the S&P 500 posted intra-day
swings of 8.7%. After giving back some of Wednesday's gains on
Thursday, the market managed to finish the week on a positive note.
For the week, the Dow gained 3.1%, the S&P 500 was up 0.6% and the
Nasdaq fell -4.3%. By the end of the week, the market had taken on a
somewhat brighter tone. Whether it was due to the severely oversold
technicals or to actions taken by the SEC and Congress to clean up
corporate corruption is difficult to say. Whatever the reasons,
investors finally seemed to be in the mood to do some bottom fishing.
Earnings season continues next week, but the focus shifts from tech
stocks to oil and retail. Friday's Employment Report takes center
stage on the economic calendar.
Is Now the Time to Buy?: After Wednesday's market plunge and
spectacular reversal, the perma-bulls have come out once again to
declare that this is the best buying opportunity we will ever see.
Besides the more visible bulls (Kudlow and Cramer, Joe Battataglia,
Abbey Joseph Cohen, et al), some of the lesser known but perhaps more
respected market analysts are saying the same thing. Dr Bart DiLiddo
is comparing today's market technicals with the September, 2001 and
September, 1998 lows and is forecasting much higher prices from here.
While we are not discounting the possibility of a sharp bear market
rally starting soon, we do not believe that last week's low was a
major market bottom. Here's why.
Major stock market bottoms have always occurred at or near the
time when bond prices reach a major bottom. In other words, major
stock market bottoms occur near major peaks in interest rates. The
reason is that new bull markets, unlike counter-trend rallies in bear
markets, are fueled by falling interest rates. It is the reduction in
interest rates that encourages investors to pay higher multiples of
earnings for stocks. The longest secular bull market in history
started in 1982 when interest rates reached an all-time peak and then
began to decline. We should, therefore, expect to see bond prices
fall well below current levels before the stock market reaches a long-
term bottom.
During the first hour of trading on Wednesday, bond prices
spiked to their highest level since last November, while stock prices
plunged to new 5-year lows. Since Wednesday's stock market bottom
occurred in parallel with a bond market peak, the odds that the stock
market put in a long-term bottom are practically zero. It could,
however, signal a short-term bottom because the surge in the bond
price indicates a genuine panic, with investors rushing to dump
stocks and buy bonds.
Over the past 5 years, bonds have tended to move in the
opposite direction to stocks, a divergence from normal patterns. The
bond rally over the past 4 months is just a continuation of this
divergence. Over the longer term, stocks and bonds trend to move in
the same direction. However, bond prices have recently been unable to
rally anywhere near their 1998 and 2001 peaks despite the record
plunge in the stock market.
We suspect that bond prices have not made higher highs over the
past 4 years simply because the bond market has been factoring in the
increasing risk of inflation. The true definition of inflation is an
increase in the money supply. And the year-over-year percentage
change in the money supply has been increasing dramatically. Since
the Federal Reserve has the unlimited ability to monetize its debt
(print more money), lenders to the US Government will be repaid with
dollars that have substantially less purchasing power. The inflation
premium that is being factored into long-term interest rates will
most likely surge over the next 6 months, thus leading to a sharp
fall in bond prices. Falling bond prices mean rising interest rates
and rising interest rates invariably mean lower stock prices. Caveat
emptor.
The COT Report: The latest Commitments of Traders report
shows that Commercial Hedgers covered some 9,500 S&P short contracts
to bring their net short position to -65,735 contracts. Large Traders
are also net short -27,200 contracts, with the entire offsetting net
long position of +92,395 contracts being held by Small Traders, the
so-called "weak hands". Over in the Nasdaq pit, Commercials covered
some 300 ND short contracts to bring their net short position to -
6,397 contracts. Commercial action in Dow futures was little changed
this past week, with Commercials remaining net long the Dow by +7,624
contracts.
The fact that Commercial Hedgers were net buyers as the S&P's
were making new multi-year lows last week is a positive sign and
suggests that a potential intermediate-term low is in place. Over the
longer term, the outlook remains bearish, with Small Traders net long
a near record 92,000 contracts. Needless to say, large traders didn't
become large by being on the wrong side of the market.
Market Sentiment: The AAII sentiment index of bullish
individual investors increased to 49% this week, up from 26% last
week, while the bearish percentage dropped to 28% from 54% last week.
These numbers represent huge swings in small investor sentiment and
normally would be considered bearish. But on an intermediate term
basis, it could be considered bullish as it suggests that at least
one investor group is ready to buy the bottom. The Market Vane weekly
consensus of bullish S&P commodity advisors was little changed at
17%, down from 18% last week. The Investors Intelligence survey of
bullish newsletter writers came in at 37.1%, up from 35.4% last week,
while the bearish percentage rose to 40.2%, up from 39.6% last week.
The bearish percentage has now closed over 40% and has crossed above
the bullish percentage, a rather rare occurrence. This would normally
be considered a bullish sign, with a better than 85% probability that
the market will close higher in 2-3 weeks.
The Short Term Outlook: We said in Thursday night's column
that we expected the S&P 500 to make a higher high on Friday. While
the futures did make a higher high by 1.50 pts in the last 15 minutes
of trading, the SPX cash index failed to take out Thursday's high by
a point. This sets up a potential topping pattern and suggests that
we could see weakness in the SPX come Monday. Large NYSE up-tick
readings of +800 or higher were recorded over five different half
hour periods, indicating that the market was running into resistance.
There were no large down-tick readings on Friday to indicate support.
NYSE market breadth indicators are nearing overbought levels,
increasing the likelihood of a pullback. Finally, the VIX plunged
9.4% Friday, triggering a one-day sell signal for the S&P's
The Nasdaq remains an enigma. Since Wednesday's intra-day
reversal, the Nasdaq 100 Index (NDX) has made lower highs and higher
lows, forming back-to-back inside days. The NDX closed at the top of
its daily range Friday, suggesting that it should make a higher high
on Monday. But if the SPX falters as expected, the NDX will have
difficulty maintaining a positive bias. The negative divergence
formed Friday between the SOX and the NDX does not bode well for the
NDX short term. Quite often, when the SOX closes lower while the NDX
closes higher, the NDX will close lower the following day.
To summarize, odds favor a pullback early next week, setting up
the potential for a bear market counter-trend rally. Longer term, we
remain bearish on the stock market. A new bull market will not
materialize until interest rates have peaked and the "smart money"
players have covered their net short position in S&P 500 futures.
Tracking stock support and resistance levels for tomorrow are:
QQQ, support at 22.17 and resistance at 23.34; SPY support at 84.28
and resistance at 87.24.
SMT Timing Indicators Explained
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CURRENT RECOMMENDATIONS
Click here for current recommendations.
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The Longer Term Forecast
The US Stock Market will make new lows in 2002.
Interest Rates will move higher during 2002.
The US Dollar will begin a major descent during 2002.
Gold & Gold Stocks will move higher into 2003.
Note: Our longer term views may differ from our short and
intermediate term outlooks.
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Short Term Indicators
We utilize a number of short-term indicators to take advantage
of market volatility and capture short, 1-3 day moves in the market.
All of the indicators we follow have historically high success rates.
These indicators are not trading systems and they are not perfect.
They will be wrong at times. The reliability of a single indicator is
enhanced when other indicators are pointing in the same direction.
As of the close, 07/26/02
INDICATOR DIRECTION: NDX SPX
Volume (QQQ, SPY)
Volatility (VXN, VIX)
Volatility (QQV) ---
Equity P/C Ratio
New Highs
New Lows
Thrust Oscillator
TRIN-5 Indicator
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THE BIGGER PICTURE
Institutional Money Flow:
Nas 100 Futures: Bearish since June 25, 2002
S&P 500 Futures: Bearish since Apr 11, 2000
Dow Ind Futures: Bullish since Jul 10, 2001
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PIVOT POINTS
Pivot Points are forecasted market cycles dates. The next pivot
point is forecast to occur near 08/06/02.
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DAILY TECHNICAL CHARTS
NDX Trading Bands
NDX Trendline & Candlestick Chart
Nasdaq McClellan Oscillator & Summation Index
SPX Trading Bands
SPX Trendline & Candlestick Chart
NYSE McClellan Oscillator & Summation Index
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ECONOMIC CALENDAR
July 29 - Aug 02
Mon: No reports due.
Tue: Consumer Confidence.
Wed: GDP, Chicago PMI.
Thu: Initial Claims, Constr. Spending, Truck Sales.
Fri: Employment report, Factory Orders.
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To see yesterday's signal page click HERE.
INTERMEDIATE TERM INDEX FUND RECOMMENDATIONS
CURRENT TREND INDICATOR STATUS:
SYMB NAME TRND FCST TRND CHG POSITION REC.
INDEX FUND
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SPX S&P 500 Index See Graph SHORT NEGATIVE
BETA
NDX Nasdaq 100 Index See Graph SHORT NEGATIVE
BETA
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ETF TREND INDICATIONS
Single securities, known as Exchange Traded Funds (ETF), track the
performance of different indexes and sectors. EFT's have certain
advantages over mutual funds. They can be bought and sold exactly
like
a stock of an individual company during the entire trading day. Also,
they can be bought on margin, sold short, entered at limit prices and
closed on a stop. The following signals are indications of trend in
the
various sectors. They should not be considered as recommendations to
buy or sell any security.
SYMB NAME DATE SIGNAL ENTER CURRENT
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BBH BIOTECHS 07/24/02 LONG 72.70 SEE QUOTE
BDH BROADBAND 02/20/02 SHORT 12.90 SEE QUOTE
BHH B2B 05/08/02 SHORT 3.61 SEE QUOTE
HHH INTERNET N/A NONE N/A SEE QUOTE
IAH NET ARCHIT. N/A NONE N/A SEE QUOTE
IIH NET INFRASTR. 6/05/01 SHORT 13.80 SEE QUOTE
OIH OIL SERVICES N/A NONE N/A SEE QUOTE
PPH PHARMA N/A NONE N/A SEE QUOTE
RKH REG. BANKS N/A NONE N/A SEE QUOTE
SMH SEMICONDUCTORS 07/15/02 SHORT 31.17 SEE QUOTE
SWH SOFTWARE N/A NONE N/A SEE QUOTE
TTH TELECOM N/A NONE N/A SEE QUOTE
UTH UTILITIES N/A NONE N/A SEE QUOTE
WMH WIRELESS N/A NONE N/A SEE QUOTE
A double asterisk** denotes a change in trend or that a position has
been
closed out.
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