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The Wilderhill Clean Energy Index took another hit to end last week.
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The Philadelphia Oil Service Index (OSX) sold off aggressively on 7-20 and on 7-21, movingback below its 200 day moving average. Key resistance remains above the 210 area.
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The Amex Oil Index (XOI) has also been volatile. This has been the strongest sector indexin the energy complex, but also pulled back on Monday.
Technical Summary:
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Oversold Bounce Due
The stock market looks to be setting up for yet another bounce, albeit from new lows inthe Nasdaq, the Nasdaq 100, and the small stocks, not exactly a very healthy environment.
Three momentum thrusts have occurred since June 15, and the market has managed to make newlows, calling the indicator's validity into question.
Yet, pessimism, which is the fuel to market bottoms, has yet to reach that "end ofthe world" feeling.
Stocks rallied dramatically on 7-19, with excellent breadth and rising volume, two keyingredients in any rally, but by the end of tradin on 7-21, little had been accomplished.
The question, then, as it has been for some time is whether any of the rising action canactually last. And as the action on 7-20 and 7-21 proved, a big rally day is no guaranteethat the market is about to embark on a major rally.
In essence the market is in a difficult position as economic factors and geopolitics pulland tug on traders in different directions, with the big question being whether theuncertainty of the geopolitical situation is a bullish or bearish set of developments.
If you're a contrarian, this might seem like one of those "blood in the streets"buying opportunities. But caution is still warranted, given the potential for majorproblems to rise in the Middle East, and elsewhere.
From a practical point of view, the action in the next couple of days will be important.If the stock market can build on the gains from 7-19 and take out some overheadresistance, we may again find ourselves in a sustainable rally.
The Nasdaq remains the most oversold area of the market, and key resistance now is the2160 area. The S & P 500 has resistance at the 1260-1265 area.
Commodities Continue To Weaken
Commodities have been very volatile lately, with gold getting sold off aggressively, whileoil has failed to break above $80 for more than a few hours in distant futures contracts.
Crude oil is still trading below the $75 area with the $80 resistance level proving tough.
Gold is still trading inside the $600-$675 area, with prices responding to news reportsfrom Israel, but also responding to economic news.
Check our energy section for bond, gold, dollar, and currency recommendations.
What To Do Now
See all our sections for new recommendations.
Traders and investors should be looking to manage current positions, as they continue tobuild a shopping list.
There are some interesting stocks in the health care and energy areas, as well as ourFallen Angels portfolio.
Our ETF trading systems have been adjusted.
Remember, our Fallen Angels portfolio is designed for those with a longer term time frame,and offers both long and short recommendations.
Check all our sections daily. See tech, biotech, Fallen Angels, and timing systems forthe latest adjustments. Our ETF trading systems for energy, Spyders, Small Caps, andtechnology have also been updated.
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Sentiment Summary:
Wall Of Worry Remains
There have been some bullish readings in the option ratios of late. Friday's were asencouraging as we've seen. The real question is whether there is enough bearishness inplace to launch as sustainable rally, though.
Healthy advances tend to rise on the back of worry warts who buy put options when themarket falls. But, as the bear market that ended in 2003 showed over and over again,rising put/call ratios are not enough, in and of themselves, to keep a bull market going.When the market falls and put option buyers are absent, it is often a sign that moreselling is coming.
The CBOE Put/Call ratio checked in at 1.31. A consistent string of low readings can be asign of excessive optimism and often signals a top in the markets. Readings below 0.5 areof concern, but not as serious as readings below 0.40. Readings above 1.0 are bullish. Thenumbers cited here are meant to be evaluated on a closing basis.
The CBOE P/C ratio for indexes checked in at 2.38. Numbers above 2.0 as the market sellsoff, often lead to rallies. Readings below 0.9 suggest too much bullish sentiment, just asreadings above 2 are usually required to mark major bottoms.
The VIX and VXN had readings of 17.40 and 23.20. A fall near or below 20 on VIX and 30-40on VXN is considered negative, a fact that is usually confirmed when the volatilityindexes begin to rise. Readings above 40 and 50, respectively, are often signs that abottom may be close to developing.
The Duarte Overbought-Oversold Gauge (DOOG) remained at a reading of 15%, after it fell tozero on 6-23 staying in buy signal territory, for its fifth week in a row.
NYSE insiders were sellers of stocks for the week of 7-7-06, reversing a week of heavybuying. NYSE insider short sales are still at very low levels. When NYSE specialists raisetheir short sales, and sell stocks, risk increases dramatically. There is a two week lagfor these figures.
Market Vane's Bullish Consensus fell to 58% on on 7-21-06, again remaining neutral afterseveral consecutive sell signal levels. This indicator has been calling for a pullback instocks for several weeks. Buy signals occurr when the indicator falls to 40% or less.
Market Moves
Can Old Tech Stocks Come Back?
The Semiconductors HOLDRS Trust (AMEX: SMH) is being hurt by bad performances from AMD(NYSE: AMD) and Intel (Nasdaq: INTC).
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Once the lifeblood of the Nasdaq, the chip sector, is now bleeding to death, as a pricewar between AMD and Intel, and over capacity is taking its toll.
Oh, don't cry for these companies. They have plenty of cash around, and their sales aresteady, so everyone is getting paid.
But, from a stock holder's point of view, the view is bleak, which could mean one ofseveral things.
One is the possibility that chips are now like refrigerators and washing machines. We alllove them, and need them, but there is no glamour attached to them.
Another possibility is that things are so bad that these stocks are screaming buys.
There are a lot of stories out there now, suggesting the latter, which makes us wonder ifthere isn't at least one more down leg to really frighten the mutual funds that haveobviously been dumping shares of chip companies
According to Market Guide, institutions have been buying AMD, while selling Intel.
Insiders, though, are selling them both, which makes us wonder what buyers of AMD might bethinking.
Either way, at some point, we'll know how this turns out. For now, it's better to watchand not trade these stocks.
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The Amex Biotech Index (BTK) has been falling with the market lately, but may havebottomed out.
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The Amex Pharmaceuticals Index (DRG) is trying to break out of its trading range, but hasnot been very successful, although it is showing signs of improvement.
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The Philadelphia Semiconductor Index (SOX) bounced back on 7-19. weaker than the marketand is testing the 400 area.
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Small stocks are trying to bottom along with the market.
Disclaimer: The financial markets are risky. Investing is risky. Past performance does notguarantee future performance. The foregoing has been prepared solely for informationalpurposes and is not a solicitation, or an offer to buy or sell any security. Opinions arebased on historical research and data believed reliable, but there is no guarantee thatfuture results will be profitable.
