Market Wrap, Saturday, 04/11/2009 Full Moon Brings Out the Howling Bulls by Keene H. Little Click here to email Keene

HAVING TROUBLE PRINTING?

Weekly Stats

Grab a cup of coffee (or a stiff drink) as this newsletter is a little longer than usual. There's a lot to cover and I used the combination of Thursday's and the weekend newsletters to cover some information a little more in depth than I typically have time to do.

The market started the day Thursday with a big gap up, stalled for much of the day near the high and then pushed higher into the close. Unless you were already long the market heading into Thursday morning you missed most of the move. That seems to be a common event lately--much of the market's daily moves seem to be happening during the overnight session, both down and up, but especially the rally legs. Whether it's manipulated during the overnight session or not is pure speculation but it sure is effective in getting everyone to chase it the move once the opening bell rings.

I have mentioned many times in the past that the Thursday prior to opex is typically a head-fake day, whether by design or because of opex squaring. It seems a lot of market participants take care of a lot of their squaring of positions by the end of the week prior to opex which is followed by more subdued market activity during opex. Or big money pushes the market in one direction so as to position themselves for a sling shot in the opposite direction into opex. So I have to ask--was Thursday's rally a head-fake move?

I will say that the head fake seems to work best when the Thursday (or as late as Monday) is pushed down which has then been followed by opex rallies. Rallies prior to opex have either continued or been very quiet weeks with little price movement.

The bulls are clearly in control and as we'll review in the charts they've been able to break some important resistance levels. The trend is up and you should always trade with your friend. But it's not blue sky above for next week (although you wouldn't expect any trouble when you listen to bubblevision and the bobbing heads). Some statistics from sentimentrader.com give us some things to think about for the coming week. There were 6 times the S&P gained more than +2.5% the day before a holiday (Thursday's gain for the S&P was +3.8%). Over the next week, it showed positive returns only once (and that one gave back all of its gains during the next week). The overall average return for the following week was -2.1%, with the average drawdown (-3.6%) more than tripling the average maximum gain (+1.3%).

If we look for pre-holiday gains of +2.0% or more, instead of the +2.5%, there were 11 occurrences. The following week showed positive returns only 3 times and the average return for the week was -1.2%. The last 7 of them, dating back to 1999, were all negative over the next week.

Those are some interesting statistics and of course that's all they are. It doesn't mean next week will follow the pattern but it's something to think about as we head into opex following a very bullish Thursday. Bullishness is breaking out all over and from a contrarian perspective it's getting a little worrisome. People have become very convinced we've seen the low for the year and while they could be right I think it behooves us to be wary of a rally that has clearly gone too far too fast. Thursday's close at the high looked like a little capitulation into the close as shorts were squeezed out. Will there be any follow through to that? Typically when this has happened there's been an immediate reversal the following day.

I don't mean to rain on the bulls' parade this weekend but while I felt we were ripe for a bounce near the March low, and suggested strongly that shorts tighten up their stops and take profits, I now feel we're ripe for a strong pullback or possibly even a return to the lows. I am more of a contrarian trader and I look for where a run could reverse. Besides, did you really think this little ol' 5-week rally was going to change my colors this quickly? I believe we're near a reversal so take my opinion for what it's worth and simply be careful with your long positions. As shorts needed to protect profits near the March low I think bulls need to protect profits at these highs.

Bank of America/Merrill Lynch economist Dave Rosenburg issued a warning to their clients on Thursday, stating the "economy is not even remotely close to recovery mode...it is one thing to be in a situation where the data are no longer collapsing at a 50-70% annual rate and quite another for the economy to be in a recovery-mode...". Rosenberg believes the economy is still contracting, that April numbers will reflect that fact, and that the market is out of line with this reality. He figures the trailing multiple on reported earnings for the S&P 500 is at 100x, "a record and double where it was during the tech bubble." He also noted that credit is contracting at a record rate as it has "shrunk at nearly a 10% annual rate over the past thirteen weeks, which is unprecedented."

This last point about the contraction in the credit market is critically important to the stock market. Whenever the market has rallied in the face of a contracting credit market, which it did from March to May 2008 and again from October/November into January, the rally was followed by strong selling. The current rally has all the makings of just another bear market rally and I think the market could be setting itself up for failure again. I wanted to show some visible proof that the credit market is not only not getting better, it's actually getting worse.

One of the key signals we were getting back in 2007, especially after August 2007, was the deterioration in credit spreads. And it continued to warn us during each bear market rally since the decline started. The price of the mortgage-backed assets and spreads between these bonds and Treasury bonds tells us how much "comfort" investors have in these instruments. Obviously a high price and a tight spread would indicate very little concern on the part of investors for the health of that market--they're willing to pay the higher prices for a lower rate of return because they have little fear of failure. But when prices are low and investors demand a high spread we know that the credit market is tight and lending is not easy. And in the past year and a half the picture of the credit market has been one of the better leading indicators for the both the economy and stock market.

The picture from the credit market is as worrisome as ever. Actually it's more worrisome. The Markit indices track the prices and spreads of asset-backed securities and the chart below shows the price and spread for AAA-rated mortgage-backed securities and BBB-rated commercial mortgage-backed securities since October 2008. You can see prices have steadily dropped for home mortgage-based securities and the spread has steadily risen for the commercial real estate assets. More ominously, since mid March the price has dropped sharply to new low while the spread has spiked higher.

Markit ABX.HE Index, chart courtesy markit.com

The CMBX index climbed 530 points to a new high on Tuesday and then rose another 79 points on Wednesday and Thursday. This is happening while the stock market continues to rally, oblivious to the fact that a sharpshooter is aiming his high-powered rifle at the hydrogen-filled balloon that's holding the stock market up. This time it's the stock market bulls who are whistling past the grave yard. I think the credit market is a lot smarter than the stock market and those players are clearly not comfortable with the bubbleheads' notion that the economy is healing and happy days are here again.

ISI publishes the BBB tranche for the CMBX in their Daily Economic Update because they feel it's important to watch the weakest link in the chain. Just as sub-prime mortgages gave us a heads up to the massive credit problem back in August 2007 so too will the weakest CMBX index. But it's important to note that all tranches below AAA are showing the same trend. The fact that the ABX index is giving the exact same message as the CMBX is confirmation it's not an isolated problem.

The signal from the credit market doesn't mean the stock market will immediately reverse and head lower. It's certainly been rallying in the face of this bad news. But it does mean all of the actions by the Fed/Treasury/FDIC/Congress have done diddly to fix the problems in the credit market. And this is a big reason why I'm saying the rally is likely just another bear market rally, albeit a strong one. It could certainly go higher, as I'll show on the charts, but as with previous bear market rallies they can suddenly stop and reverse on a dime. Surprises will soon be to the downside again.

We had the same warnings at previous bear market rallies and the warnings were followed by significant market declines, even if not right away, so caveat emptor. While it's good to be aware of some of the fundamentals behind what the market might react to, we traders look more to the charts for evidence of where the market may be headed, where it might find support and resistance and therefore where we can look for trade entries and exits. When people start to get a whiff of more trouble they'll become more afraid and that will be reflected in the charts, especially at resistance levels where profit taking will occur. Profit taking can lead to more selling and snowballing. For now people are high on hopium and it might take a little time for it to where off. Or it might wear off by next week. It all depends on how good the stuff is and based on the 5-week rally we've had I'd say it's some of the better stuff.

So onto the charts and sorry if all of the above information makes for a newsletter that is too long. But I think it's a very important subject to keep in mind, and watch, as a way to filter out the noise from bubbleheads who simply mouth whatever they're told (usually by people who want you to buy their stocks). Starting with the weekly chart of SPX, I highlighted the break of both the downtrend line from November and the top of a parallel down-channel (parallel to the line from the March 2008 low to the November 2008 low). That's clearly bullish, if it can hold.

S&P 500, SPX, Weekly chart

The chart is very busy with a lot of trend lines and price scenarios so bear with me while I try to explain what I'm watching. The dark green and pink price patterns both call for a continuation of the rally directly from here with very few and shallow pullbacks. The upside target would be 985-995, possibly a little above 1000. From there the price paths could be significantly different with the pink wave count calling for a new low to follow whereas the green wave count only calls for a pullback and then another leg higher into the end of the year.

The dark red wave count calls this rally just about over and a return to either test or break the March low. I show a move down to near 600 but that's just a guess at this point. While MACD left a very bullish divergence at the March low vs. the November low it's interesting to see it hasn't made much headway during the strong 5-week rally. It's still below the zero line and a rollover from there would be a sell signal (still far too early to tell).

The reason I mention the weekly MACD is because the daily chart is showing loss of momentum as the rally has progressed over the past 2-1/2 weeks. The daily chart shows a possible rising wedge pattern developing, which is a bearish pattern and is being confirmed by the bearish divergence on the oscillators. RSI has broken its uptrend line from the March low through the dip at the end of March and is now coming back up for a retest while price makes a stab higher. I've pointed out this behavior several times in the past--watch RSI for the break as a heads up but watch for price to make a new high (or low if in a decline) while RSI tests its broken trend line.

S&P 500, SPX, Daily chart

Price can certainly head higher while RSI flattens out in overbought. So this is not a slam-dunk short play setup but it sure is hinting of one. I show an upside Fib projection at 870 so watch that level for resistance if the market is able to push a little higher next week into opex. There could be an effort to pin SPX around 850 or 875. Any rally above 870 would be bullish and I would expect it to keep pushing higher into early May (it might be a similar setup as in 2008). It takes a drop below 790 (near the low at the end of March and the 50-dma) to turn the price pattern more bearish.

Key Levels for SPX:
- cautiously bullish above 870
- cautiously bearish below 790

From a short-term pattern perspective, even for the bearish price pattern, it would actually look better with a pullback first thing Monday (following a 5-wave move up for last week's rally) and then a new high into the middle or latter part of the week, shown in green on the 60-min chart. The trend line along the highs since March 23rd (the top of the potential rising wedge shown on the daily chart) crosses the 870 price projection Monday afternoon and then closer to 875 on Wednesday.

S&P 500, SPX, 60-min chart

If the rally is able to convincingly push above the upper trend line (watch out for a throw-over finish and then drop back inside, which would be a sell signal), it would be bullish. In the meantime I think this market is setting up for either a nasty pullback or the start of the leg back down to the new low.

The DOW is showing the same picture as SPX so there's not more to comment on it. Notice though that only slightly higher now is the top of a parallel down-channel for price action since the November low, near 8300. The rally off the March low is very close to achieving the same size as the rally off the November low.

Dow Industrials, INDU, Daily chart

Key Levels for DOW:
- cautiously bullish above 8300
- cautiously bearish below 7400

I've been showing the weekly NDX chart the past few weeks and pointing to the possibility that we'd see the week of April 12th mark a high rather than a low, which is what I thought it might be as the market was heading down from February. So here we are entering the week of April 12th. Will it mark the high for the rally? I'm thinking it will.

Nasdaq-100, NDX, Weekly chart

The wave count for the move down from October is clean and it calls for a 5th wave down which is what I'm expecting to start once the current rally leg finishes. The downside projection (where the 5th wave would equal the 1st wave) is currently 771 which is near the 2002 low of 795. Not depicted on the chart but if the 5th wave were to take another 21 weeks it would give us a low in September.

If the bulls have some more life to them and can squeeze a little more juice out of the bears I show an upside Fib projection to 1473 on the daily chart. It would first have to get through the 200-dma at 1424 and coming down. With NDX above 1308 it's for the bulls to lose at this point. While I show the key level to the downside at 1200, a break of last week's low near 1269 would be a heads up that the bullish wave count is not correct.

Nasdaq-100, NDX, Daily chart

Key Levels for NDX:
- cautiously bullish above 1308
- cautiously bearish below 1200

Another look at a daily chart of NDX with the ROC (Rate of Change) oscillator clearly shows the waning momentum of the rally inside what looks like a bearish rising wedge. We should not be seeing this if the more bullish wave count were correct and it's one of the reasons I believe the coming week will mark a high for the rally leg (if the high wasn't Thursday's).

Nasdaq-100, NDX, ROC bearish indicator, Daily chart

I've also been showing the semiconductor chart lately because I think it's at a spot now that is a good short play setup (as I had mentioned last week) but could give us a bullish confirmation if the rally can continue. The weekly chart shows the setup for the bearish play as price has finally made it up to the price projection near 257 (two equal legs up from November is at 256.78 and Thursday's high was 256.86. Slight throw-over?

Semiconductor index, SOX, Weekly chart

I mentioned last week that this is one of the cleanest setups for a bearish play as I've seen. Thursday price tagged the top of the parallel up-channel from November (bear flag), is at the top of the parallel down-channel based off the January and November lows which often is very good at identifying where the 4th wave correction will end. This is a setup for the 5th wave down to a new low. I see the possibility for a slight push higher on Monday or Tuesday so give it just a little room to wiggle but this setup affords you the opportunity to keep stops fairly tight.

The pattern for the RUT is essentially the same as the DOW and SPX. Watch 480 or below for resistance.

Russell-2000, RUT, Daily chart

Key Levels for RUT:
- cautiously bullish above 480
- cautiously bearish below 408

One other indicator that I like to watch is the advance-decline line during declines and rallies. This market breadth will often show in advance when a move is running out of steam. It's not a good timing tool for trading but it's good for gathering evidence as to whether the move should be sustained or not. The below chart shows the NYSE vs. the 10-dma of the advance-decline line and the bearish divergence is evident on this chart as well. You can see how it warned us at the January high as well.

NYSE vs. Advance-Decline line, Daily chart

The new price low in November was met with bullish divergence and even the March low did not achieve the same low as October or November and that longer-term divergence is one of the things that has a lot of bulls convinced we've put in a low for the year. They could certainly be correct but I'll let price lead the way. If we do make a new price low in a few months I fully expect to see a continuation of the bullish divergence, just as new price highs can continue to be met with bearish divergence. This is a tool to be used for a heads up that the move could end soon. Notice the break of the uptrend line on the a-d moving average--that's our first clue that the price trend will probably reverse as well soon.

One of the positive factors for the banks is all of the money that has been flowing into their coffers in the form of government bailout money. Not only have they received money directly from Uncle Benny and the Feds but they've also received funds through AIG who had written insurance on the billions in mortgages that the banks sold. AIG wrote the contracts on the derivatives and sold the CDS (credit default swaps) to the banks which were fat, dumb and happy to have sold off the mortgage derivatives and had insurance to protect them in the event the sub-primes defaulted. This is one of the reasons we kept hearing from the banks which were stating at the time that they were in a no-lose position. Oops.

But AIG was not placing any money in reserve accounts to back up their insurance so when too many mortgages started failing AIG was not able to pay on the insurance. This put the banks at risk of losing their collective hides and one of the reasons for the collapse in the financial house of cards. Now we're hearing that much of the money the government has given to AIG has actually been funneled right out the back door to pay the banks, at 100 cents on the dollar on their contracts. So while everyone else is forced to take pennies on the dollar the Fed has ensured the banks are paid in full.

The only thing a bit surprising to me out of all this is why the banks haven't rallied even stronger. There must be some more risk that banks are exposed to. But it's hard to know who owns or who is owed what. The CDS market is unregulated and there is no central clearing house or exchange. While the banks have written down close to $1T in value on all of the toxic assets, they clearly have not been paid for all that has gone bad or will likely go bad in the coming year (for reference, go back to the Markit indexes earlier in the report). There is still about $14T in outstanding CDS derivatives which are at risk if the economy doesn't improve or if more mortgages begin to default and I think this is where banks are still in a heap of trouble, regardless of what Wells Fargo (WFC) reports for earnings.

Last fall I had mentioned a few times that this year, starting in the spring, we will start to see more mortgage loans default as new Alt-A (one step up from sub-prime) and prime mortgages reset this year. The peak in loans was 2006-2007 and the 2 and 3-year resets are about to kick in. Considering the large drop in home values, the huge spike in unemployment and the increased difficulties in getting approved for mortgages, there is going to be a further spike in defaults.

My daughter and her husband bought a house in a new development three years ago as it was first going up. They were smart to lock in a fixed rate but it still takes two incomes to pay the mortgage and other expenses. As the housing development completed in 2007 I was amazed to hear that easily 3 out of 4 people bought with a low teaser rate, interest-only adjustable loan. The for sale signs are now popping up like weeds and a recent home that was purchased for $500K is in foreclosure and on the market for $399K. This is in Seattle which has been fairly well insulated up until now.

That $14T in CDS derivatives, even if it's only a partial amount, is about to hit the banks hard and they've barely begun recovering as it is. Benny and the Feds are going to be hard pressed to come up with that kind of money to give to AIG to give to the banks. They'll have to float way too many Treasuries to cover that kind of loss and they're already running the risk of over-supplying demand (which will depress prices and jack up interest rates). The Fed has completed the job of painting itself, and us, into a corner.

Think of this as a boxing match with banks in one corner and the property mortgages in the other corner. We just saw the completion of round two in March 2009 (round one was August 2007 to March 2008) with the banks on the ropes but saved by the bell (the Fed). The banks are in their corner being toweled off and given some water (cash). The rest of the market has interpreted this quiet period as bullish and a time to buy. When the bell rings again (more defaults) the banks could suffer a few more body blows and stiff upper cuts. The final 10-count will finally involve the dissolution of bad banks and assets.

Commercial property is the big gorilla out there. There are a lot of home mortgages in trouble but they pale by comparison to commercial mortgages. Businesses are closing their doors. Dwarfing the home sale signs I see popping up are the for-lease signs I'm seeing on store fronts. There are a lot of empty windows suddenly. And when these commercial loans start failing it's not going to be a good time for the bankers.

How all this relates to the stock market is the bigger question. Home sales peaked in 2005 and mortgage defaults starting rapidly increasing in mid 2007. The stock market blindly carried on into a high in October 2007, oblivious to the dangers lurking around them. The same thing could easily happen again (although I think there are now enough people at least more cognizant of the problem). I remember issuing many warnings heading into October 2007 and felt like the boy who cried wolf. The same thing could happen again and the market could blindly charge ahead and rally another DOW 2000 points into the summer, firm with the belief that we've gotten over the hump and have survived the worst of it. I could be wrong but from where I sit and the signs I see I believe the market is rallying on pure uncut hopium.

As for the banking charts, the BIX got a big shot higher on Thursday, thanks in part to WFC's bullish statement about strong earnings. Citigroup pulled this last month and what they're all neglecting to tell us is that write-downs are expected to continue wiping out all operating earnings. Operating earnings have not been the problem with the banks, even if they are lower than their peak two years ago. The problem is their bad assets and loans and that problem has not improved at all, not even with the M-T-Mb (mark-to-make-believe) rule change.

Last week's rule change by the FASB (Financial Accounting Standards Board) is just another short-term fix that could negatively affect the longer-term health of the U.S. economy and financial markets. The change will have the effect of discouraging consolidation in the financial sector, just like Japan in the '90s. It has been proven time and again that attempts to delay the necessary consolidation and reduction of capacity only results in the prolonging of economic pain. Under this plan, dead-fish banks will continue to divert capital away from productive economic use which will pressure the entire industry. But clearly the Fed and Treasury think it's different this time.

Bloomberg reported in the beginning of the week that Mike Mayo, who left Deutsche Bank AG last month and joined CLSA, assigned an "underweight" rating to U.S. banks and predicted loan losses will exceed levels from the Great Depression. But damn the torpedoes, full speed ahead and the WFC news helped the BIX crack through the top of a parallel down-channel (near 93). If the bulls can hold it we could see this index head for the top of a larger channel near 120.

Banking index, BIX, Daily chart

The parallel down-channel lines have been good guide lines for the decline from 2007 and Thursday's rally popped out the top of the one guiding price lower since the November high. But this is just a guide line so treat it as such. If the rally continues we should see MACD hold above zero after pulling back to it and that would be bullish. It would also hold its uptrend line from January. So the BIX remains bullish until it's not. A drop below this past week's low near 74 would negate the bullish price pattern.

The Transports, which have often been on a slightly different path than the broader market, is showing the same setup as the broader market indices. The rally off the March low has tagged the top of a parallel down-channel from November/December, is pressing against potential price resistance (what was support) in the 3000 area and achieved a price projection at 2962. As with the others I see the possibility for a push a little higher in the coming week (3100?) but this is a setup for a reversal in the coming week.

Transportation Index, TRAN, Daily chart

Commodities have tried to rally with the stock market but have been generally lagging. Gold is not exactly a commodity and in fact bucked the selloff in most commodities. It is deemed the savior for the coming collapse of fiat currencies and the resulting hyper-inflation that's coming. To think that the Fed will manage the excessive inflation problem they'll create is a pipe dream. They haven't managed anything well, ever. But the deflationary problem must be licked first and I think that's what will put further pressure on gold.

On the gold chart I show a potential descending wedge but there are no confirming bullish divergences and I suspect price will drop out the bottom of the wedge soon. However, a rally back above 936 would turn the price pattern bullish. It's bearish until that happens.

Gold contract, GC, Daily chart

Oil looks like a bullish setup here but it needs to get up and go and break the downtrend line from December, just above where it closed on Thursday. The short-term pattern might get one more minor pullback to complete a small sideways triangle consolidation pattern. A break out of that and above 32.16 would be bullish for a move potentially up to the $38 area (two equal legs up from February). If it pulls back instead we could see a move to a new low but it takes a break back below $25 to confirm that likelihood.

Oil Fund, USO, Daily chart

Economic reports, summary and Key Trading Levels

There were not many economic reports in the past week and what few there were they continued to show weakness across the board. There was some chatter about the good news in the trade balance, having shrunk by $26B ($10B less than expected) but to me this is just another example of the belt tightening the U.S. consumer is undergoing. We are buying less "stuff" and that's reflected in the drop in imports. However, considering the drop in imports was less than expected one could look at that as positive news--we're getting "less bad". The good news was that exports increased fractionally.

It's an eye opener to see how much both exports and especially imports have dropped in the past year. This chart shows the year-over-year percentage changes since 1994:

Exports and Imports, year-over-year changes, 1994-2009

The line showing the percentage change in imports is practically straight down. This is an example of why you've heard so many say the economy just came to a screeching halt and everything has fallen off the cliff. We haven't see this kind of rapid decline since, well, I won't say when (people are getting tired of hearing it).

Next week will be a lot busier as far as economic reports go, but no major reports on Monday. The PPI numbers out on Tuesday will of course be meaningful if they show a negative number (indicating deflation is taking further hold). The Fed is pumping like crazy in an attempt to get that number on an upward trajectory. Unfortunately as fast as they're attempting to fill the pond there are more leaks springing in the dam and the water (cash) is running out faster than it's coming in.

Retail sales and industrial production are important clues but most people already know they're down. On Thursday we'll get housing numbers and the Philly Fed index and Friday caps off the reports with the preliminary Michigan Sentiment number. The recent rally is based on hope that that all these indicators are bottoming. But, if the next chart, showing housing starts and building permits, were a stock would you buy it here?

Housing Starts and Building Permits, 1993-2009

If you look carefully there's a tiny little hook at the bottom of the building permits line. By golly, that's a buy signal if I ever saw one! This surely must be the bottom. OK, I'm being a little sarcastic. But I think you get my point. Expectations for March are for a slight drop in permits. So much for that little hook.

This newsletter got a little long as I combined Thursday's with the weekend. And I know it's not nearly as bullish as many of you would like to hear. I feel a lot like Scrooge when I attempt to put a damper on bullish enthusiasm at a time like this. But I believe that bullish enthusiasm is misplaced and certainly too early. At best we could have a very choppy year with some real whipsaw price action, including a complete retracement of the March-April rally as part of a larger upward correction. More bearishly the bear market rally could be ending here and now (or within a couple of days to finish out opex week) and we'll start back down to a new low over the next couple of months.

Because we're heading into opex week it's going to be potentially choppy as traders settle their positions. Movements could become exaggerated, especially if the volume is lower than normal. After Thursday's big rally it would be typical to see at least a retracement of it (and the wave count for last week's rally supports that idea along with the statistics showing market performance the week after a big rally in front of a holiday weekend). Whether the pullback will turn into something more is something we're just going to have to let price lead the way and tell us.

I've presented a lot of evidence to show why I think the rally we've had is just another bear market rally. A reversal could happen very quickly as bulls bail en masse. While many are hopeful we've seen the low for the year I suspect many are holding the exit door open and sniffing for fire. They won't have to be asked twice to leave the theater. And that's why selling could feed on itself quickly. There are many who are long ETFs and there's no uptick rule to protect the selling out of them. In fact there's another contrarian indicator out of the Rydex funds--the bullish ratio (long fund assets vs. short fund assets) in Rydex funds have moved to high extremes...a contrary indicator

But a bearish reversal is only the potential at the moment. For now the market is clearly bullish and that's the direction to follow if you're a trend follower. While I'm pointing out the nail spikes in the road that could flatten all 4 tires, so far the market is successfully negotiating those hazards. Never underestimate a bullish market and certainly don't stubbornly fight it with the thought that soon it will recognize reality and start to sell off. It will but only after breaking your account and leaving you in the dust.

Trade carefully this coming week. If you like to play the short side of the market I think we've got a good setup for it. For those who follow the Market Monitor Jim thinks we could have it back up and running like before (but better) on Monday. I'll do my best to catch the turns in what has proven to be a difficult pattern to interpret.

One more thing to watch for next week--this past week left a hanging man doji on most of the weekly charts. If that's followed by a red candle for next week we'll have a weekly sell signal.

Good luck and I'll be back with you next Thursday.

Key Levels for SPX:
- cautiously bullish above 870
- cautiously bearish below 790

Key Levels for DOW:
- cautiously bullish above 8300
- cautiously bearish below 7400

Key Levels for NDX:
- cautiously bullish above 1308
- cautiously bearish below 1200

Key Levels for RUT:
- cautiously bullish above 480
- cautiously bearish below 408

Keene H. Little, CMT
Chartered Market Technician