Market Clues

Stocks reversed their rally on Friday, which is not something you normally will see on the last trading day of the month. The last day of the month sees the market close up about 70% of the time. So, something significant is happening here for the best day to be a reversal day.

One factor putting a damper on the Wall Street festivities was the occurence of a geomagnetic storm, although it was only a one-day affair. We've observed that these storms are usually not strong enough to actually reverse the market unless it's overbought and primed for a reversal. Friday was obviously one of those days.

Bonds reversed course, also, as their countertrend rally fell apart quickly on what was considered "bad news" (only to a bond player would good economic news be considered "bad"). The economy is percolating along just fine with the main problem being that the Fed may have erred in not raising interest rates fast enough to prevent the return of inflation. The IMF said that the Fed would have to accelerate the rate hikes and devalue the US Dollar, which remains substantially overvalued. This was bad news for long term bond holders, whose bonds go down when interest rates go up. Of course, it's great news for investors in reverse bond funds, where the value of their funds rises along with interest rates.

An accelerating interest rate trend now could put a damper on the stock party as well, but if earnings are rising faster than interest rates (and they have been, so far), that can mean that stocks rise in price even as bonds fall in price. However, like changing gears on a manual transmission, sometimes the shift isn't clean and the transition to a low-interest-rate environment to a rising-rate environment isn't particularly smooth.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

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posted by Bob Carver  # 7:18 PM

The stock market rally continued Thursday as the Monthly Buying Spree kicked into high gear. By midday, OEX traders' sentiment hit the 2.0 ratio of call dollars to put dollars that warns of an overbought market. However, by the close, they had come down to earth somewhat with a still high ratio of 1.59. QQQQ traders, on the other hand, switched alliegances from the bull to the bear camp by the close, ending with a total of 76¢ going into calls for every dollar bet on the downside via puts. OEX traders tend to be both bullish and correct only just before a trading top. The intraday overly-bulish sentiment suggests an end to the rally is coming soon. Although QQQQ traders don't have a perfect track record, they do tend to be right on the very short term trend. As such, their defection to the bear camp could be significant for the next few trading hours. Remember, the QQQQ reflects the NASDAQ-100 Index and that's one of our main "Lead Dogs" which tend to turn before the rest of the market.

The bond market finished its initial leg to the downside and has been basing for a countertrend rally. On Thursday, that rally kicked into high gear. This rally is likely to retrace half to 62% of the preceding leg down before the next wave to the downside gets started:

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

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posted by Bob Carver  # 9:57 PM

We know we're doing something right when our unmargined gains in stocks are quadruple the gains of the indices we trade. And, when we get angry emails accusing us of being "permabulls", we just have to laugh. After all, we were in cash during the January correction and bought in near bottom tick. We continued buying with new cash during the rally into March and the "second shoe dropping" into April-May. Initially, we recommended buying the leaders: the S&P 500 (RSP), S&P 600 SmallCaps (IJR) and Russell 2000 (IWM). As the Semiconductors and NASDAQ-100 put in bottoming patterns in their second legs down, we recommended buying Semiconductor ETFs as well as the QQQQs, proxy for the NASDAQ-100 Index. Overall, our gains have been substantially greater than what those particular indices have done for the year-to-date (some are still underwater for the year, as a matter of fact).

But, we are no means "permabulls". We are simply watching our indicators and, up until recently, those indicators have been solidly bullish. They are wavering now and we may very well be locking in some gains at some point in order to build up cash reserves for a future buying opportunity.

In fact, the major intermediate "T" for the S&P 500 expires in mid-September and we expect to get a major buying opportunity following that expiration. The December period is shaping up to be a very strong rally period, so it should be an interesting time as we move through the last half of the year with major trading opportunities to continue gaining on the market.

For now, we're coming into the Monthly Buying Spree Thursday through next Wednesday, a time of the month when the market tends to rise. Friday is often the strongest day of the spree. How the market acts over the next few sessions should give us a good idea of just how strong it really is.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

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posted by Bob Carver  # 9:31 PM

The stock market had an up day Tuesday much to the disappointment of the bears. As long as we have a good supply of traders willing to sell the market short on the slightest hint of weakness, we have a bullish trend in effect (even if it may seem like paint drying some days -- after all, this is the Summer Doldrums).

Oh, the stuck-in-the-mud Dow was still being a tarbaby as usual. That was pretty much expected. This is the time of month when you really don't see much in the way of buying power and it's a real plus to see the sellers so disinterested as well.

Although we said we thought last week might have been the end of wave 3 up, we're considering the possibility that wave may have a bit more upside potential into August. Certainly, the short term patterns don't exhibit a lot of weakness, which we'd expect in a wave 4 (even if wave 4 is expected to be a sideways affair). Thus, we could reach the 1250 zone on the S&P 500 (Traditional) Index before that third wave is finished. That's not a lot of headroom (less than 20 points), but it certainly would disappoint the bears, who have been buying puts hand over fist, as well as selling the futures short. This market is in good shape as long as there are willing put buyers and futures short sellers and we're certainly seeing that sentiment expressed every day. Look at it this way: they turn into reluctant buyers to staunch their losses on the next rally!

Something to look forward to: Thursday the 28th is the next-to-last trading day of July. That means our old friend, the Monthly Buying Spree, will be making a return to the market tomorrow. This is the time of month when new money comes into fund managers' coffers and will get put to work buying stocks, especially in stocks which have made good moves already (no, it's not logical -- who ever said the market was logical?). The Monthly Buying Spree usually lasts for five trading days, with the second day of the spree (the last day of the month) usually seeing about a 70% chance the market will close up.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

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Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 10:56 PM

The stock market dipped as expected on Monday and it got the bears actively selling the market short for about the hundredth time since this leg up got started. Will they be right this time, or will they again be forced to become unwilling buyers of their losing positions as the market spanks them by rallying? Only time will tell, but we wouldn't bet on the downside just yet despite the fact that we actually were expecting this correction.

The reason we're not betting on the downside is that the upside still has more potential. But, if you're basically bullish (and holding a position long the market), you should make it a point to listen to the bears' analysis (just as you should strive to listen to the bullish analysts when you yourself are bearish). Listening to the other side of the table always pays off. Yes, indeed, the bears have some pretty good arguments going for them. The problem with most of them are in terms of timing: it seems that bears are always selling too early and getting caught with their short positions going up instead of down, forcing them to buy to cut their losses. We like Livermore's advice to bears to let the market form a top, sell off, then wait for the recovery rally to fail. That is the best time to sell a market short.

Now, some analysts are great at calling bottoms, but they tend to be considerably early at calling tops. Living legend Joe Granville is one of those analysts. Joe was spot on at the 2002 and 2003 lows, turning bullish at the right time. But, Joe has a long history of turning bearish far too early. He's bearish right now, but we think he's too early again. Remember that tops are usually very long and drawn out affairs while bottoms are sharp and pointy. But, as we said before, it pays dividends to listen to what the bears are saying since they will be right at some point. Joe was on Tom O'Brien's afternoon show on Monday -- you can hear his interview on your MP3 player by going to http://www.tfnn.com/mp3s.php and clicking on the TOS072505 link (the interview is in the second hour of the show).

Although we are looking for some weakness here, we don't think the downside risk is too high, although the market does need to relieve its short term overbought condition. We're looking for a consolidation here that will setup the final rally into the seasonal high that always comes around Labor Day. We've been selling some ETFs to build up our cash position (ETF Traders can check the position table for in the Position column to reflect changes). While we may put some of that cash to work in coming days buying ETFs which look like they have some growth potential, we will continue to look for opportunities to cash in our gains in preparation for what could be a really good buying opportunity later this year.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

Is Your ISP Censoring Your Email? Internet email is dying, being choked to death by spam and overzealous service providers. If you're not getting these updates via email and you should be, switch to RSS, the spam-free alternative. For instructions, just visit: http://www.marketclues.net/rss.html.

Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 9:26 PM

The stock market continued to run roughshod over bearish skeptics again last week as the Semiconductor Sector Index SOX put in a 2.49% gain, Russell 2000 1.93%, S&P 600 SmallCaps 1.82%, Value Line 1.65%, NASDAQ-100 1.45%, S&P 400 MidCaps 1.32%, S&P 500 LargeCaps 0.47% (S&P 500 Equal-Weighted Index more than doubled that gain at 1.00% -- and has the same 500 stocks in the index!) and Dow Industrials 0.1%. The bears point to and invest in selling the laggards short -- and still lose money, but just a little at a time, while we invest in the leaders and are making great gains! We suspect that as soon as the media and the analysts figure out how much money we're making by being invested in the right stock indices, they're going to pile in -- and signal some sort of top, at least for the intermediate term! Note that no bull market ever ends with the majority of stocks going up. The fact that the S&P 500 Equal-Weight Index is going up twice as fast as the S&P 500 Index tells you this bull market has a long way to go to a top.

Currently, though, the bears are still watching the laggards and seem to reflect the mood of the public, which still believes that real estate is the place to invest and the stock market is last century's way of making money. Unbeknownst to most, the stock market has actually outperformed most real estate markets over the past three years, which is great because if you've ever tried to sell property in a real estate slump you'll know that stock market liquidity is a huge advantage over real estate during bear markets.

We hope you're enjoying FREE WEEK at ElliottWave International, but we just have to point out that the bearish stock market arguments they make sound more like "sour grapes" from a group of people who are morally convinced the market topped 18 years ago and can't believe that it could advance almost 600% without them aboard since then. Their arguments for the bear case make no sense whatsoever. In fact, they make very emotional rather than rational arguments, something they themselves criticize others for! Elliott Wave is a very good tool to use in analyzing the market, but in the wrong hands, it can be a very dangerous tool indeed.

On the other hand, Elliott Wave International's Futures Junctures service can be very helpful in analyzing the commodity markets. We'll be talking about the commodity bull markets in upcoming articles, in fact. You'll see that Elliott Wave can be combined with a "can't lose" technique that has a track record of hundreds of winning trades in a row to maximize returns year-in and year-out. Look forward to that series starting soon.

One of the stock sectors which we call a "lead dog" is the Semiconductor sector, represented by the Semiconductor Sector Index SOX and the various ETFs with which you can buy and sell the sector stocks as a group. SOX has been a big laggard. That's changing now as the SOX has broken two major resistance trendlines and is on track for some great gains ahead:

Since we told you SOX and its associated ETFs were buys almost three months ago, the index is up 23%, not a bad gain for less than 3 months. And, it's still outperforming the broad market, which is a plus. There's more to come later, but for now, we expect some consolidation in the stock prices. The long term prospects couldn't be brighter for the industry as a whole, with Terahertz processors on the horizon, leading to machine vision systems, cool-running supercomputers thousands of times faster than today's notebooks and which fit in the palm of your hand, and the dawning of the era of robotic workers which will eliminate the need for human workers in many jobs. Note that while some nations have a definite price advantage in terms of labor cost right now, in the future the companies with robotic workers will have the ultimate advantage, having slave workers who work 24 hours a day, 7 days a week. Some of the advantages China and India have today will be eliminated (but, certainly not all of them -- intelligence and ingenuity will never go out of fashion) and the big labor advantage will be to those who put those robots to work.

A good example of what will happen is the effect of the Open Source operating environment Linux over Microsoft Windows. While some companies make money selling Linux in competition with Microsoft, the really big money is in using Linux. What company is the biggest user of Linux in delivering customer satisfaction? Google, of course, which uses thousands of Linux-powered machines to process search queries 24 hours a day, 7 days a week! We could have mentioned thousands of other companies which use Linux to get the job done cheaper and faster, but you get the idea -- it's cooperation on a giant scale which leads to higher profitability. So it will be with open source and intelligent machine workers: the big winners are going to be the companies which put that technology to work for them to trim labor costs and boost productivity. Oh yes, there will be social upheaval as human labor for hire is devalued severely, but capitalists will make out like bandits.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

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Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 6:50 PM

Conundrum: riddle: a difficult problem. It's what keeps Fed chief Greenspan from getting a good night's sleep -- why are long term bond interest rates not going up despite a years' worth of short term rate hikes? Alan's worries may be over with the news of China loosening the peg to the US Dollar. China has been the main financier for US government borrowing for some time now, but this move could be a signal that they are pulling back. Frankly, we've been amazed that the largest Communist government in the world was helping finance the largest capitalist government on the planet. That's the bigger Conundrum and it may be ending soon. And, that means long term interest rates are likely to move up.

While stocks gyrated both up and down Thursday, beginning a correction we discuss in today's Subscriber Notes, the bond market did not disappoint investors -- interest rates went up in a big way. Although that sent reverse bond fund prices rising, it sent interest-sensitive stocks falling:

If the rising polytrendline holds on the test, we could see Utilities remain within a trading range into August before they give up the ghost completely and slide down the slippery slope.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

Is Your ISP Censoring Your Email? Internet email is dying, being choked to death by spam and overzealous service providers. If you're not getting these updates via email and you should be, switch to RSS, the spam-free alternative. For instructions, just visit: http://www.marketclues.net/rss.html.

Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 10:06 PM

The S&P 500 Index doesn't usually get much respect around here. Neither do the Dow Industrials, for that matter. Those two down-on-their-luck indices are basically top-heavy, stuck in a rut, and right in the middle of a trading range they've been in since the beginning of the Millenium. The new relative high on the S&P 500 Index achieved Wednesday was somewhat noteworthy, but not for the reason you might suspect.

The reason it was noteworthy was because the 500 stocks which make up the S&P 500 Index actually achieved an all-time new high on Wednesday! What? How can that be, you ask.... here's how:

The Standard and Poors Corporation actually has two ways of calculating the S&P 500 Index. The traditional way weights each stock's contribution to the index based upon its total capitalization. So, for example, IBM, GE, GM and MSFT dominate the index. In fact, only about 50 big stocks contribute most of the price action in the S&P 500 Index! And, if those 50 stocks are down in the dumps -- as they have been -- it doesn't matter what the other 450 stocks in the index are doing, the index is down in the dumps as well.

A few years ago, S&P analysts scratched their heads and a light bulb appeared over those heads: what if we equally-weighted every one of those 500 stocks in the index? That would mean that each of the top 500 stocks which the S&P 500 Index were supposed to represent would make an equal contribution to the overall index and it wouldn't be dominated by 50 big stocks. That makes more sense and, indeed, when the calculations were done, an equally-weighted S&P 500 Index greatly outperforms the old, stodgy version.

That's why, when the closing bell sounded on Wall Street Wednesday, the old stodgy S&P 500 Index closed at 1235.20, well below its all-time high of 1552.87. At the same time, the exact same 500 stocks closed at a new, all-time high of 1628.40 when each one is given an equal weight! Thus, we not only have a bull market in the small- and mid-cap stocks, we have a bull market in the blue chips of the S&P 500 as long as you count the 90% of stocks the old S&P 500 virtually ignores.

This has real, practical implications for investors. First of all, some have crticized us for being bullish on the broad market, saying it wasn't practical for big money managers to invest in a lot of small- and mid-cap stocks -- their investment would make their prices skyrocket. Well, whether that argument is valid or not is something we're not going to argue about. We've also been talking about investing in the RSP, an ETF which emulates the S&P 500 Equally-Weighted Index (the one that made a new, all-time high Wednesday) and we can assure you that if a money manager is managing so much money that he can't put it into the S&P 500, he'd better retire and make way for younger blood.

Another point we'd like to make is that, if you're a money manager, all you had to do over the last few years to beat the index your performance is measured against was to invest in the S&P 500 Equal-Weight Index -- in other words, invest an equal amount of money in each of the 500 stocks in the index. That's not hard to do -- every one of those stocks is highly liquid.

Finally, all those bears out there who love to point to the Dow, the S&P 500 and the NASDAQ and exclaim how poorly they've done and how that makes this a bear market disguised as a bull market had better wake up and smell the coffee -- there's a bull market out there that is leaving them behind in the dust. Relying on the fact that the biggest stocks have been unable to pull their own bloated weight is not a valid argument that investors should be looking for a monster bear market to leap out and pull them down.

Speaking of bears, Elliott Wave International has opened up their doors for a FREE WEEK starting Wednesday at 5pm US Eastern Time. You have to sign up for Club EWI for free, then login to their Subscriber area. If you have never signed up, you can do so using this link: http://www.elliottwave.com/a.asp?url=/freeweek/&cn=mcb

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

Is Your ISP Censoring Your Email? Internet email is dying, being choked to death by spam and overzealous service providers. If you're not getting these updates via email and you should be, switch to RSS, the spam-free alternative. For instructions, just visit: http://www.marketclues.net/rss.html.

Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 7:38 PM

US stocks moved higher as expected on Tuesday, with the leaders once again pulling the market along.

Yesterday, we mentioned that the German DAX Index was testing a key resistance polytrendline which formed in the last bear market. Well, on Tuesday, that market accelerated higher and broke out to the upside:

Whether this is due to the fall in the Euro this year (we think it probably is) or some other factor, the technicals say that European stocks are going higher.

Of more interest to US traders, especially those following our ETF Trader website which analyzes over five dozen leading ETFs every day using exclusive technical measures, the Biotechs, which we have been buying in recent weeks, continue very strong:

You can sign up for a free month's trial by clicking here.

After the close Tuesday, the market sold off on what it considered "disappointing" earnings on several tech companies. Like any good bull market, this one takes two steps forward, then one step backward, keeping the bears on edge to sell every pullback, then thwarting their position by forcing them to cover at a loss. Wednesday is likely to be a down day, but not likely to represent a trend reversal.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

Is Your ISP Censoring Your Email? Internet email is dying, being choked to death by spam and overzealous service providers. If you're not getting these updates via email and you should be, switch to RSS, the spam-free alternative. For instructions, just visit: http://www.marketclues.net/rss.html.

Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 7:55 PM

Stocks continued to waffle under the onslaught of another geomagnetic storm Monday, but after the close IBM reported better than expected earnings and the storm seemed to be on its way to subsiding. Most indices slipped less than ½%, giving ground grudgingly in the face of bad earnings news from Citigroup (no surprise there -- we don't believe anything this outfit says, by the way, as it appears to be another Enron accounting disaster in the making). The bond market surprised by declining also. It was, all around, a blue Monday.

The German DAX Index did gain on the day. The bad news there is that it hit an overhead polytrend resistance line which formed along the reaction highs of the 2000-2003 bear market slide. When the S&P 500 Index hit a similar resistance line in early 2004, it sent the market into a long, sideways trading range. Thus, Europe could be on the verge of forming a top here. There may be retests of that overhead resistance line -- if the market can overcome the resistance, it could go back to challenge the old highs, something the S&P 500 has failed to do (although the S&P 500 Equal-Weighted Index, which is composed of the very same 500 stocks each weighted 0.20% in the index, has indeed gone to all-time new highs -- the difference is that the traditional index is heavily-weighted with big dogs which can't pull their own weight).

Tuesday is looking up with futures premium holding above the buy program trigger late Monday evening. But, with this week seasonally weak, the market may continue to waffle until we get to August and the traditional Summer Rally that often lasts into the September-October seasonal high and selloff into the Fourth Quarter buying opportunity. It's best to remain mostly invested now with minor adjustments to the portfolio, such as selling the weakening sectors and ETFs and husbanding that cash for short term buying opportunities which inevitably come your way. For example, we have a list of ETFs which are attractive buys right now on our ETF Trader website. You can sign up for a free month's trial by clicking here.

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

Is Your ISP Censoring Your Email? Internet email is dying, being choked to death by spam and overzealous service providers. If you're not getting these updates via email and you should be, switch to RSS, the spam-free alternative. For instructions, just visit: http://www.marketclues.net/rss.html.

Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 10:35 PM

Last week continued the advance of the week before, although at a lesser rate of rise. The Dow rose a couple of hundred points, while the leaders of the broad market were basically unchanged after making new all-time highs. The geomagnetic storm which battered the people of Earth for much of the week created a heightened sense of anxiety, but that could have cut both ways -- the shorts were probably a bit nervous and covered positions in addition to longs selling to take profits to the bank.

The high-tech sectors did very well on the week as both the Semiconductors and NASDAQ-100 QQQQs broke out above long term resistance lines. In fact, option short sellers were probably not very pleased to see this strength as it meant they were required to cover short calls at a net loss, or let their stocks be called away.

In ETFs (Exchange-Traded Funds, mutual funds which trade as stocks), the iShares AMEX Biotechnology Fund, which we recommended buying additional shares of last week, continued to soar on strong buying pressure:

(Chart courtesy of our ETF Trader service.)

The coming week is likely to continue to see some digestion as the leading indices remain right below their all-time highs and a period of modest retracement should not only help setup the next rally, but to get the bears heavily short so that they can be buyers on the next rally (shorts have to cover their positions by becoming buyers if prices rally). Dips remain buying opportunities to put new money to work.

FREE WEEK!

Another highlight this week is that we'll hear from the bears again as Elliott Wave International provides a peek into the bears' den starting on Wednesday (Thursday in Australia) with yet another of their FREE WEEKs. It's always a good idea to see the market from the bears' point of view if you're basically bullish. And, it's even better to do so for absolutely free. The broad stock market stands at new all-time highs, which is an absolutely bullish fact. Thus, to be bearish against that long term trend takes quite a bit of tenacity. We're pretty sure we'll see them concentrate their bearish analysis on their bread-and-butter: the menagerie of bearish stock market indices that haven't seen new highs in the last five years: the Dow, S&P 500 and, especially, NASDAQ. If they mention the powerful bull market indices (Value Line, S&P 600 Small Caps, S&P 400 Mid Caps and Russell 2000) at all, it will probably be in the context of completing their wavecounts to the upside and beginning a deep slide into the abyss. Let's just say that if you go looking for trouble, you're certain to find it. And, there's always a bull market out there somewhere. Just make sure you don't confuse the two.

To take advantage of FREE WEEK, you have to signup for Club EWI, which is absolutely free. Follow this link if you're not a member already: http://www.elliottwave.com/a.asp?url=/freeweek/&cn=mcb

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

For additional chart commentary for subscribers only, please use this link: Daily Chart Comments (comments there may be posted by the next US trading session).

Is Your ISP Censoring Your Email? Internet email is dying, being choked to death by spam and overzealous service providers. If you're not getting these updates via email and you should be, switch to RSS, the spam-free alternative. For instructions, just visit: http://www.marketclues.net/rss.html.

Subscriber Links: MyClues Home · Quarter-Hourly Chart Comments · Detailed Comments . . . .

posted by Bob Carver  # 6:11 PM

The stock market made another new high Thursday -- this time on the NYSE Composite Index. However, the market has come a long way and needs to rest, so we would like to see a brief pullback to the 20-day moving average (middle band on daily Bollinger Band charts). That could setup a stronger run to the upside.

The bond market has been very weak as the stock market has rallied hard over the last few weeks. This is due to the competition between these markets: money comes out of bonds and into stocks. Then, when stocks are tired, money comes back out and goes into bonds. With stocks likely to rest here, bonds could benefit.

However, this should be a countertrend rally in bonds if what we're seeing on the 20-year Bond Fund TLT (an ETF) is telling us is true:

The downward wedge can break either way, but will normally break to the upside. If it does, it should setup a great selling opportunity for those so inclined.

Option sentiment was skewed by the expiration coming up Friday as many calls were transacted relative to puts. That's expected since so many call buyers are in-the-money. This month, the NASDAQ QQQQ closed well above Maximum Pain for option specs, so that in itself tells you just how strong the underlying uptrend is: when option sellers can't hold stocks down to collect their premium, there is buying pressure underneath the market, and NASDAQ QQQQ in particular.

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posted by Bob Carver  # 9:25 PM

Wednesday was an unusual day on Wall Street as the Dow outperformed -- every dog has its day, apparently. Actually, strength in IBM helped push the Dow higher.

Yesterday's commentary was criticized by a bear -- on the market in general and the Semiconductors in particular -- on the GMSTechStreet.com Discussion Forum. He said, "last nite's blog gives the same view as cramer's mad money ... i also thought last weekend comments were too bullish, same stuff as mad money ... since SOX moved 420-456 in 7 sessions, risk here is quite palpitable on the long side."

While it's true that risk has increased since a few weeks ago when we pointed to the SOX (and the Semiconductor Holdrs, or SMH) as a buy, the breakout has longer term significance and a long term investor would want to buy dips once the bottom is confirmed. In fact, we daresay that a long term investor would prefer that the sector did retreat to allow more of a bargain to buy, especially if they're just now realizing that the trend is up.

Giving the bearish outlook its due, we thought we'd point to one of our best long term gauges on the market, an index up 1586% in this bull market, and point out that it has reached one of our measured move targets. Is this a reason to sell? No, not yet. In fact, since we fully expect that the broad market will actually top out on a relative strength basis a couple of years before the blue chips, we don't think a top here in the broad market is cause for immediate alarm -- and that presumed top is certainly not confirmed (it's barely hinted at, as a matter of fact).

The long term view shows that to make money in the stock market, you have to be in it for the major trend, which is as clear as the nose on your face:

We'll be giving the bears their due again next Wednesday (next Thursday in Australia) as Elliott Wave International, who never seems to see the positive side of a wave, opens their doors for another Free Week. To partake in the bearish festivities, you have to join their Club EWI (fortunately, it's absolutely free) by following this link:

http://www.elliottwave.com/a.asp?url=/freeweek/&cn=mcb (if you're already a member, you don't have to sign up again).

Keep on your toes! It's always good to see the market from different sides. And, even better, it's totally free.

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posted by Bob Carver  # 11:35 PM

The lead dogs are pushing higher, breaking resistance, while the mutts -- the S&P 500, and Dow Industrials -- are holding back. Apparently, this market is having a hard time correcting the last wave up because it just seems to be chomping at the bit to move higher:

Historically, the Semiconductor Index is the leading edge of the whole market. When it formed a top in January 2004 and starting sliding down the hill, it was a strong warning that the whole market was in trouble. Despite the fact that the broad market has powered ahead to dozens of new all-time high records, both the NASDAQ and the Dow/S&P 500 dogs were relatively weak since then. But, now we have a sea change signaled by this breakout. Not that this wasn't foreseen: our resistance polytrendline which tracked those reaction highs lower over the last 19 months was forecasting a bottom right now and that's exactly what today's breakout is confirming -- this market is going higher.

As you can see from the Elliott Wave count shown in the chart, we are on the verge of a powerful wave 3 rally to new highs. Just think about how long the NASDAQ, Dow and S&P dogs have spent building this base -- when they start moving up, the momentum players are going to be drawn back into the market and propel this much higher. Already, they have been: program trading now is over 75% of all market volume (source: ProgramTrading.com). Those program traders are making money hand over fist and are leading the market into new high territory.

We're not too concerned that the OEX sentiment numbers moved into the overly-bullish area today. When the market is embarking on a major leg up, sentiment will go into that territory and simply stay there as the crowd recognizes the bull market. We'd love to see the market pull back in a 50% retracement this week and next to make the short term specs get heavily short, but that may not happen and this market could continue on up from here. That's the mark of a bull market: don't let the latecomers on board.

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posted by Bob Carver  # 5:33 PM

A coronal mass ejection (CME) over the weekend triggered a geomagnetic storm on planet Earth on Sunday and Monday. Although it didn't stop the rally, it did slow it down as traders took profits on the 3-day rally, causing gains to be slightly pared by the close due to profit-taking. In fact, as powerful as this rally is, the anxiety engendered by the storm could be creating some buying pressure from the shorts. The Bradley called for a change of trend on July 10th and it appears that it once again is right: the trend is accelerating higher. Going into Tuesday, the storm was dying down and stocks were in an extremely overbought condition.

Being extremely overbought is quite a bullish condition, not a bearish one. While a surge into overbought status probably indicates a short term pullback, it is unlikely to be a substantial enough pullback to actually make short sellers much in the way of profits. Those who do sell into powerful rallies are often forced to become buyers when their short term profits reverse and threaten to turn into outright losses. This leads to the odd spectacle of bears becoming eager buyers as the market moves higher and higher, a process known as "short covering".

Thus, pullbacks here remain buying opportunities, especially since the OEX sentiment numbers have yet to close in overly-bullish terrority (above 2.0 on our dollar-weighted call-put ratio). We are likely near the Point of Recognition where bears realize the error of their ways and become bulls. In the most powerful, but most rare, trends, the crowd actually becomes correctly attuned to the trend and our sentiment numbers will move sharply into an area of extremely one-sided sentiment. In situations like that, it is not a good plan to try to "fade the numbers" (play the contrarian), but to recognize that the crowd is right in the middle of the trend. If we get the sentiment numbers leap over the 2.0 bullish level which typically precedes a trading top by 2-3 days, it would be a sign that the rally has much further to run.

If, however, the sentiment numbers close over 2.0 but below about 3.0, then register a lower high (especially a high around 2.0) on further price highs, we would have a typical rally-ending scenario. At this point, we are content to add on dips and to watch the numbers.

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posted by Bob Carver  # 9:25 PM

We've said it many times, but it bears repeating: Watch how the market reacts to the news, not the news itself. The market took the Employment Report to heart Friday morning and soared higher. The report showed a disappointing number of new jobs being created while the official unemployment rate dropped 0.1 to 5.0% (coincidentally, equal to Australia's rate, which just proves both the US and the Australian economies are doing just fine, thank you) as the real rate of unemployment (given in the Appendix to the report) continues to fall. Skeptics may claim the figures are not realistic, but the trend is certainly down in the unemployment rate and the market paid close attention to that trend and not the widely-touted new jobs figure on Friday. That's a very bullish sign when a market ignores bad news and takes the good news to heart.

The Dow rose 2.69% from Thursday morning's low to Friday's close, while the NASDAQ-100 added 3.3%, the Russell 2000 expanded 3.58%, the S&P 400 MidCap was up 2.42%, the Value Line added 2.78% and the S&P 600 SmallCap gained 3.27%. Please note that the last four indices are all broad market indices and Friday's close represented new, all-time high records for all four. While the Dow, NASDAQ and S&P 500 Indices, the ones the media likes to dwell on, remain well off their all-time highs of 2000, the vast majority of stocks continue to plow to a continuous series of new highs.

We thought it would be interesting to see on how many separate days each of these leading indices set all-time new high records in the last few years. Here's what we found:

Now, here's something we really don't understand: Why would any investor in his or her right mind consider an S&P 500 Index Fund to be a good place to invest, at least since 2000? Every one of those indices in the table has a corresponding ETF you can buy to participate in the market (parentheses above contain the ticker symbol of the ETF which most closely tracks each index). No one is holding a gun to your head saying, "You shall only invest in the S&P 500 Index!" Yet, every day we encounter someone who thinks the "stock market" is still in a bear market. It just goes to show that when investors are depressed, they simply overlook the obvious good news of a powerful bull market going on right under their noses and concentrate on the bad news bears, otherwise known as the Dow, S&P 500 and NASDAQ.

By the way, CNBC anchors often refer to the S&P 500 Index as the "broad market" when, in reality, that index, due entirely to its capitalization weighting, is dominated by the same small number of blue chip companies which dominate both the Dow Industrials and the NASDAQ-100. Clearly, CNBC is doing a disservice to its viewers, if not committing outright fraud on the investment public, by claiming that the S&P 500 Index is the "broad market". The real broad market is represented by the Value Line, the Russell 2000, the S&P 400 MidCap and the S&P 600 SmallCap Indices, precisely the ones which returned enormous profits to investors for the past six years. Where is the Security & Exchange Commission's Enforcement Division when you really need them, anyway?!

The real truth behind the concentration on and touting of the S&P 500 Index is that it is a straw man index setup by and for the benefit of mutual fund managers. Most managers' job performance is measured by comparing their returns to the performance of the S&P 500 Index. By creating a very weak stock index, most money managers should be able to outperform it. The rub is that most don't even beat a straw man index!

Alerts

We mentioned Thursday our intraday alert on the NASDAQ-100. We used to send these alerts out via email until the ongoing Spam/ISP War killed that. More and more email alerts were bouncing until, finally, the AOL mail servers launched an attack on our webserver and crashed it. That's when we gave up on email alerts! Now, we update the website whenever an alert is issued and it's up to you to check the website to see if an alert has been issued. In any case, website updates are much faster than email. We will try to make them standout better -- up 'til now, we have just updated the time next to the alerted item, but we'll see about highlighting it, making it bigger, etc. Since alerts are mostly of interest to daytraders, you will find most of them showing up on the Trading Page, rather than the main page.

Commodities

We have additional analysis of many markets available for subscribers. Just follow this link: Detailed Comments Page.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

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posted by Bob Carver  # 5:58 PM

Volatility ruled as terrorists struck London Thursday morning. While this attack certainly shows that the Bush/Blair strategy of liberating Mideast oil fields isn't successful at defeating terrorists (and may actually be the best recruiting tool for the other side), the stock market took the attack in stride and rallied sharply higher off early lows. The Dow Industrials closed up 135 points from their intraday low. We issued an alert early Thursday morning just before the low of the day in the NASDAQ-100 Index:

"The NASDAQ went right to the support polytrendline on virtually no volume and volume is coming in on the rally. This is a sign that what we are seeing is a correction in a bull market."

NASDAQ-100 closed up 1.42% from the low it made a half-hour afterward.

One of the great things one can learn from sharp selloffs on news is where support lies underneath the market. The intraday low price generally is very important because it represents the price at which sellers are overcome by buyers. When sellers simply stop selling and let the buyers take command, the market is at an important support price. For the Dow, that was 10,175; for the NASDAQ-100, it was 1484.18; for the S&P 400 MidCap, which had been at a new all-time high as recently as Tuesday this week, it was 686.16; for the Russell 2000, it was 639.12; and for the Value Line, it was 1788.9. These are very significant price points for the rally to continue. As of late Thursday evening, the S&P 500 September contract was trading 2.30 points above its estimated buy program trigger, which suggests that Friday could see a continuation of the rally if this level is maintained into the opening.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

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posted by Bob Carver  # 10:43 PM

Richard Russell made some interesting observations recently, quoted by David Nichols in his 21st Century Alert Morning Briefing advertising letter, which certainly backs up our long term stock market trend analysis:

The Lowry's advisory has been around since the '30s, and they possess decades of real time data. Lowry's believes there is one more upward move in this market, a "last hurrah," as they call it.

Here is their reasoning. Lowry's notes that "their 72 year history" shows that their Selling Pressure Index has always turned up at least three months, and usually longer, prior to a major market top. Furthermore, their Buying Power Index has tended to decline well before a top, but unlike their records of the past, the Lowry's Buying Power Index last week advanced to within a few points of its record high.

Lowry's also points out that the advance-decline lines typically top out months prior to a major top in the stock market. Yet last week their various advance-decline lines rose to record highs. Based on past case histories, states Lowry's, the new highs in the advance-decline lines should extend the life of the uptrend.

We mostly agree with the analysis, but wouldn't necessarily call it a "last hurrah" as that implies some kind of finality to it and the market is at its heart a cyclical beast which rises like the Phoenix from its ashes on a regular and recurring basis. Over time, buying dips in the stock market is one of the best ways to build long term wealth ever invented and saying that this next rise is the "last one" is a bit overreaching.

We expect the market will continue higher until September (David Nichols puts the exact date at the 19th, which is in the right ballpark with our work), then fall into October as it almost always does. But, that's where we differ: we expect a further advance carrying the market higher into 2007. It's at that time that a protracted decline could begin, similar to the 2001-2002 slide. Undoubtedly, that decline will present a long term buying opportunity in stocks as it did in 2002-2003.

Of course, the Presidential Election in 2008 is likely to impinge upon the timing of all this: no President wants to see a declining market a year before the next Election, if for no other reason than it tends to present a victory to the Opposition to install their own man (and, history tells us it has always been a man, for better or worse as some may say). With Alan Greenspan exiting stage right, the current Administration is likely to install a Fed Head who is prone to opening the floodgates of liquidity to the market, sending interest rate trending higher, but pumping money into the stock market. Thus, the ideal scenario would see the market slide sharply in mid-2007, but recover to new highs by the time of the next Presidential Election in 2008 (first Tuesday in November).

Investors with patience should be ready to buy with available cash reserves for the rise into a seasonal top in September. In other words, an opportunity may be warming up in the wings. A specific pattern is likely to appear on our sector and ETF Volume Oscillators which gives us the signal to buy.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format, visit the MyClues Home Page and click on "Subscriber Notes" in the Quick Links section at the top of the page).

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posted by Bob Carver  # 9:01 PM

Note: we were traveling and got this report out late... sorry for the delay.

The fireworks were hot Monday and the stock market was, also, on Tuesday. This is a typical seasonal pattern. However, the market is showing a number of divergences despite the apparent price strength. As we said in the Weekend Update, a seasonal rally would delay the inevitable corrective move that the market needs to setup another leg up.

While we don't think the pullback will be large from an investment standpoint, we would still keep a cash reserve on hand to buy the next dip. The amount of that cash reserve is entirely an individual decision, of course, as some long term investors may remain fully invested and only buy the next dip with new cash that becomes available on a timely basis. Others may be more short term oriented and wish to take a larger percentage off the table. We think this is definitely still a long term bull market, especially in the broad market, so we don't think it's more than a short term situation.

We'll have a more in-depth analysis on Wednesday evening.

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posted by Bob Carver  # 12:23 PM

The stock market waffled to a close Friday as investors look forward to a long weekend and fireworks for the Fourth of July Independence Day Holiday. The FTSE-100, though, finally was able to close decisively above the halfway retracement level of its bear market decline:

The next hurdle will be the 62% retracement level. Since the FTSE-100 Index is a leading index for the US market, this is definitely a bullish sign.

Of course, if we look Down Under, we find the bull market very much alive and well and looking for continuing gains as it idles just below the recent all-time high:

Even on this side of the pond, things are not looking so bad -- if you just know where to look:

You will note that if you had bought the ETF (Exchange Traded Fund) for the S&P 400 Midcap Index (ticker IJH) at its low of 38.51 on March 11, 2003, and simply held it, you would now be showing a paper profit of over 79% in just the 28 months that you would have held the position.

While the bears moan and groan about how overvalued the market is, the bulls just keep getting richer. And, unless we get a sea change in our indicators, the uptrend is likely to continue into 2007. Projective indicators are nice, but controlling risk and watching what the market is trying to tell you ranks as our top advice. For subscribers, look for our Detailed Comments to be posted by Saturday morning, July 2nd.

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posted by Bob Carver  # 8:25 PM