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We are seeing subtle signs of what could amount to a huge form of distribution taking place right now. The volume on down days is rather large even though the moves are not very significant.   There are no signs to indicate that this will be a long term down move, rather it appears that the Dow will correct hard and fast before stabilising and mounting another rally.   Short-term targets appear to be in the 10500-10522 ranges, which would provide a good place to open up new longs. From macro outlook markets update Jan 03, 2006 

The housing sector is going to correct and the correction will suddenly pick up steam. Top executives in many of the homebuilder companies are silently dumping their shares. Risk takers look to open up long term put positions (LEAPS) every time this sector rallies. These positions can be opened on the Index (HGX) or by buying Leap puts on some of the big names out there such as LEN, TOL, and BZH etc. market update Jan 03, 2006

 Those that followed this advice were able to lock in rather huge gains as the housing sector collapsed traded down to 189 from 280. Obviously very few were able to get in right at the top and get out right at the bottom however traders using simple trend analysis should have been able to lock in spectacular gains. Options should have easily quadrupled in value.

All three of our shorts on the Dow were triggered; that means risk takers are either short futures or are using Dow put options.  1^st short triggered in the 10873-10890 ranges, 2^nd short 10950 and third short 11,000; Average entry price is 10944.  For the time being a short pullback is all that we are looking for before the markets resume their upward trend.   For this reason we think that when the markets trade in the 10740 ranges everyone that partook in the Dow puts/Dow futures short play should start to close their positions.  Risk takers can then look to open up new longs at this level (invest only 1/3 of the money you are going to invest for the time being).   Market Update Jan 17, 2006

 We traded down to 10740 and traders were able to close out their options for a nice gain; though futures players locked in the really big gains. They were able to lock in 2040 per futures contract. Traders were then able to go long and closed these longs in two days for gains that amounted roughly to 50% for option players.

 The farm construction equipment/machinery sector has made a nice strong upward move and is now in the top 5 sectors. ARTW looks interesting here for risk takers.  Market update Feb 7, 2006

 For those who were willing to take on a bit more risk this advice has paid of well; this chap is now up roughly 50%. Traders should have been able to take positions in the 5.85-6.00 ranges. 

Okay the fast and huge plunge last week generated quite a bit of fear but the turn around rally occurred too fast. Most likely it was the dumb short sellers covering their positions, as they could not believe that they finally hit something big after all this pain.  So we think that there is a decent chance that we could test the lows or dip below them one more time. If this occurs it will just provide another good chance to initiate new longs on the Dow via futures or call options

 Risk takers can use any significant pullbacks to initiate new longs (a pull back of a 100 or more points) and close them out each time you lock in gains of 100-200 points. You can more or less keep doing this till we issue a sell signal. However remember this is a higher risk trade and do not jump into this thinking that it’s a sure way of making a fortune. Never ever put all your eggs in one basket. Market update Feb 14. 2006

 Traders who kept purchasing options or futures contracts did very well as the market pulled  back 100-200 points several times providing risk takers with so many chances to initiate new trades.

 The hourly phase has changed to up and the daily phase is neutral and could change point up anytime now.  Usually when the hourly and daily phases are pointing in the same direction it is an indication that a strong move is just around the corner. Long-term corn looks great and we would not be surprised to see corn trading at or past 270 before the year is out. Market update Feb, 14, 2006 

Corn surpassed our highest targets and traded as high as 380 before pulling back.

One another area of interest is that the Dow transports have already put in a new all time high and so it appears it is just a matter of time before the Dow follows suite.  

At this point in time the Dow is testing the top of the channel formation attempting to build energy to blast past it and put in a new all time high.  The firs target will be a test of the 11, 200 ranges after that we think the Dow will attempt to enter our first target ranges (11350-11430). If the momentum is strong here then we think there is a chance that it could trade past 11,600 Market update Feb 21,2006. 

A break past 295.30 on strong volume should propel us back to the 330 ranges. At this point in time palladium will either power up or put in a double top. If it’s the latter then we are going to enter a corrective phase that could last 3-12 weeks, which should provide those who have no positions with another buying opportunity. 

 For the time being however we must continue to remain bullish even though the case for a bullish scenario gets weaker with the passage of each day.  We are also working on specific plays that we will issue as soon as we feel the markets have put in a top and are ready to correct.  Risk takers as stated several weeks ago could keep opening up long positions every time the Dow trades at 10950 or lower. Market update March 7, 2006  

Even though TA is stating that the markets are in trouble, psychological indicators continue to support the fact that we should lean more to the bullish side then the bearish side.   We do however expect some sort of pull back now that we have had a rather impressive move up to the 11000 range or so. If we can hold at this level then we should most likely put in another high. The theme is now going to be extreme volatility; so expect huge moves up and down.   Risk takers can divide their money into 3 lots and use the first third of this money to initiate new longs on a pull back to the 11,000 ranges.  Invest the 2^nd lot if we trade in the 10960 ranges.  We will issue the parameters for the deployment of the third part of the money later on.   Market update March 14, 2006 

Palladium traded as high as 324, 6 points away from our target. It appears to be putting in a short term topping formation and if it does not blast through 330 soon on high volume without flashing a negative divergence it’s going to enter into a corrective phase that could last from 3-9 weeks.  If this situation should unfold it will provide another opportunity for those who missed the first move to get on the bandwagon. Market update March 21, 2006 

 We are waiting for a nice sharp quick pull back and then there is a pretty good chance that the Dow will put in an all time new high or several of them before embarking on rather sharp correction. Market update April 4, 2006 

Dollar failed to rally past 90 and so far has traded as low as 87.60.  We are officially no longer bullish on the dollar and are going to simply sit on the sidelines watching this chap.  The currency that appears to be the most interesting right now is the Swiss Franc.

 Oil traded past 68.10 and as envisioned traded easily to the 70.00 dollar ranges and actually surpassed it putting in a new all time high. With geo political tensions mounting oil could put in several new all time highs before pulling back.  If we should attack Iran we might appear to win on the very short-term time frame but the spike in oil prices will be the equivalent of several missiles landing in New York City.  Not to mention the serious surge in Terrorist activity it will cause both on the local and international fronts. We will be paying close attention to our religious provocation index over the next few months.  The current pattern is suggesting that if oil can trade and hold above 74 it could spike all the way to the 78-81 ranges.  

Palladium has been able to stay above the 330 mark so far and the longer it stays here the higher the likelihood of a new pattern emerging.  We are at a critical point now as Palladium has put in a new 3 year high and the next zone of major resistance is 380. If we get to this level and are able to hold then 420 becomes the next target. It’s interesting to note that almost no one has noticed Palladium yet.

 Palladium went on to test the 420 level before pulling back; it was the best performer in the precious metals arena and yet hardly anyone noticed. Long term this is incredibly bullish.

 The utilities seem to lead the way; the fact that they have put in a bottom, produced 4 trend lines and flashed several positive divergence signals on the daily charts bodes well for the Dow. The odds of the Dow now putting in a series of new highs have risen to 70%.  Market update April 18, 2006

We will keep stating this again and again. The theme for now is patience lets wait for a nice correction/pull back and then we will be ready to issue several higher risk plays.  While the markets are ripe for a correction they are not ready to crash yet as the big boys are just sitting and watching the game from the sidelines.  In addition none of our psychological indicators have issued a sell (we are paying more attention to these indicators then our Technical indicators at this point in time). Finally the Dow Jones utilities appear to have put in a bottom which suggests that after a correction the Dow Jones Industrials will most likely follow suite.   Market update April 25, 2006

 This pattern between the Dow Jones industrials and the Utilities proved to be true and the Dow bottomed and then proceeded to rally.

Right now risk takers can divide their money into 3 lots. Deploy the first lot in the 1100-11070 ranges. 

 The 2^nd lot can be deployed in the 10950 ranges. If we don’t trade down to this level we will adjust this entry point upwards.  We will deploy the third lot later on.  We are basing our entry points on the Dow but as soon as these points are hit traders can start buying DIA options with at least 3 months of time on them; 6 months would be better. An example would be Jan 07 DIA 115.75 (ZWZAL) calls currently trading in the 3.20-3.60 ranges.  Traders would wait till the Dow traded in the suggested ranges and then attempt to buy this option. If the Dow hit the second entry points Jan 07 DIA 110 calls might look interesting also. Finally those traders who took part in the higher risk IBB option play that we put out last week get ready to buy one more set of options on this chap.   Market update May 23, 2006.

This trade worked out incredibly well to say the least.  

The way the market is currently set up we could either pull back 600 points before rallying again or pull back as much as 1200 points after a new all time high is put in.   May 9th, 2006.

 We traded as high as 11650 and as low as 11045 in the last few days so it appears that we have the 600 point pull back we were looking for

Another interesting anomaly is that despite these huge down days the Dow Jones utilities have been trending higher. They put in a tradable bottom around April 17^th and flashed a several nice positive divergence signals on the hourly charts.  The utilities were the first to mount a major correction and our hypothesis is that they would lead the way up.   This pattern between the Dow and the utilities is relatively new (approx 3 years old) and we do not expect it to last indefinitely. However based on this pattern the Dow’s current action is perfectly normal.  As long as the utilities stay above 380 the short and intermediate outlooks are bullish. Market update May 30, 2006

 The utilities remained above 380 and went on to put in a series of new highs and as suggested they paved the way for the Dow and the transports to follow suite.  

We warned everyone repeatedly that the markets had entered into an extremely volatile phase and that’s why the markets are all over the place. We even advised the faint of heart to start closing all profitable positions.  Having said that ignore the fear mongers because they are usually wrong. Nothing crashes in one wave. What usually happens before a big crash is a fake mini crash and this is what is currently taking place in the markets? The Dow from its high to low corrected over 1100 points and wiped all the gains for the year; this has put the fear of God or the Devil into the hearts of the small trader. 

 Another distorting factor is that over 54% of the trading volume currently is coming from sell or buy programs triggered by computers. These computers basically are doing what their dumb programmers instructed them to do and usually the move is in the wrong direction. Since the commands are already in when a certain index trades at a specific point a sell program is generated.  The higher the volatility the faster these computers are triggered into buying or selling.  These sell programs then trigger the dumb trader into action so it’s a domino effect.

 The fact that the all 3 moving averages of new lows (20, 100,365) have witnessed extreme moves further suggests that a lot of panic selling is taking place right now.  Note also that NYSE specialists are sitting waiting and they are currently holding even smaller short positions then they did a few months ago.   

We therefore believe that the current sharp pull back is a fake trap for all the dumb money and that we should witness a rather massive short squeeze in the not too distant future that might push the Dow to a new all time high. It’s then when everyone is feeling smug having so easily forgotten what took place in the months of May and in June that the markets will be ready to embark onto a brutal correction. 

 Hence expect even more volatility and if we were to take an uneducated guess and yes we mean uneducated guess because there is nothing educated about guessing we would say there is a good chance that the Dow will put in a new all time high before correcting severely.  Market update June 14, 2006

 We forgot to mention a very interesting fact last week.  On Thursday the week before last the Dow closed up 8 points after trading down over 170 points on one of the heaviest volume days of this year.  This is actually very bullish because one has to look at this action with a different type of mindset; a mindset that simply refuses to accept the norm or assume that old rules apply forever.  The Dow actually climbed up over 178 points (170 plus 8) on the heaviest volume day of the year. This is sometimes referred to as a reversal day.  We believe that there is over an 81% chance that the market has now put in a tradable bottom. 

We have repeatedly stuck our neck out and remained bullish since 2003 even when the outlook out there was extremely negative.  One of the main reasons we have been able to do this is because we have completely put aside our personal feelings and simply focussed on the data and our psychological indicators. What kills most traders is that they listen to the noise outside and then react to it. One must always remember the saying that it’s impossible for everyone to make money just as it’s impossible for everyone to lose.  Market update June 20, 2006.

Notice something very interesting that the number of bulls and the number of bears are almost identical; this means that both camps are confused. Do not confuse these readings with what the ultra dumb money is doing. Sentiment and investing are two different things. Many people give their opinions but less then half of them actually act on them.  However this week’s number tells us that both camps are fully confused; such numbers are usually seen at or very close to market bottoms. 

The situation looks bad, the crowd is frothing, the Market pundits are spewing negative news constantly and it looks like all hell could break lose any time.  We must remember the proverbial old saying, which states that markets usually climb a wall of worry to which we added the following and crash down a cliff of Joy.  Since everyone appears to be worried we have to remain calm and study the action carefully.  Our analysis reveals that for now the best stand is to remain bullish.  Traders willing to take on higher amounts of risks can use all pull backs to open up new longs on the Dow or other indices via call options or via futures.  The biotech sector and semi conductor are issuing rather strong positive divergence signals. The drug sector is also looking interesting; all 3 appear ready to rally and once they start to take off on all cylinders the indices should explode upwards. Risk takers can take positions in all 3 sectors via purchasing call options on the respective ETF’s (IBB, SMH, PPH). Market Update June 28, 2006.

Risk takers can continue to open up long positions on any significant pull back.  This is definitely a dangerous market to short unless one is doing so on a very short term basis and only experienced traders should play this game.  The Dow needs to break past 11220 on very good volume and stay above this mark for 9 days. If it can do this there is a very good chance that it will test its old highs and then go onto put in a new all time high.

We continue to believe that the NASDAQ will be the biggest gainer when the markets enter the full rally phase.

We feel that the moment Israel accepts some sort of peace deal the markets will mount a rather sharp relief rally.  We still consider that shorting the market is not something the wise should get involved in right now.   

We are going to list a few more plays below for individuals willing to take on a bit more risk. 

DNE: interesting entry points would be in the 1.71-1.80 ranges, GST:  1.95-2.07 ranges, BPG: 1.05-1.11 Market update August 1, 2006.

DNE and GST both traded at or below the suggested prices and then proceeded to trade significantly higher. DNE is now at 3.10 and GST Took off almost immediately and traded as high as 3.20 before pulling back. The only play that has not worked out yet is BPG.

For a long time now we have been stating that risk takers can continue to add to their long positions on every major pull back; this has proved to be a very profitable strategy so far. From now only uses pull backs of at least 150 points to add to your positions.  The Dow needs to trade above 11220 for 9 days in a row. So far its been unable to do this but once it does we suspect it will at the very least test its old high if not go in to put in a series of new highs.

In May we issued specific instruction to buy the Dow if it traded in the 10950 ranges those that followed this advice are already sitting on very nice gains. The options purchased in this range are now up over 150%.  If you are nervous sell half and hold the rest. In addition we advised risk takers to use every major pull back to open up longs we have been giving this advice now for almost 90 days; it was a very hard thing to do initially but once again those that followed this advice are holding onto some rather lovely gains.   Under no circumstances should one consider shorting this market at this stage; off course if we have a full fledged war in the Middle East then that outlook changes. However one cannot sit and worry about unpredictable events as all it does is increase one’s stress and prevents one from seeing the big picture; you start focusing on the trees instead of the forest.   Market update August 9, 2006.

As we have repeatedly stated in the last 90 days shorting this market is a recipe for disaster. Many times it appeared initially that we might have been wrong in making this call but if one looks back one can see quite clearly how easily one could have lost their shirts and their pants shorting this market. 

Risk takers use every pull back of 150 points or more to add to your position on the Dow and QQQQ via call options or futures. So far this strategy of buying on major pull backs has worked rather well.  Note also that those players who took our advice to go long the QQQQ’s in the 36 ranges are already sitting on decent gains.  This was a rather volatile trade but then as the saying goes no pain no gain and some of our biggest winners usually produced the most pain initially. Those of you that took part in the higher risk PPH call options plays should have been able to easily sell half your calls for a nice 100% gain.

We see no reason to short this market at this point in time. The markets are bidding their time right now and the main theme of this game is to test the trader’s patience. When markets go up and down and are stuck in a range they break many a seasoned trader and as soon as these guys throw the towel in the markets take off.  For the past 90 days or so the markets have been doing nothing but playing the game of 2 steps forward 1 ½ steps backwards and so far this trick is having the desired effect on the masses.  Expect this market to mount a rather furious rally out of the blue. 

NCLRF Let’s buy additional shares in this chap in the 18-22 cent ranges.  Long term this stock still looks good and since it’s in the Uranium sector it should explode once this sector is done correcting.  Its interesting to note that only the stocks are correcting the actual metal continues to trade higher; this is a usually a very strong intra market positive divergence signal. Market Update Aug 15, 2006.

The Dow has been able to hold above 11220 for several days in a row if it can extend this for a full 9 days then the picture is going to get very interesting. A test of the 11450 ranges becomes all but inevitable.

All 3 moving averages of new highs have now moved into the positive and are nicely leading the moving averages of new lows. This suggests that the markets are now almost done with the internal cleansing process and are strong and basically building up strength for the next leg up.

Now that the threat of future rate hikes is temporarily out of the equation the masses like fanatics are looking for other reasons to worry about the state of the market. Like addicts these nut cases only feel some sort of comfort when they have a reason to worry; they are addicted to this state and every time one factor is removed they immediately look for a replacement.  The war factor is now also temporarily out of the equation and yet the masses continue to look for negative reasons to worry about the state of the market. We are not really concerned with their (masses) crack pot nature but understand that they will always find a reason to worry; then suddenly out of nowhere they will enter into a super euphoric phase.

Remember markets climb a wall of worry and tumble down a cliff of joy.  These markets have dealt with higher oil prices, a war, a thwarted terrorist plot in London, now another thwarted terrorist plot in Germany, a terrorist attack in Mumbai, 17 rate hikes, a plunging housing market etc  and it continues to plod upwards slowly. The word resilience comes to mind. The main reason for this move up as always is that the crowd is always wrong. Most sentiment figures forget to actually separate the numbers from perception to actual action. In other words 90% maybe bullish but only 30% are acting on this bullish perception hence the 90% bullish number is total garbage as the real number is 30%.  So thinking and acting are completely two different concepts.

Whatever you do, throw the concept of shorting this market into the toilet and flush it away for now. Only if you have a desperate desire to lose your assets should you attempt this strategy now.   We will enter a period where shorting the markets will be the way to go but we are not there yet; risk takers use every 150 point plus pull back to open or add to your long positions in the Dow and QQQQ’s via call options and or futures. Market update August 22, 2006.

Once again risk takers were provided with several chances to keep opening new longs every time the market pulled back 150 points or more.

The Dow has been able to trade above 11220 for 9 days hence the picture has improved considerably and it has a very good chance of testing 11450 before pulling back.  Remember also the big traders have already gone on vacation so trading volume is going to be light till they come back from their Labour Day vacations.  Then there is a very good chance that the bulls will want to drive the markets up to snap the backs of the bears that have stops in the 11700-11900 ranges.  

Once again we have to state that shorting these markets is not the way to go unless you are a very fast, clever and a nimble trader. Market update August 29, 2006.

The big talk continuously in Wall Street is the low volume. Its amazing how these chaps always find time to find something wrong but do not have the brain power to examine the nonsense they spew out.  Off course the volume is going to be low, most of the big traders are on leave some of them have taken the entire summer off and others were taking month long vacations but at different times. Furthermore almost all the mid to big traders took the entire week leading to the Labour Day weekend off.  It’s for this reason volume was rather anaemic last week. However in retrospect we have to be grateful that Wall Street and most of the financial arena are both chock full of jackasses; it would make our job more difficult if they  all simply just used a bit of common sense

Once again unless we get a strong short term sell signal no one should consider shorting these markets.  Market update Sept 5, 2006.

Just for the record we are not turning negative yet but are just getting more cautious. There are still many factors that support our theory that the markets could put in a new all time high before they embark on a long correction.  The regional banker’s index as illustrated by RKH has just put in a new high, which indicates that the markets are still strong.  The 27 segments of the market we examined below have not flashed any negative divergence signals yet.  Market update Sept 26, 2006.

Dollar

Could it be ready to mount another rally? We turned negative on it several months ago and suggested individuals purchase the British pound and Swiss franc. Those that bought the pound did very well indeed

We just want to be clear in one area. We are not bullish on the dollar in the very long term. We are almost certain that the Swiss Franc will trash the dollar in the long term. However in the short to intermediate time frames the dollar might be ready to mount another rally. We were expecting the dollar to mount a rally and were quite bullish on it last year and for several months into this year. It did mount a rather decent rally but it did not go as high as we would have liked it to go. From a low of 80.50 it rallied all the way to the 92 plus ranges before correcting; a gain of 14.1%.   The dollar has mounted quite a correction in a relatively short period of time; from its high (92 plus) in Dec 05 to its low June 06 it has corrected over 10% in approx 6 month. For any developed nation a correction of this magnitude is indeed rather large. Hence it appears that there is now a good chance that the dollar might rally again. There are almost no real fundamental reasons we can find for this rally. However there are some psychological and technical reasons that might make sense.

1) On the hourly charts the Dollar flashed a series of rather strong positive divergence signals.

2) The dollar is still disliked by the majority and so from a psychological perspective it has the ingredients that appear to make it a good short term investment.

3) For foreigners that have been investing heavily in overseas markets; the US market appears to be rather cheap both the equities and commercial real estate. Hence money could start to flood both sectors; indeed quite a bit of foreign money has already hit the commercial real estate sector and it looks like it’s not going to let up soon. Since both these transactions have to be conducted in US dollars it might create a temporary demand for the dollar.

As we stated last week a relationship appears to exist between the US dollar and the markets in that they tend to trade in the same direction. Now if the dollar is going to mount a rally which appears to be already in the early stages then it looks like the Equity markets could rally significantly higher.  All the dollar now has to do is slowly trend upwards. In fact if it were to trade sideways or remain locked in a range it would still be probably enough to propel the markets to new highs. 

Market Update Oct, 10, 2006.

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