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The Wilderhill Clean Energy Index remains weak with 180 being a tough resistance level.
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The Philadelphia Oil Service Index (OSX) broke below 200, but could rally on OPEC'sproduction cut announcement.
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The Amex Oil Index (XOI) broke well below 1100. 1000 is an important long term support.
Technical Summary:
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Sentiment Gauge Flashes Caution Sign
The market is now vulnerable, as key momentum and sentiment indicators suggest that anynasty surprise could derail the rally.
Traders will be watching the action on Monday, as it is the first trading day with littleactivity related to economic releases or bullish seasonal trends.
Friday marked the end of the usually bullish first five trading days of the month, whilethe Columbus Day holiday will keep some big players out of the market.
With no economic data due out, and lots of things to worry about, the market is likely tobe thin, and may get volatile, depending on the news cycle.
The market was fairly strong last week, but resistance for the S & P is near 1700,some 350 points away from the 10-4 close. The Nasdaq is still over 50% below its all timehigh.
The NYSE advance decline made a new high last week. Market volume was heavy, and thenumber of stocks making new highs improved.
The best strategy is still to concentrate on what is working, while keeping an eye onsigns of a weakening trend, of which there are none at this point.
As we've said before, momentum markets can be very treachearous. And this one, like eachand everyone of its predecessors, will fail. The key to success for all players is toremain vigilant, to concentrate on strong sectors, and to recognize the inevitableweakness as early as possible, when things eventually turn south.
Our strategy remains both stock oriented, as well as mindful of the overall trend in themarket.
What this means is that every position still needs to be reviewed on its own merits. Sellstops should be meticulously adjusted. And sell rules should be observed with no deviationfrom comfort levels.
Oil In Play From OPEC Maneuvers
Commodities are increasingly volatile, with the $60 area remaining the key in the oilmarket..
Natural gas is still hugging the $5-$6 range.
Gold is still testing the $580-$600 band.
Check our energy section for bond, gold, dollar, and currency recommendations.
What To Do Now
The key to success is to look at each open position individually. If it’s notworking, it’s time to sell it.
This is a good time to wait and see what happens over the next few days, without rushinginto any major decisions.
Weak stocks should be sold, and strong stocks should be monitored for growing signs ofweakness.
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.
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Sentiment Summary:
Duarte Sentiment Gauge Hits Danger Area
Although the options market turned cautious on Friday, which is usually a positive, theDuarte Overbought-Oversold Gauge (DOOG) hit the cautionary point of 85 this week.
That means that the market is now ripe for a selloff. Any serious selling could happentoday, or could take several weeks to come. But, the key is that the market is nowvulnerable, and should be watched carefully.
The CBOE Put/Call ratio checked in at 0.95. 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 1.88. 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 11.56 and 17.97. 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) rose to 85. This is an overbought signal, andsuggests that the market is now vulnerable to selling.
NYSE insiders were buyers of stock for the week of 9-22-06. 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 checked in at 70% on on 10-6-06. This is the third weekabove 70%, which is a sell signal.
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The Amex Biotech Index (BTK) broke out last week, taking out the resistance at 700.
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The Amex Pharmaceuticals Index (DRG) is still consolidating, after it broke out to a newhigh on 9-1 and has been consolidating ever since. 350-355 is the key range.
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The Philadelphia Semiconductor Index (SOX) is still testing the 450 area and is showingsome weakness of late.
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Small stocks may be starting to show signs of life.
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.
