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The Philadelphia Oil Service Index (OSX) is having a hard time, although it looks better than XOI, and may still to challenge its recent highs near 146. OSX is above its 20 and 50 day moving averages. Volatility will likely increase here in the next few days. For more details on trading the energy sector visit our energy timing page, featuring our highly effective OIH timing model and our Top Ten Energy Stock List.
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The Amex Oil Index (XOI) is still trying to go back to his old highs. The index has made three lower highs and an equal number of lower lows in price since topping out in February, despite a series of dramatic new highs in the commodity. This is a sign that the oil market may be trying to make a top. The scenario would change if XOI took out the old high near 893.
In the current market, we recommend a copy of "Successful Energy Sector Investing" (Random House/Prima Venture) . The book predicted many of the current developments in the economy and the energy markets, and provides an excellent set of benchmarks and trading lessons for what could be in store for the future.
Technical Summary:
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Never Short A Dull Market
The market is starting to feel like one of those old cliché’s on Wall Street: “Never short a dull market.”
If this tenet holds true this time, as it has on other occasions, we could be in for a rally in the near future.
Sentiment is getting bullish. Volume and volatility are starting to drop. And there is a palpable tension in the air.
Mostly, though, it means that a big move is coming. The problem is that direction is impossible to predict, although, as we noted above, based on sentiment turning bullish, as the put/call ratios have been rising, the big move, if and when it ever comes, could be to the upside.
Until then, we maintain our patient stance.
Money seems to be going into health care, and into selected technology stocks. Otherwise, the market is getting sold off slowly.
This feels like a rotation. And rotations can take a while to set up, and can be very volatile, which means that the current back and forth and very frustrating action in the stock market could stay with us for a while.
This kind of environment can be very treacherous and should be traded carefully by those with experience. Longer term and less experienced investors should still be hugging the sidelines, and compiling a shopping list.
What To Do Now
Above all things, this is not a time to be impatient. The next few days are quite likely to lead to some kid of move. When that happens we want to be well set up for it.
Investors should be mostly in cash, as their long stock holdings have most likely been stopped out. It is time, though, to start making that shopping list, and to start checking our sections, including the Fallen Angels, as there could be some positive action in the next few days.
Aggressive traders should be starting to evaluate their short positions, and pay special attention to their stops. Visit our ETF sections.
Now, more than even, strict adherence to buy and sell rules is important. Buying on strength, and sticking to using sell stops is still the key to success, for those with a short to intermediate term time horizon, especially in a narrowly traded market.
Check all our sections daily. See tech, biotech, Fallen Angels, and timing systems for the latest adjustments. Our ETF trading systems for energy, Spyders, Small Caps, and technology have also been updated.
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Fear Continues To Rise
A big move is possible in the stock market.
Our MASI indicator has given a buy signal, reversing its sell signal from a week earlier. Put/Call ratios rose during Friday’s selling, and during Monday’s mushy section. The odds are divided. Either somebody who thinks that they are really smart is loading up on insurance in expectations of more selling, or the more common occurrence that when everybody turns bearish the market rallies, is about to happen again.
The CBOE Put/Call ratio checked in at 1.02, on 4-11. Bullish readings, such as the 1.01 on 3-14 and 3-16 did not lead to rallies, so this must be looked at in the bigger technical context of this market . This indicator has delivered several readings above 1.0 lately, with no rallies having materialized. A consistent string of low readings can be a sign of excessive optimism and often signals a top in the markets. Readings below 0.5 are of concern, but not as serious as readings below 0.40. Readings above 1.0 are bullish. The numbers cited here are meant to be evaluated on a closing basis.
The CBOE P/C ratio for indexes on 4–11 rose to 2.01, after it rose to 1.98 on 4-8, almost equaling the 2.00 on 3-16. This looks nice on paper, but bullish readings here of late have led nowhere. On 12-29-04, the indicator rose to 3.51, an off the scale reading, which in retrospect, was the smart money protecting itself against the selling that took place on the first week of January. On 12-23 it was 2.19, one in a string of bullish readings from Christmas week. Readings below 0.9 suggest too much bullish sentiment, just as readings above 2 are usually required to mark major bottoms.
The VIX and VXN had readings of 11.98 and 16.90 on 4-11 settling down after rising some in the last few days. When these indexes begin to rise, it is a sign of concern as rising volatility indexes suggest that an acceleration of the prevalent trend is on its way. A fall near or below 20 on VIX and 30-40 on VXN is considered negative, a fact that is usually confirmed when the volatility indexes begin to rise. Readings above 40 and 50, respectively, are often signs that a bottom may be close to developing.
Newsletter writers are increasingly bearish. But the 13 week moving average is still above 70%. Weekly readings bounced back above the 70% area. Major rallies have traditionally been launched usually when this indicator falls below 40%. Readings above 70% are usually very bearish.
The futures traders polled by Market Vane registered a 63% bullish consensus, not much changed from recent readings. This survey last delivered a sell signal on 2-20, with a reading of 70% bulls on stocks, which preceded a significant market decline.
Our Big Trend Model rose to a reading of 25. This remains oversold reading, or a sign that the beginning of a major sell off is taking place, which could turn into a bottom at some point. The model fell to 25 on 1-28, correctly predicting a market bounce. Readings near or below 40% often precede market bounces, but may initially be signs of caution when markets have had a rally. Readings above 80% are usually bearish. The Big Trend Model is composed of technical and monetary indicators and updates automatically on a weekly basis.
Our MASI indicator has given a buy signal. MAGI is nearing a buy signal. When these two indicators agree, the market usually follows in the direction of the signals. MAGI is based on the weekly data provided by Investor’s Intelligence’s poll of newsletter writers, a group that has been bullish for several years, and stayed bullish, and wrong throughout the bear market. When both indicators agree, there is a high degree of correlation with a significant market move. When these indicators disagree, it is often a sign that the market is about to go nowhere but that volatility is on the verge of increasing. MASI buy signals when MAGI is bearish are rarely worth acting on. MAGI is an intermediate term indicator with an excellent predictive record. The best market bottoms occur when both of these indicators are both on buy signals, a telling sign of intense fear on the part of investors. MASI and MAGI are sentiment indicators that are updated on a weekly basis.
The NYSE insiders were bullish on stocks on 3-23. Short selling by NYSE specialists is still low by historical standards. This indicator is very positive when short selling by the specialists is low as the same time that they are net buyers of stock, which is the current scenario. This is a set of very smart investors, and when they turn positive or negative, it is just a matter of time before the market follows. Spec data is released to the public with a two week lag, so is not useful as a market timing tool, but is excellent background and confirmatory information.
Market Moves
Rising Utilities And A Freefalling IBM Could Spell Trouble
The Utilities HOLDRS Trust (NYSE: UTH) broke out to a new high, very quietly on 4-11. On the same day, IBM (NYSE: IBM) also very quietly broke down to a new low.
Although it's difficult to speculate on the reasons behind the occurrences, on a macro level, when utility stocks rally, it is often a sign that lower interest rates are coming.
And a break in IBM can't be a good sign for the technology sector.
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The New York Times reported that IBM is going to give away its patents in order to develop better relationships with other companies and eventually turn the relationships into money making opportunities.
But according to multiple reports, Microsoft,is in a head to head war with Big Blue on Internet related communications in the corporate markets.
This could well account for IBM's stock plunge. The market seems to think that Microsoft is winning, since MSFT has stopped falling of late.
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Utilities are making new highs, as bond yields are struggling to move above the 4.6% yield on the U.S. Ten Year note.
With the Fed certain to raise rates, the market may be expecting a slowing economy.
That can't be good news for companies under siege like IBM, or anyone else in the short term.
Eventually, though, if the economy falls back, and the Fed eventually eases, at some point, the stock market may start another up trending run.
Conclusion
The market is sending mixed messages, with high levels of cautionary content.
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The Amex Biotech Index (BTK) closed above its 200 day moving average again. This is positive. The 500 - 510 area is now support. Visit our health and biotech area for more details as new stocks have been added our buy list.
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The Amex Pharmaceuticals Index (DRG) is making a habit of closing at or above 320. This is a positive. For a full description of the ins and outs of investing in biotech and pharmaceutical stocks check out our book "Successful Biotech Investing", available at amazon.com, barnesandnoble.com, and bookstores everywhere.
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The Philadelphia Semiconductor Index (SOX) marked time on 4-11. The chip sector is trying to put in a bottom, with the 440-450 area also providing tough resistance.. For trading info on technology stocks visit our Stock of the Day and Technology timing sections.
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Small stocks are acting fairly weakly lately. For trading suggestions in the small cap arena visit our S & P trading page featuring our ETF trading model for small caps.
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