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[TTHQ Staff]

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The Philadelphia Oil Service Index (OSX) has also broken key support. 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 in deep technical trouble in the short term. The index could be headed for the 750 area in a hurry.

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: Chart Courtesy of StockCharts.com More Selling Predicted By Major Technical Breaks It’s time to be very careful. Investors should have been raising cash as stock positions have been stopped out. Aggressive traders should also have lots of cash as well as a good number of short positions. Our major ETF sections have been net short for several days now, and are in profitable territory with well placed protective stops in place, in case the market bounces, which can happen at any time given the oversold state of things at this time. The Dow Industrials, the S & P 500, the Nasdaq Composite, the Nasdaq 100, and the Russell 2000 indexes all crashed below their 200 day moving averages on Friday. Selling picked up overnight in Asia and Europe. And U.S. futures look headed lower at the open of trading. Last Thursday we noted here that things were looking rather bleak. “High volume selling, poor market breadth, and a breach of the 200 day moving average for the Nasdaq, the Nasdaq 100, and the Russell 2000, suggest that the odds of this market going lower are rising. To be sure, bear markets are almost never identified when they start. Instead, there is always the inevitable hope, and the inevitable bounce back rallies. Some of those rallies, when they come, can be very convincing. And sometimes, when major indexes break below the 200 day moving average, they bounce back above the key line and start new up legs.” As we said then, we are now at a critical juncture in the market. The next couple of weeks will be very important, since they are likely to provide answers to the big question: are we now in a bear market? To be sure, we don’t know if we are in a bear market at this point. And we won’t hazard a guess, although it sure feels like it right now. But Wall Street is a strange beast. And if enough fear and panic gets stirred up, we could find ourselves making a nice spike bottom, and the whole thing could be over in a couple of days. All we can do is look at the market every day and make the best decisions about all our recommendations, individually, on a daily basis. If short positions go lower, we’ll keep the position open. If there are opportunities to buy stocks, we’ll buy them. And if things get choppy, we’ll try to stay on the sidelines. This is a difficult time for subscribers since markets like this one are difficult to time, and to make money in. But all we can say, is that we’ll be there everyday looking for opportunities to make money whenever possible, and to keep subscribers from losing money as well. Our patient and sector oriented approach is well suited to this market. See our ETF, energy, and health care areas for new and updated recommendations. What To Do Now Above all things, this is not a time to be impatient. 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 have a good number of open short positions. 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. Chart Courtesy of StockCharts.com

Bears Making Big Bucks In Options

Put/Call ratios are rising. But the stock market looks to be heading lower.

Normally, rising Put/Call ratios are a sign that a market bottom is near. But over the last few weeks, rising Put/Call ratios have been a signal that some smart money types knew something was coming, and bought portfolio insurance. Those individuals or institutions are looking fairly good right now, as their options are in profitable territory.

It’s difficult to predict when things will be back to normal. Although it is important to point out that during bear markets, as in the 2000-2003 beast, rising Put/Call ratios meant very little, and were not very good contrarian indicators.

The CBOE Put/Call ratio checked in at 1.42 on 4-15, another normally bullish reading that is being ignored. 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 4–15 came in at 2.17, another usually bullish reading being ignored. 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 17.74 and 21.85 on 4-15. These are bearish readings. 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 64% 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 fell to a reading of 15. This is as oversold a reading as we’ve ever seen. 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 is back to neutral after last week‘s buy signal which was clearly wrong. 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 sentimen t indicators that are updated on a weekly basis.

The NYSE insiders were bullish on stocks on 4-1. 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 Is Biotech Going To Get Some Oil Money? Exxon Mobil (NYSE: XOM) got clobbered on 4-15, while Genentech (NYSE: DNA) soared. The combination of events suggests that money from the oil stocks is looking for a new home. Chart Courtesy of StockCharts.com Genentech rallied over 10 points on 4-15. News that its cancer drug Avastin, which inhibits the growth of tumor blood vessels, may be effective breast cancer, was the catalyst. But the stock had been showing some decent relative strength for several weeks, in a market that looked ready to tumble. Chart Courtesy of StockCharts.com Exxon, on the other hand, has been making lower lows and lower highs for several weeks, despite the recent highs in the oil markets. That was a sign that trouble in the oil markets was coming. Conclusion Selling in Exxon, and the oil patch, and a rally in biotech, especially if it persists in a market that looks ready to go down further, is a sign that biotech could be the beneificiary of a whole lot of oil money that is looking for a home.

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The Amex Biotech Index (BTK) showed some relative strength on 4-15, as it closed above 500. 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 also acting better. The index has now closed above 330, a key chart point. 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) looks headed for a test of its recent lows. For trading info on technology stocks visit our Stock of the Day and Technology timing sections.



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Small stocks are as weak as the rest of the market, and look redy to get weaker. 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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Market IQ reports may not be redistributed without permission. Disclaimer: The financial markets are risky. Investing is risky. Past performance does not guarantee future performance. The foregoing has been prepared solely for informational purposes and is not a solicitation, or an offer to buy or sell any security. Opinions are based on historical research and data believed reliable, but there is no guarantee that future results will be profitable.


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