Market Clues

The continuing bull market in gold and silver mining stocks accelerated Thursday as Gold broke out of its recent consolidation pattern and the XAU and HUI mining stock indices continued their massive outperformance of the rest of the stock market.

The NASDAQ was also strong as it advanced, while most indices consolidated previous gains. At the same time, interest-sensitive stocks and bonds were hit hard by the rally in interest rates that has been underway since mid-January and is culminating now. Although the rise in interest rates will allow a bounce in these instruments, the bull market in interest rates is likely not over yet. Scale traders can look forward to rebuilding inventories of short bond positions on the pullback in rates over the next few weeks. We will be setting up a bond scale trading plan this weekend for subscribers.

And, in the grains, we took profits on our Corn scale Thursday. The recent cycle low in the grains came in right on schedule. We may have a chance to build inventory levels if the rally is tracing out an Elliott wave b and would thus oblige us with a wave c decline to repurchase. All of the grain markets are forming important long term lows right now and are just beginning their bull markets.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 12:43 AM

Once again, the broad market seems to be leading the way with an encore performance. As we said yesterday, the strong don't give much back on corrections and that's exactly what happened with the latest dip after the Fed's Tuesday afternoon massacre. The broad market roared back to new all-time highs on Wednesday and have projected further gains in the weeks ahead.

We have that time of month coming up Thursday again. This is the one-week period where stocks tend to do well as new money infuses into the market. In fact, the last trading day of the month has, on average, seen the broad market rise 70% of the time.

The Fed may see something we can't see (perhaps because they've stopped publishing the data?), but their claim of a temporary slowdown in the economy is certainly backed up by what data they still release. So, we may take them at their word that the economy is likely to surge after this slowdown.

If the economy is following the repo chart, we are in a soft patch right now. And, since government reports on the economy tend to lag by a month or two, we are likely to see a string of bond-friendly reports coming up -- even as the economy emerges from the soft patch! Thus, the bond market is likely at a short term buying opportunity right now. And, since stocks have been moving in tandem with bonds, the stock bull market just got a call to play "time-on" as the bull market winds down toward its intermission coming up 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 or on the blog, 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  # 12:20 AM

The doldrums in stock trading ended suddenly on Tuesday as the Fed clearly stated their intentions of continuing rate hikes ahead. The Dow plunged almost 130 points from its intraday high to close at 11,154. The Dow's Magic-T doesn't expire until the 11th of April, but the weakness evident in the market suggests the road to that date -- the date the uptrend should end -- is likely to be rough.

But, the small-cap stocks of the Russell 2000 continue to perform relatively well. The Russell fell less than the Dow on a percentage basis. However, within the Russell 2000, many stocks are under distribution, which means that the force is tilted toward selling pressure. That's not surprising since the index has well more than doubled in the last three years. With the 4-year cycle high occuring now, many investors are taking their profits to the sidelines.

Still, one characteristic of this bull market has been the ability of the broad market to maintain an upward trend even when the blue chips were giving back most of their gains. That is, in fact, one of the main reasons why they have doubled and the blue chips have simply stalled out. It's not so much that the broad market outperformed the blue chips on the rallies, but that they gave much less back on the dips. As Aesop taught us in the fable of The Hare and the Tortoise, it's far more important to maintain steady progress toward a goal than to run a quick race.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 12:32 AM

While range trading is an ideal environment for commodity scale trading, it is like watching paint dry to stock traders. On Monday, that's exactly what we got, though, as the continuation pattern in the Dow extended its termination point further into the future. Yes, a breakout is coming, but there are likely to be more days like Monday until we get there.

Fed to Tighten Again

The Fed is expected to tighten the screws on the economy once again this week. The campaign they're waging against rising inflation in home prices appears to have already been decided in their favor, so a rational person would expect them to stop raising rates before they send the economy into a recession. But, no, the Fed always goes too far and then waits too long to step on the gas. It looks like they've done it again this time.

Of course, homeowners love inflation in their home prices, but it looks like the Fed has not only succeeded in killing inflation in home prices, but the economy as well. A recession is looming on the horizon which will send the stock market plummeting lower once the signs are clear to the Fed knuckleheads. And, there's little the Fed will be able to do, since by the time the signs are obvious, it's obviously too late to head it off. Fed policy changes work with a long lag time between the time they change rates and the time when those rate changes work their way into the economy. Typically, rate hikes will affect the economy about one year into the future. That puts the recession approximately one year or more out, well into 2007.

Remember in 2000, after a long sequence of rate hikes, the indicators were showing that the economy was in danger of entering a recession? It took the Fed almost a year to start lowering rates. And, it took two more years before those cuts in rates put a floor under the recession.

This time, the economy is in far more fragile shape than it was in 2000. The government has been lying about a lot of statistics, as you probably know by now. One of the statistics they've persistently lied about is the true unemployment rate. The government purports that the unemployment rate last month was 4.8%, which is a bald-faced lie. Since the Carter Administration, continuing with the Reagan, Bush, Clinton and Bush Administrations, the government has systematically reduced the population of potential employees with one purpose: to make the "official" rate look great. The "full employment rate" was once thought to be 6% -- and it was close to that figure, but only if everyone is counted. The only reason rates are as low as they are reported to be now is that the government lies.

Despite lying about the headline number, the government still publishes the "real" rate buried in an appendix to the Employment Report. At least the lies are out in the public. The real unemployment rate, as measured as it was 30 years ago before the politicians got their claws into the statisticians, is 8.5%, which used to be considered a recession-level number.

Now, we have a really punk recovery in employment from the recent recession and a Fed that's obsessed with lowering home prices. The final straw that's going to break the camel's back is -- high energy prices. Surprised? You shouldn't be. So far, the economy has been able to withstand the body blow of higher gasoline prices because the consumer has had ample income to afford them and be able to spend (forget savings, that's apparently an outdated concept for the masses). But, what happens when the home equity piggy bank gets broken and higher gasoline prices hit home?

The bottom line here is that we have an economy which has been pumped up by consumer spending and the main source of that spending has not been wage rises, but borrowing against home equity. Interest rate hikes are cutting off the flow of funds to consumers. When the consumer cuts back, what happens to the economy? Recession with a capital "R", of course!

But, there is a ray of hope at the end of the tunnel for investors! Things are really heating up in some sectors we told you to buy in recent days. Those sectors are very likely to buck the bear trend and make you a lot of money this year, just like almost every year in the past couple of decades that we've been publishing. Details are, as usual, reserved for subscribers (who follow the link below). if you want a 3-month free trial, you must signup at PayPal.com using the button above, or at MarketClues.net.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 10:57 PM

"Bull market riding on investor resilience"

The journalists have finally figured it out: it's a bull market. It took them some time to do so. Unfortunately, putting a bull on the cover is traditionally one of the best indicators that the bull market is just about finished.

No, we don't know precisely why journalists are the last to know. But, we do know they have a perfect record of turning bullish right at the top.

Still, even journalists are right every once in a while and vestiges of the bull market are still evident to keep investors pouring money into a dying cause over the next few months. There are still sectors which should continue to gain into May (reserved for subscribers.... see Notes link below). But, the bull market is dying for most stocks and sectors.

Monday is likely to be a disappointing day for most bulls and bears -- the market is going to be stuck in a narrowing range for Monday and for most of the week. A big breakout is coming, though ....

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 2:22 PM

The selloff we've seen this week has been extremely tame. That's one sign that the smart money is teasing the market -- and the bears. Money flow shows that there is still quite a bit of buying going on in these dips, a sure sign that the bullish sentiment is likely just bubbling under the surface.

That kind of environment was confirmed by those ever-faithful options traders on the OEX. As the day progressed, their sentiment readings went well into the bearish category. But, when signs of a bottom and afternoon rally back to recoup some of the losses came about, they were quick to buy calls. By the end of the day, both OEX and QQQQ traders had spent slightly more money on calls than puts, a sure sign that their bias is basically bullish. One more rally is needed to get the blue chip S&P 500 Index and the Dow Industrials to our price targets we've displayed on the charts available to subscribers for several months. It's not as clear that the broad market will even make new all-time highs on a final rally, which would be a fitting end to the bull run as they have been setting hundreds of all-time high records for most of the last three years while the Dow and S&Ps wallowed around in the mud and are finally within hailing distance of those old high-water marks. So close and yet so far!

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 11:59 PM

Everybody is bullish, or so they say. But, the option speculators on the OEX were amazingly bearish on Wednesday's bounce, buying only 80¢ worth of calls for each dollar of puts. That certainly was in line with the Dow rebounding from its early week smash to the middle of the trading range. Still, the moves we're seeing are historically mini-moves as far as market history is concerned. On average, the market will swing 1¼% from low to high every day. That's a 142-point move on the Dow Industrials every day!

An interesting pattern can be seen in the Volatility Index. Extreme lows in volatility tend to occur just before stock market dips. For example, just before Christmas in 1993, VIX hit an all-time low of 9.31. Four months later, the stock market swooned almost 10 percent in just a couple of weeks. Then, in 2000, VIX hit a multi-year low of 16.53 on the 25th of August (the 13th anniversary of the stock market high of 1987). One month later, the stock market started a bear market which erased most of the gains it had made over the last decade.

Last year, on the 20th of July, VIX hit 9.88, a retest of its all-time low made 13 years ago. So far, no correction. But, it probably means that when the correction comes along, it will be very large and very quick. Like the big quakes, there is little warning given.

One warning sign is obvious, though: when the big names move up while the tech sector falls, look out below. That's exactly what we're seeing now, with big names like Caterpillar, 3M and GE coming alive (finally!) while the big tech names like Microsoft, Dell, Intel and IBM are stuck in downtrends. The end is nigh for the bull market. It's effectively already a bear market when cash is likely to beat stocks over the next several months. Only the brave and/or foolhardy stay with the idea of a bull market when it gets this close to the end.

In a market environment like this, the best way for short term traders to play it is with spreads. And, one spread is doing very nicely after a bit of a stutter-step earlier in the week.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 12:01 AM

The headlong rush to new highs in stocks ended abruptly Tuesday as the Dow fell 113 points from its midsession zenith. We can't really say that the sellers got the upper hand, though. Sellers have been controlling the market for weeks now, feeding out stock to the latecomers to the party. Realize, these sellers are not the permabears of which we've spoken in the past. These sellers are the bulls of old, who now require a market to unload their shares and take their profits to the bank. They're selling to the same investors who did not believe there was a bull market in progress until recently.

Yes, it's the same old story: the smart money buys when shares are cheap and they also sell when those same shares are dear. Jeffrey Saut of Raymond James Financial describes some of this process in a short article on the CONSENSUS website. The smart money investors are bullish in a bull market and they are bearish in a bear market. And, a bear market is certainly what we have now. Oh, we might get a few more new highs and headlines all around trumpeting the continuing bull market. But, the race is run for most stocks and only a paltry few are still rising, pushing the indices to new highs now on latent buying support from momentum players and those who just "have" to be invested. Like the 2000 top exactly 6 years ago Friday -- which we somehow nailed to the very day -- hanging on for the last crumbs is likely to produce only losses for investors.

If you think the market might rally as much as 2-3% from here, you're far better off simply selling stocks and putting the proceeds into 90-day Treasury Bills yielding 4.685% per annum.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 12:21 AM

Stock markets around the world appear to be moving through trading ranges right now. The Japanese Nikkei shows that it's in the middle of a contracting triangle pattern, a time-wasting move which sees prices undulate between narrowing resistance and support lines. The Brazil Bovespa shows a similar pattern. Even the oil market shows that telltale image. Congestion zones at high levels like these tend to be followed by one last rally before the bear takes command.

If there's one more rally left in the US stock market, though, it's very hard to find evidence that it will be worth participating in it.

The recent rally appears to be the result of the bottoming of the 20-week trading cycle. Given the position of the longer term 4-year cycle (topping), this cycle is likely to exhibit strong left-translation -- the peak in the cycle should occur very early on. And, as you can see in the chart above, the last Magic-T that's formed on the NYSE expires this week. The fuel tank for this bull market appears to be heading rapidly for "E".

Did you know that Elliott Wave analysis can be extremely useful to you if you're a scale trader? Yes, indeed it can be a useful adjunct to the "Can't Lose" strategy. And, Elliott Wave analysis can be far more profitable to a scale trader than to a typical trend trader! That's why we're alerting you to a special opportunity that starts this week:

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Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 11:14 PM

The stock market settled Quad Witching Day on Friday ahead again. It appears that the smart money is still intent on attracting investors into the trap they are setting for them. In a way, it's like the old cartoons where a character walks over a ledge into the air, looks down and only then realizes he has no support underneath. That's the kind of market we have: one which is so proud to be walking on important air. It shouldn't be too long now before it realizes there's no support underneath it.

Technically, the market is in terrible shape right now. That "smart money" crowd we've been talking about has been selling their shares into the rally. Our chart of the NYSE Index with Money Flow illustrates the point quite graphically:

Note that back in the August-October period last year, that same crowd was actually buying the market, accumulating shares, while prices were making lower lows. Now that they are selling -- and selling heavily -- into the rally, guess what that means for stocks? Well it doesn't take a cartoonist to tell you what's going to happen next!

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 5:17 AM

The stock market levitation act showed big cracks in its infrastructure Thursday as the former leaders headed south even as the big headline blue chips were showing gains. These signs of internal breakdown always precede major market tops and this one is no exception.

The S&P 500 Index reached toward our target, falling only a few points short at the high of the day. Any gains from here are likely to be extremely minor, so any bears who have been patiently waiting to sell this market short should look to take advantage of this opportunity. Indeed, our short term trading indicators have already flashed red sell signals, perhaps jumping the gun just a bit, but probably not by much.

The rally Thursday saw a big intraday reversal at its highs, with the former leading indices showing losses for the day and every stock market index closing near its low of the day. Foremost among them was the Semiconductor Index, which lost a whopping 3.62% relative to the Dow in just one day. The NASDAQ-100 Index, which has risen 121% in the last three years, closed almost 5% below its 2006 high and off 1.3% relative to the Dow on the day. These are strong signs that the bear has taken control of the stock market.

But, never underestimate the powers-that-be: the stock manipulators are pushing hard to sell their stocks at top tick. The flacks at CNBC-TV were said to be urging investors to buy stocks on Thursday. You may recall three years ago, at the very beginning of this bull market, one very prominent CNBC-TV personality urged investors to sell stocks short (maybe that's why she's no longer reporting from the floor of the NYSE)!

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 11:12 PM

Whoever said they don't ring a bell at the top must have been deaf. The bells are ringing loudly on Wall Street these days and anyone still hanging onto the illusion of a continuing advance from here is due for a rude awakening one of these days -- and probably next week, as a matter of fact.

Those ever-wrong speculators of OEX options have now rung the sentiment bell as they pumped $2.08 into call options (bets the market will soar) for every dollar into put options (bets the market will plunge). Hmmm.... wasn't it just a few days ago they were convinced the market would crash? Yes, indeed, they were quite bearish last week. Now that the smart money has levitated the indices, look who's bullish.

We should note that there have been a couple of times in the last few decades when the OEX specs have been right to be so bullish. So, yes, this indicator can be wrong on rare occasion. The last time was when the internet bubble was taking off in 1995, certainly a fairly rare event in market history. Maybe they're due to be right again (once per decade?), but we think the weight of the evidence against them says that it's wise to fade their judgement. Typically, the market will top about two trading days after the OEX speculators surpass the 2:1 ratio in favor of calls. That makes Quad Witching this Friday even more interesting.

In any case, the stock market isn't likely to offer much opportunity for either bulls or bears over the rest of the year. That's why we're glad of alternative investments that are available in other markets. Especially the ones that reap a stream of winning trades with little to no losers, provide a fairly steady stream of income, don't require predicting where the market will go in the future and require very little time and attention.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 11:26 PM

When the strong hands raise the roof on the headline Dow and S&P 500 indices while the former leaders (Russell 2000, S&P 400 MidCap and Value Line) lag behind very badly, there's only one conclusion you can draw: they have too many shares in relatively illiquid companies and are artificially levitating blue chip prices in order to make a market into which they will unload those shares. This is what a "distribution top" looks like -- shares are being distributed to the weak hands near the top of their 3-year range.

The strong hands know that when the market turns from bull to bear, they will need to get out in a big hurry. That's why they sell their less liquid issues, which generally will be NASDAQ stocks, midcaps and smallcaps, and move their money into the largest of the blue chips. They know that when the market turns bearish, they will have to liquidate those shareholdings and they will need a very deep market to do so without sending prices plunging -- they can only do that in a handful of very heavily-traded blue chips of the Dow and S&P 500. The smaller companies which provided the big gains in the bull market are not liquid enough to maintain their price structure in the face of heavy selling -- thus, a transfer of holdings into the big issues is required to prepare for the coming decline. So, we are seeing fewer and fewer stocks hitting new highs and we are seeing the indices which reflect the most liquid blue chips rising while those which reflect smaller stocks (the broad market) falling behind. That the public pays attention mainly to the Dow and S&P 500 Index makes it that much easier for the strong hands to find willing buyers as they raise the ante on those issues they are selling.

When the bear arrives, it will be the weak hands who will be left holding the bag.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 10:11 PM

The sea change we saw at the beginning of March has made the stock market much less of a friendly place for the bulls as rallies are seen as selling opportunities by the strong hands. We are now in a phase of the market where distribution of stock is taking place to the weak hands. Sure, there will be rallies like Friday's 100-point extravaganza for the public, but like any parade for the masses, it's over quickly and leaves only pleasant memories. Monday's surge to the upside was as lightweight as a wooden nickel -- as those who watch our intraday money flow chart of the Value Line can attest. Besides the fact that this former leader rose right up to a broken support trendline and turned tail immediately, the money flow line was like a boxer who has suffered a knockdown and has managed to barely raise his head off the canvas before collapsing to the mat:

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 11:40 PM

The stock market correction which just got started at the beginning of March has already attracted a large crowd of option speculators, at least in the NASDAQ. These latecomers to the party seem to think that calls are cheap right now and are pouring money hand over fist into the wasting assets. Well, it's always "easy come -- easy go" for that crowd of losers and we think it will be the same this month.

The interest rate rally has really tightened the screws on the stock market. As a matter of fact, interest rates have been trending higher since the last intermediate low of June 2005, about 9 months ago, but they hadn't gotten to a point where they were denting the rally in stocks until just now. That's because rates are still historically very, very low:

As you can see, rates have been in a long downtrend channel, but are threatening to break out to the upside. There is likely a 60-year cycle in bond rates which bottomed in the first half of the decade and will see rates continue to rise for the next couple of decades.

What will this rising rate environment do to stocks? Well, for the permabears, it will take some getting used to, but history says stocks can continue to rise even as rates rise. Just take a look at the stock market during the last interest rate cycle: the S&P 500 rose 176% during the part of the chart above before the 1981 peak -- i.e., while bond rates were climbing from 3% to 15%. Thereafter, once the interest rate peak was reached and rates fell, the stock market rose much faster, of course. But, a rising rate environment does not mean that stocks are going to go on an endless slide into the abyss. It does mean that corrections (such as the one we've just entered) are going to last longer and probably be deeper than they would otherwise be. Even so, in bull markets, corrections present buying opportunities for long term investors. Anyone with a truly long term perspective can easily win big in the stock market just by buying into stock index products like mutual funds or ETFs during price declines. Each time investment cash is available, just buy shares in the S&P 500 Index (this is called "averaging in") at lower prices. Just think of corrections as a seasonal discount store for stocks!

Of course, if you're a bit more short term oriented, you probably will want to conserve your cash and wait for the market to find a good bottom before doing any substantial buying. We discuss topics like that, and more, today on our website. For a free trial, just signup using the PayPal icon above.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 12:47 AM

The Employment Report for February will be released Friday morning and is almost certain to be a market mover. Unfortunately, it usually creates enough confusion that bond prices zig and zag both up and down, ringing like a bell that's struck, for quite a while after the release at 8:30am Eastern.

Stocks are likely to take their cue from bonds Friday and if bonds can put together a decent rally, stocks could follow them up the hill. If bonds falter, look for stocks to follow them lower as the trend is turning increasingly to the downside in the stock market (as evidenced by the 85-point reversal in the Dow Thursday afternoon). By the time the crowd realizes the trend is down, it will be time to think about buying stocks for a trade. We'll be sure to tell you when that happens.

As of the closing bell on Thursday, the option traders were getting a bit worried about the stock market, which probably means stocks are going to follow the normal Quad Witching pattern: rally hard, then go flat into expiration Friday.

Additional stock market commentary -- for subscribers only -- can be found here: Subscriber Notes (if you're reading this in plain text format or on the blog, 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  # 11:29 PM

We don't often recommend using Elliott Waves, but the action in bonds, and then in stocks, is clearly forming impulsive Elliott waves to the downside and that is a strong indication that we are just at the beginning of a long correction in both markets as the trend gradually turns intermediate term bearish.

The bounce Wednesday was not confirmed by the broad market, something that should make every trader stay short term bearish and look for short selling opportunities when the bounce ends. Note that the short term trading indicators flashed buy signals on Wednesday, which should be interpreted as "take profits on short sales and move to the sidelines," rather than to actually buy the market. However, a factor to consider here is the propinquiity of Quadruple Witching -- quarterly options and futures expiration -- coming up next week. It's not unheard of for stocks to be levitated going into the beginning of options expiration week, then go basically flat for the remainder of the week. The big moves to the downside should get started in due time, but patience will be required. This market is still in a topping area and the trend is not strong at all right now.

Also, note that lead month for stock index contracts switches from March to June Thursday morning in Chicago. Also, bonds will be anticipating release of the Monthly Employment Report Friday morning at 8:30am ET. If that report reflects recent weakness in the economy, it may turn out to be encouraging to bonds, causing a short-covering rally. Trading tends to get a little wild in the hour after the report is released and this month should be no exception.

Our Cocoa scale captured its first profit Wednesday of $250. However, we have a change to our scale trading plan which subscribers will need to take note of today (see Subscriber Notes).

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posted by Bob Carver  # 11:25 PM

Stocks are in the same position they were in back in early 1994 now. The bond market came unglued, sending the big stock rally, which had seen the broad market soar 118% from its October 1990 low to its March 1994 high, plunging into a steep, but thankfully brief correction into summer. Stocks have gained just about that much since the 2002-2003 lows, so the comparison seems realistic.

Bond prices had, in fact, topped in October 1993 and had been working their way lower for six months before they caused a big correction in the stock market. This time, bond prices topped in June, almost nine months ago, and the stock rally has extended even further than it did twelve years ago. You can say the stock market has been truly "living on borrowed time."

Back in March 1994, the market kicked off the correction with a mighty big plunge -- 8% in just 11 trading days. That got the bears all fired up (and loaded with puts), but the correction was a run-of-the-mill a-b-c which ended down a maximum of 9% by the end of wave c 13 weeks after it started. After that, it was a trading range until December. And, you may recall, the biggest bull market in US stock market history kicked off at that time, carrying the market much higher over the next five years.

It wasn't pretty for bond investors in 1994. This one could end up being even worse.

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  # 11:32 PM

Merger and acquisitions tend to give the market a boost, but Monday's announcement of AT&T's acquisition of Bellsouth only provided the faintest boost to stocks and the market closed heavy on relatively light volume. That light volume is a sign that the decline was due more to buyers' reluctance rather than to sellers' impetus. Thus, while there's probably a bit to go in this dip, it isn't likely to provide much satisfaction for the bears.

Option sentiment provided a warning, though: OEX traders preferred calls to puts by a 1.85 ratio. The tendency to buy dips for this crowd is definitely not bullish. Of course, while the QQQQ traders weren't bullish, their excess bullishness late last week proved their ability to call the next market move is no better than a coin toss. Those traders, chastised by the losses they suffered, ended the day having spent twice as much money on puts as calls. They might even be right, but only briefly.

While this trading range has just begun and will probably convince quite a few people that the stock market is not the place to invest, trading ranges represent the kind of pattern which reaps slow but steady profits for scale traders. For instance, we harvested yet another winner on our Soybean scale on Monday. That brings our accumulated gross profits on scale trades to $7500 since we officially introduced that methodology in early February.

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  # 10:39 PM

The stock market hit new highs last week, but just barely. The leaders that got us here are tired and in need of rest, so a trip back down the hill to test the valley at the 55-day moving averages is the most likely course for the stock market. That 55-day moving average would represent a very modest pullback for most indices, so should not be enough to even get the bears excited (or make any money). The stock market is probably stuck in a narrow trading range for some time to come.

Sentiment remains mixed, though. The NASDAQ-100 Index may be in serious trouble here because option speculators are frothing at the mouth to buy calls. On the S&P 100 Index side, however, option speculators are quite bearish. Friday's market saw $4.60 spent on calls for each dollar of puts for the QQQQ (NASDAQ-100 Index), while CBOE traders only spent 73¢ on OEX (S&P 100 Index) calls. The OEX traders have been generally the better crowd to fade as they are most often wrong on market direction. Thus, while the extreme bullish numbers of the NASDAQ are a red flag, the reserved bullishness of the OEX traders almost guarantees we are going to see modestly higher highs in the stock market in the near future. But, we wouldn't be a bit surprised if the NASDAQ falls harder and rallies back much weaker than the S&Ps on that next high.

Tax Note for US Investors and Traders

Business traders and all investors report RFC Section 1256 contracts (futures) as capital gains and losses on Form 6781 (Gains and Losses from Section 1256 Contracts and Straddles). This allows them to split the gains and losses 60/40 on Schedule D -- 60% long-term, 40% short-term. This 60/40 split gives commodities traders and investors an advantage over securities traders.

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  # 3:12 AM

Despite some minor profit-taking on Thursday, the stock market remains in fine shape. Our money flow measure on the Dow Industrials has been amazingly strong over the past few days, suggesting that buyers are eager to buy below the 11,000 level. And, the fact that the NASDAQ-100 and Semiconductor Sector Indices are relatively strong is a good sign of a market that, while probably not ready for an explosive rally, isn't in the kind of shape one would expect if it were about to fall off a cliff (like the bears dream of).

We can't rule out a dip back to test the 55-day moving average in the major indices, though. Those kind of dips are typically buying opportunities in a bull trend.

In scale trading, we cashed two more winners for $500 each on Thursday. That gives us a total of 14 straight winning trades (no losers) for a gross profit of $7000 since we initiated our scales just about a month ago.

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  # 1:20 AM

After dropping Tuesday, the stock market recouped losses on Wednesday, with the broad market again in the lead. The MidCaps closed at a new all-time high, in fact. Program traders are in command of the stock market and the action both days should not come as much of a surprise.

Money flow pointed toward the bounce as it diverged bullishly on Tuesday's drop, then continued to rise on Wednesday. The last hour saw some selling pressure return, which suggests that the programs were probably being unwound. Overall, we still continue to look for the market to trade sideways in a range for some time to come (perhaps for the next 6-9 months). We're sure both the bulls and the bears are going to be frustrated this year, but with the right strategies, trading ranges can be quite lucrative.

Long term investors are also likely to find good opportunities to buy stocks on dips to the lower part of the trading range. Overall, we look on 2006 as a replay of 1986, which saw the market enter a trading range that lasted for nine months. That intermission in the bull trend was followed a 40% rally over the next eight months.

But, there are plenty of opportunities in other markets. We'll look at a bond spread opportunity in tonight's update in our Subscriber Notes (see link below).

Additional bond 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  # 12:12 AM