Chart Courtesy of StockCharts.com
The Wilderhill Clean Energy Index may have a volatile few days coming, as ethanol supplyis being debated.
Chart Courtesy of StockCharts.com
The Philadelphia Oil Service Index (OSX) is still above the 200 area, and its 200 daymoving average.
Chart Courtesy of StockCharts.com
The Amex Oil Index (XOI) made an all time high on 7-31, another in a string of severalrecords over the last several months.
Technical Summary:
Chart Courtesy of StockCharts.com
Take No Big Chances
Traders thought twice about a weak employment report on Friday.
At first stocks rallied on the news, then they gave back the gains as the usual worriesabout a slow economy leading to slow earnings started to filter in.
No matter what the excuse, a big rally that fades away is a bad development for those thatare hoping for higher prices.
And as traders start going away for last chance holidays in the month of August, volume islikely to shrink further, and volatility is likely to increase although it may not takethe markets to new lows or new highs.
The Fed is in a tough spot, as it has signaled that it may pause, but may be forced toraise rates anyway, due to inflationary pressures from rising commodity prices.
At the same time, central banks around the world are raising interest rates, making thedollar vulnerable to interest rate moves by central banks.
The S & P 500, the current market's leader, is up against a key chart point, the 1280area, where it has run into trouble in May and June, before pulling back.
For now being patient, and being able to pick our spots for trading, has worked. Butnothing works forever. And any nasty surprise could lead to a market decline.
Still, until proven otherwise, sector and stock specificity, as well as above average cashlevels are likely to remain the key to success in this market.
The S & P has been benefiting from one fact, money flows have turned away from growth,toward reliable earnings, such as those produced by large drug stocks, big oil stocks, andconsumer non-durable companies.
Big oil stocks, utilities, consumer stocks, and large drug companies are starting to seesome money flows are increasingly strong with the Amex Pharmaceuticals Index (DRG) and theConsumer Index (CMR) both testin key long term resistance areas.
Still, if technology was to make a bottom, and start to rally, the current climate fitsthe bill of such a set of developments, given the doom and gloom on the sector.
Commodities React To News
Natural gas remained below $8 in the nearby September contract.
Crude oil is still straddling 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.
Stay flexible, and when in doubt stay in cash. If you trade, stick with the strongeststocks in the strongest sectors, and keep position sizes small, so that any reversal doesnot take a big bite out of your trading stake.
The bond market remains interesting. See our bond trading model, on our energy page.
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 with our utility trading model finally gettinga wake up call. See the energy section for details.
Remember, our Fallen Angels portfolio is designed for those seeking a potentiallydiversified portfolio with a longer term time frame, and offers both long and shortrecommendations.
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.
Chart Courtesy of StockCharts.com
Sentiment Summary:
Worry, Worry, Worry
Option traders, aboove all things, are a source of job security for folks like us.
Once again, fear rose in Chicago ahead of the weekend, as a host of issues againthreatened to increase.
We like seeing lots of worried hedgers, but lately the whole thing has been very volatile,with numbers changing nearly on a daily basis.
The CBOE Put/Call ratio rose to 1.17. A consistent string of low readings can be a sign ofexcessive optimism and often signals a top in the markets. Readings below 0.5 are ofconcern, 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 rose to 2.06.. Numbers above 2.0 as the market sells off, oftenlead to rallies. Readings below 0.9 suggest too much bullish sentiment, just as readingsabove 2 are usually required to mark major bottoms.
The VIX and VXN had readings of 14.34 and 21.63. 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) fell to 37.5 from last week's 45. This isstill an overall bullish reading, although we suggest trading on the market's action, notthe expectations raised by inidicators.
NYSE insiders were buyers of stocks for the week of 7-21-06. NYSE insider short sales arestill at very low levels. When NYSE specialists raise their short sales, and sell stocks,risk increases dramatically. There is a two week lag for these figures.
Market Vane's Bullish Consensus remained at 62% on on 8-4-06, again remaining neutralafter several consecutive sell signal levels. This indicator has been calling for apullback in stocks for several weeks. Buy signals occurr when the indicator falls to 40%or less.
Market Moves
Telecom Rally Faces Test
AT & T (NYSE: T) and Telmex (NYSE: TMX) are facing a key set of hurdles.
Chart Courtesy of StockCharts.com
These two old line telecom companies have recently scored major chart break outs,performing remarkably in an otherwise tough market.
The question that arises is whether the two companies can actually deliver in anincreasingly difficult set of circumstances.
Telmex has to face the potential for an economic slowdown, and political instability inMexico, its primary market.
The post presidential election situation, far from being out of control, is still creatinguneasiness in the country, and may lead to a decrease in economic activity, which couldimpact Telmex's earnings stream, and its ability to expand.
AT & T is facing the potential for a slowing in the U.S. economy, its major market.
Although, there is no political instability at this time in the U.S., other than the usualbipartisan bickering and finger pointing, it is an election year, in the U.S., with highprofile Congressional seats up for voter review.
In other words, the outside world is steadily beginning to assert its influence on theability of companies to do business.
Chart Courtesy of StockCharts.com
The Amex Biotech Index (BTK) is starting to rise along with the drug sector. 650 is toughresistance though.
Chart Courtesy of StockCharts.com
The Amex Pharmaceuticals Index (DRG) again closed above 340, but is consolidating..
Chart Courtesy of StockCharts.com
The Philadelphia Semiconductor Index (SOX) is again trying to bounce back.
Chart Courtesy of StockCharts.com
Small stocks are trying to bottom along with the market, but are not particularly strongright now.
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