Monday, May 18, 2009

Stocks Cannot Hold Modest Gains

- Stocks put on a game face early, but cannot hold modest gains.
- NY PMI puts on the brakes, but capacity, production, and EU economic data are not as pleasant.
- Michigan sentiment better but still at recession levels.
- Economic data not showing the same improvement in prior recoveries, but that doesn't mean we don't make money.
- Bankers forced to accept TARP or else.
- Expecting more pullback this coming week and watching solid leaders as it does.

Midmorning lets the upside down.

After a string of upside weeks, we finally had a down week. There's nothing wrong with that. After 30% gains and more, getting a little downside is no problem at all. In fact, it's healthy. We're going to make some money from the downside, and thus the downside becomes a positive. We always take whatever the market gives, whether it's upside or downside, we're going to take it. And with the market is primed to give us downside, that is exactly what we want to look for. We like to look for those easy setups where we can just walk up and pick the money up off the ground. If we can do that, that's great. We did that with the Potash, the POT play this week; the money was there on the ground, we stepped up and picked it up. Got to love that.

As for Friday, it was really what we expected and what we wanted. We had that big down day on Wednesday -- it's expiration week -- and sometimes you get the big moves mid-week, and that's what we had. Friday was rather calm. It was up, at first, as we thought it would be, and then it came back. We didn't really know if it was going to come back Friday or not. As stocks went ahead and declined that gave us a chance to move in and get into some downside positions, to position ourselves for next week. We got a little Amazon, we got a little Apple, we got some of the Q's (QQQQ) to the downside to get ready for more of the downside move. We were getting in position for what we think will be a down Monday as the downside resumes. We also have some continuing upside plays with some pulling back, some continuing higher. CME was down Friday, but it was a great mover for us this week. As a matter of fact, this week we had a bunch of good moves that went to the upside, even when the market was going down. We had Potash. We had CME. We had Amazon to the downside; nothing wrong with going with the market direction. That was nice. We doubled up on some more of Amazon puts Friday. We took some Priceline gain off the table as retail was having some issues. Digital River gave us some more gains. That's the way we do it. We let them go up, we take some gains as they go up, taking money off the table as key moves are made. But we still get bigger gains, because we're leaving some on the table as we go. As long as the stock remains in its trend, whether it's up or down or sideways, we can make money by just letting some of the position run for free after we bank some nice gain on strong surges. That's what we've been doing, and it pays off; we had a good week that way.

As for Friday in specific, we had a lot of economic data. We had the CPI. It was basically in line, but the core was hotter (no food and energy), and it was hotter at 0.3% versus the 0.2% expected. We had the New York PMI. It was much better at -4.55. Still contracting, as is all the economic data, but it was a lot better than the -14 prior, and the -12 expected and showing that little bit of improvement. Again, slowing on the way down, slowing the fall into the abyss. Indeed, it no longer looks like we're going the fall in the abyss. Just the ditch. That can hurt too, but not as bad as never finding the bottom.

Industrial production fell -0.5 versus -0.6, better than the -1.7 before. That's improvement a little bit. Capacity was down though above expectations at 69.1, but that is still very low.

That is what we're finding with all the economic data. It may be slowing, but it's still really low. It still, pardon the expression, sucks. It's trying to slow down and make the turn, but we're not there yet. Michigan Sentiment is another example. It was better, it tried to give the market a boost even, and it did. It came in at 67.9, topping 67 expected, and the 65.1 prior.

60s are still recession levels. When we see 60s and 50s, you're thinking recession. That's all there is to it. People are feeling a little bit better because they see some better economic activity. They see the stock market going up. Maybe they don't feel like their job is in as much jeopardy. Although, with 5.6 million continuing claims, there's not many jobs out there as companies are not hiring, and indeed they're still losing jobs. No job creation, and as we talked about Thursday, we're not going the get it for awhile. But, first things first: the economy has to turn the corner in other indicators before jobs improve. My concern is, and we'll talk about it later, we are not getting there yet.

Finally, we had some news out of Europe and Asia, and it's not good. The first quarter European Union (EU) GDP fell -2.5%. Not great. Not horrible, but not great. In Germany, the largest economy in the European Union, was down 3.8%. Ouch! The largest economy is down 3.8%. Of course some countries fared better because, over all, it was just down 2.5% even with Germany dragging it lower. Nonetheless, Germany has a lot of output, and when its down, the rest of the continent feels it. Very similar to when California has a problem. The rest of the US feels it.

Russia was down 23% in its first quarter. Lower demand for oil and gas (Russia's only real production item) even though product prize prices are higher -- approaching $60 last week - yet Russia's GDP tanked. The commodities are improving in prices, but demand for energy is still low. It's at 2001 levels but prices are rising on speculation it will go up. In theory versus reality. I have a great joke about that and someday I will tell you; just send an email. Anyway I digress. Demand is at 2001 levels and what was happening in 2001? We had 9/11 and we were in recession. That kind of puts things in perspective and underscores how things are not good for the world economies. Indeed, they're bad all over the world, not just "not good."

The dollar was up on all of this, because it had been hammered pretty hard over the last few weeks and it's trying to bounce back some. So it came back a little bit on the economic news and really jumped on the terrible European news. The Euro got slammed, so the dollar naturally rose against it due to all the bad data out of the EU.

Oil was down, closing at 56.34, -$2.28 after it approached $60 this last week. Gasoline prices are well over $2.00 now. Demand for gasoline is still pretty low, yet prices are rising and we aren't in the summer yet. Memorial Day is coming soon, however, and we could easily see $3.00 again. Of course, last year it got to $4.00. It doesn't look too promising right now and we could have some of the same problems with the consumer having its wallet pinched once again.


INTRADAY. Stocks rallied into mid-morning. Despite the lackluster economic news, they opted to look for the good, but it was more of a relief bounce similar to Thursday, as we anticipated. By mid-morning, stocks had peaked after moving through near-term resistance. Mid-morning is often a fulcrum for the session, and Friday stocks turned back down and skidded all afternoon into the last hour. A late bounce failed and they slid again into the close. That late bounce allowed us to get into our downside positions. We saw it bounce up, we saw they were going to close lower, and we moved in, getting ready for some more downside next week.

INTERNALS. The internals were really mediocre on Expiration Friday. No volume as trade skidded. It was below average on both the NYSE and NASDAQ. Expiration Friday, yet below average volume. All of the position shuffling occurred midweek. Now the one thing is, there was no vicious selling all week. There was selling, yes, but it was not vicious. The market is just top-heavy.

CHARTS. We describe the patterns as top heavy quite a bit lately. What happens is you get these nice moves, they bounce off near support, they bounce off they're trendlines, and the 10- and 18-day EMA, and then they flatten out and roll over. Kind of umbrella shaped. Sometimes it's a big umbrella, sometimes it's a little umbrella. Sometimes they bounce, them make a bigger bounce, then a smaller bounce, forming that little head and shoulders peak. Look at the charts for NASDAQ, NASDAQ 100, SP600 and even SP500 and you see they are starting to show the same thing. That little head and shoulders, then the roll over and downside selling that should about equal the size of the formation from the neckline up to the top of the head. That's how far a stock or index should fall from this pattern, all things equal.

What we're looking at is more of a relief bounce from Thursday. A sell-off on some higher volume Wednesday, and expiration had something to do with that. Then we had a little bounce back up on Thursday, your basic relief bounce. Tried a little more upside on Friday - then failed. Look at NASDAQ, NASDAQ 100, SP600. They moved up through that near resistance, whether it was the 18-day moving average or the 200-day moving average on NASDAQ 100. They moved above it, and then they just couldn't hold it. The buyers continued push them back up, but the sellers jumped on top of them with more strength, and they pushed it to close lower. Even SP500 showed this action though to a lesser extent. It is right below its 18-day moving average, but not in any real trouble. It's still above 875, after bumping up at 900, again still in really good shape. It is, however, getting that little top-heavy look itself. Makes sense. The financials have run and then early in the week many announced new issues of common stock coming, and they started to turn down.

So we're getting a little bit of a pull-back. The market is ripe for it. As I said earlier, it's not a bad thing, it's a normal thing. It's even healthy for the market to do this. We're just going to use it to make a little bit of money. Make money as it goes down. Nothing wrong with that at all.

LEADERSHIP. Leadership showed some problems, but not a breakdown. Energy was down with some pretty big drops in energy stocks. Some techs had problems. Chips have already had issues as we've seen. They tried to bounce, tried to break out again, but then tumbled back down. They were THE early leader and they are still struggling. There's a lot of that earlier leadership that is in a little bit of trouble right now, such as the chips and large cap technology. Not major trouble, but definitely selling back with the kind of retracement you would expect. Commodities were down again. Oil was down, metals were down - again, not terribly. We see some good steel stocks for instance, trying to set up for a new bounce. They are down, they were a little soft, but they're still in good shape. Industrials struggled as well all week, but again, they are not imploding. There are stocks such as CAT and Joy Global (JOYG) that are in good shape. They're holding up well in the pullback, trying to set up for a new run. If they can ride through this selling, we're going to have some great buys from those stocks as well as many other quality stocks.

SUMMARY. I want to state again just as I've said all week and the week before: this is not a really a major sell-off. This is a normal sell-off. The market is going to have good leadership stocks pull back and get in great buying position. We just want to take advantage of the downside while that happens. We aren't sitting here saying the world's going to come to an end. As a matter of fact, we have avoided The Great Depression II. Nonetheless, we are going to have pull-backs. We want to take advantage of that. And while we do that, we want to watch for good stocks, i.e. the leaders setting up, and when they complete their tests and start to move we're going to get those. Visa, Caterpillar, BTU, XTO are examples, and there are many more. For now we watch them as this market pulls back. We make money on the downside, but we also watch these good stocks -- we own some already -- and others that we're looking at buying. And if they hold up, hold at support, and don't sell off vigorously, they're going to be ready to lead and bounce right back up. Then they make us money as the market swings back to the upside. So for now we have positioned ourselves for the downside and will continue to do it some more as opportunities arise, then be ready to pick up shares to the upside, along with the once we already have, when things turn back up.


Indicators say recession may end this summer, but what about the upside?

One of the things subscribers and others tell us is, "You're so negative on the economy." Well, not really. We were championing the turn in the data, or more accurately the slowing dive in the data before it was mainstream. And we are getting better data.

ECRI says things look better and we are going to be at the end of the recession by the end of the summer." Well, that's true. The economy could very well do that. Problem is, bottoming is not recovering. Bottoming is stopping the bleeding, and that's what the Fed has tried to do with all of these facilities that the Fed and that the Treasury have put in place -- to stop the bleeding. The bleeding is slowing.

But one of the problems that we have, and one thing that's telling to us, is that right now people are so ebullient about the economy with such crappy numbers. Back in 2002 and early 2003, the economic numbers were much better, and people were in terrible moods. They were so depressed about the economy. And the economy took off. Now, we've avoided Great Depression II, and thank goodness we're not going into depression, but pundits are having a party over that.

Well, the data is still going down. It hasn't turned and some cheerleaders and as a whole we are way too enthusiastic and optimistic given the data. It's great that we feel good that the economy is not going into the toilet totally, and flushing into the septic tank - but, I digress. It's not the same as making a turn up. ECRI could be right. A recession could end but we then could have no growth. This would be very much like the 1970's, like the early 1980s. We've done it before. We've made the same policy mistakes that we're making now. And thus we likely get the same outcome as before. Does that make sense? It sure does to me, and anyone who reads some history books could figure it out. But, apparently, a lot of people in D.C. haven't read much history. Or they've selectively forgotten what they read, or maybe they never learned it in class.

In any event, does that mean that we're done with the stock market? Do we stick a fork in it? Not at all. Even in the 1970s, and even in the 1980s, there was bursts higher and bursts lower. And, just like right now, when we're going to make money on the downside after we've been making money on the upside, we're going to make money during those bursts to the upside and then sell-offs that follow. To us, we take what the market gives day in and day out and we're going to keep doing just that. This kind of action can be depressing, it can be boring. You worry about your kids' and grandkids' futures. But, the best thing to do for them is to take what the market gives and make money off of it and hope we don't go into that 18% inflation that eats away your wealth similar to the past when I wondered as a kid of the 1970's if I'd ever be able to afford a house. Well we've been there, and I don't want my kids to go there. But, if they do, I want to teach them how to make it through those times ahead of the curve, just like you're going the make it through.

FOIA request turns up a document from the original TARP meeting, alters the Administration's plans with the nation's banks.

Well, as I was saying all along, it turns out that last fall at the start of the crisis the nation's banks were actually forced to take the TARP money whether they needed or wanted it. Surprise, surprise. We find out that there were memos, handwritten, and afterwards transcribed, where Paulson came in and basically said, you're going to take this money. If you don't, you're regulators are going to find that you need to take the money - wink, wink. In other words, no matter what the books were like, the Treasury was going to find, or the FDIC was going to find that the banks were undercapitalized and needed to take the funds. FDIC's Baird was there. Bernanke was there. Or course Paulson was there. And now we know that current Treasury Secretary Giethner was there as well. The big guns were going to let the banks CEO's know that, hey, you're going to go with the plan, or you're going to get the shaft. So everyone signed up. It took quite a while to do so. State Street had to get board approval, and it took three hours. Some things went on during those three hours with STT and other banks in the same position that we'll never know about. Political intrigue at its best. That's a nice way of putting it.

Anyway, they all signed up under coercion, and late Friday we learned Goldman Sachs will probably be the first one to get out from under the TARP. It didn't want to be there in the first place, it was just basically told by Paulson, "I used to work here. You're going to do it; take the lead on this." So it did. And now they're going to get out of it. We hope that all the others can get out of it and pay the money back. Maybe we can all then feel better about what we have going forward. We'll see.

The most interesting thing is, that this document, when it came out through a Freedom of Information Act request, is probably what changed what the Treasury and the Administration was going to do with the banks. When hard evidence surfaced that the banks were forced to take this whether they needed it or not, that took away the hand of the administration to say, "We stepped in to save you when you needed it, therefore we can take stock and take shares and tell you what to do." Just the past two weeks there was a big uproar as to whether the BAC CEO was telling the truth about being forced to take TARP funds 'or else.' This document puts that 'controversy' to rest.

The Administration and Treasury were very tight lipped about banks getting out of the TARP. Then this document was apparently made known to them before it was released via the FOIA request. Recall how just before the stress test results came (and recall that they were DELAYED almost a week without any explanation) the tone changed. Geithner was out saying he foresaw most banks passing and able to get out from under TARP. No problem mate. To us it is pretty clear that when it was known there was a smoking gun out there the Administration's plans had to change course to all our benefit. Thank goodness someone filed the Freedom of Information Act request.



VIX: 33.12; +1.75
VXN: 33.14; +0.5
VXO: 33.77; +2.13

Put/Call Ratio (CBOE): 0.8; -0.08

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.

This is a historical milestone in the making. Bulls are impressively low considering we are in general a very optimistic country. The few bulls is a positive indication because it means most everyone that is getting out is out and there is money on the sidelines. In other words the ammunition boxes are full and as the market recovers investors will start opening up the boxes and firing. Little by little they will be forced to put more money into the market and there will be some rushes higher in fear they are missing the train. You relish times when sentiment is so negative because it means some tremendous buys are setting up. This could indeed be the opportunity of a lifetime, and you take advantage of it by buying quality stocks and letting them work for you as long as they will. If we can hold them for years, great.

Bulls: 41.0%. Modest bump higher from 40.4% as bullishness hung around even as the market turned to some chop though still finished that week higher. After this week bullish spirits may be dampened some. Still a strong move, up from 36.0% just three weeks back and moving in on the 43.2% hit mid-April before anticipation of stress tests and SOX' issues. Over the 35% threshold, below which is considered bullish, but this is not a bearish indication yet. Has to get up to the 60% to 65% level to be bearish. Dramatic rise from 21.3% in November 2008, the bottom on this leg. This last leg down showed us the largest single week drop we have ever seen, falling from 33.7% to 25.3%. Hit 40.7% on the high during the rally off the July 2008 lows. 30.9% was the March low. In March the indicator did its job with the dive below 35% and the crossover with the bears. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 33.7%. Interesting rise in bearishness (from 31.5%) even as the bulls rose and the market moved higher though was much choppier. Well off the 37.2% and the 37.1% in mid-April as the rally continued higher. As with bulls, below the 35% threshold considered bullish though not at bearish levels. Now far from off the high on this run at 47.2%. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


Stats: -9.07 points (-0.54%) to close at 1680.14
Volume: 2.03B (-3.95%). Low volume again as NASDAQ tried to reach higher but could not hold it with the weak trade.

Up Volume: 932.465M (-699.919M)
Down Volume: 1.237B (+700.31M)

A/D and Hi/Lo: Decliners led 1.53 to 1
Previous Session: Advancers led 2.14 to 1

New Highs: 11 (-2)
New Lows: 12 (-1)


Rallied to the 10 day EMA on the high but then slid back to close below the 18 day EMA (1693) yet again. Nothing seriously dangerous, just a near term toppy pattern that is the set up for NASDAQ to consolidate the big run off the March low. NASDAQ is holding off the January peak (1665 intraday) but that is likely to give in to a test of the February peak at 1600. That is roughly at a 38% retracement (1592) and matches the 50 day SMA. The 50 day EMA is at 1626 so that is a good logical range to shoot for on this test.

NASDAQ 100 (-0.34%) rallied intraday as well but after clearing the 200 day SMA (1365) it reversed and gave up the gains. It is showing the same kind of short head and shoulders top and is showing a tombstone doji on the candlestick chart. Great set up to head lower near term.




Stats: -10.19 points (-1.14%) to close at 882.88
NYSE Volume: 1.481B (-2.93%). Well below average on the decline so no distribution, just top heavy.

Up Volume: 292.615M (-905.46M)
Down Volume: 1.18B (+861.639M)

A/D and Hi/Lo: Decliners led 1.8 to 1
Previous Session: Advancers led 2.53 to 1

New Highs: 6 (0)
New Lows: 47 (+4). Note the new lows rising faster than the new highs the past couple of weeks.


SP500 is holding tough above 875 and the late January/early February highs (878 and 875 respectively), refusing to give up that level thus far. The key points: it rallied up close to the January high (NASDAQ and NASDAQ 100 topped the January high on their runs) so it is still lagging, but it also made something of a double top there. A first failure at resistance is not the end of the run as we saw in Aril as SP500 tested the late January/February peaks. It failed but then recovered. This time, however, it has broken its March up trendline and has another 50+ points under its belt. It has also set up that same near term toppish head and shoulders pattern. Not consummated, and the H&S can fool you because it really has to make the break lower, but with all the indices showing this a test to the 50 day EMA (854) makes a lot of sense. There is a range of support there and it will try to hold there. Then we see if it fails, i.e. the economic data takes a turn for the worse, and that makes the 825 range to watch as that is the 38% retracement.


Very similar to SP500 though in a bit better pattern. It is holding the 18 day EMA just above the October closing low at 8175. This is a very mild test that does not look nearly as top heavy as the other indices. DJ30 will tend to follow SP500 right now, but it could very easily hold up above 8000 (just 268 points away) as SP500 tests lower.

Stats: -62.68 points (-0.75%) to close at 8268.64
Volume: 308M shares Friday versus 323M shares Thursday. Anemic volume all week even with expiration.



Housing starts, building permits, crude inventories (taking on new significance with the crude price rise), Fed Minutes, leading indicators (though they are not really leading), and the Philly Fed. The Fed minutes are always interesting given the quantitative easing mode the Fed is in, and any indications of its thought process regarding how long this lasts is useful. Outside of that, the Philly Fed will be the interesting one as manufacturing tends to lead us out of economic troubles. Everyone will look at the jobless claims, but they're going to stink, so that's not going to change. We've got to get improving economic data for those to turn up.

There will still be some more earnings, but we're basically over that. Right now the market is in a technically-driven move. We've had a huge run. They cheered through earnings. They had a stress test, they cheered through the stress test. Then the financial companies make it out to the other side of the test and start offering common stock. Finally investors stopped cheering: "No, we don't want you to do that." So some selling started. That was the reason to sell. Now the market is in a technical downside move, a correction, after a big run. Look at the pattern. Look at the ones that you have in your report. You'll see that little head and shoulders forming up and a little rollover. That's okay; we're expecting more downside this week and have positioned for it.

Now the question is, and what everyone always wants to know is: How long is this selling going to last? Well, the market is a living, breathing entity. We always say this: it acts like we do. If it runs real fast, it gets tired and has to take a rest. If it runs real fast for too far - or, I like to use bicycling analogies used in the Grand Tours-- if it goes so hard, so fast in the red line that it pops, then it collapses; it's over, it's done. It's going to go way back down.

Well, we've gone a long way off the bottom, but we haven't gone that far. The way things look now, we've got a rather normal pullback underway. One indicator we look at are Fibonacci levels. They are one indicator we use, though we look at a lot of other things as well. But Fibonacci's are nice. They give you round figures to look at. NASDAQ could come back to 1600-ish. 1600 looks good at the February high, but just below that at 1565ish that is the 38% Fibonacci level. That's a normal continuation retracement. In other words: you go up, you sell back that 38% level, boom, you can take off right from there again. You can go back to 50%, boom, take off from there again, as well.

Now on SP500, we're looking at 875 right now. But a trip to 850 looks totally normal, and a Fibonacci 38% retracement is all the way down to 824. Wow, 825. That's a nice even, round number. It may not make it down to 806 like we wanted it to originally, but 825 would be just a normal retracement. And what would 50% be, by the way? Fifty percent would be right at 794.

Fibonacci's are basically natural rhythms in nature, and we're big into the market being rhythms. We always talk about weather analogies, and volatility being the weather change, and that sort of thing. So we really like the Fibonacci's, trendlines, and moving averages, because they're that same ebb and flow. Traders and big money technicians look at these. That's why they work. They're emotionally driven. The markets are emotionally driven. We're humans; we're live by emotions. And we tend to cling to our guns, religion, . . . just kidding. We cling to to trends and patterns that have held in the past. Therefore, when a market hits these certain levels, people tend to react the same way. Whether it was a thousand years ago, or five thousand years ago, or five minutes ago, they tend to react the same way.

So, what we're looking for now is this market to keep coming back in a normal retracement. It will find it's level, whether it's 20%, whether it's 10%, whether it's 38%. It will find it's level. It will give us the sign posts along the way, telling us it's getting ready. How will we know? If it's getting ready to turn, we'll see leaders start to hold again. And leaders, by definition, are leaders. They start up before everyone else. As I mentioned earlier, we've got Visa, there's CAT, there's Joy G, there's others out there - XTO - that are holding up very well. And if they hold up well during the selloff, they'll be out leading again. And we'll be seeing them turn up, and we'll be buying them. A lot of times, we're not smart enough to figure out exactly what the market is going to do. All we can say is the big money is buying these stocks; they're going back up. So we join in and buy them, too.

We saw things getting ready to turn over so we joined in and started downside positions. We're letting some of our upside positions ride because they're still in good shape. Some are giving us a little heartburn at times, but they're still in good shape. We're aren't expecting massive sell-offs from these stocks that look really good still. We'll have to play it and see how they work and how they hold up, but, overall, we really like what we see from the market still.

Again, we're not saying that the rally is over, that it's going to end in a massive selloff. That is a worry if the economic data cannot make a real turn and the economy double dips. Right now the market is not saying that, and the market has the last word. Some are really negative with prognostications of the Dow at 4000, 5000; SP at 600 by Memorial Day - I'm just throwing those out, that's nonsense, but that's the kind of fear you still hear. You always hear that. Every time there is a top, or turn in the market; every time there's a bottom, you hear "huge upside" or "huge downside," and it's always worst case. But, are things ever that bad? Sometimes they are, as we found out last fall, but usually not. This is an unusual time, of course, but we're starting to see the biorhythms get back in the way they usually work. We're starting to see patterns work the way they should work. And money is coming into the market again. Which, of course, is another reason why it probably topped right now. With everyone feeling good about the market rally, several billion dollars flowed into the market over the past week or two. And of course, as usual, the money flowed in just as the market topped. So that's another indication that we're in for some more selling right now. The money's just coming in. That usually means the market has stopped near term. That money will be put to work at some point, just not right now.

For now we are going to make some money on the downside and we are going to look at some more downside positions this coming week. Then when we start to see good stocks bottom, we're going to have them on the report (we are already doing that of course), and you're going to be ready to buy them just as in "Trading Places", "Buy 'em!" We'll be doing that. And we'll be riding the next CME up, we'll be riding the next POT up, and those kind of stocks that have soared and made money for us to the upside when the market was moving down on the week.

I hope you had a great week, and I hope you have a great weekend. Because what we need to do is hammer the market, take everything that it gives us, but also take everything that life gives us as well. And that's why we do this. We do this so you can do what you want to do. That's our definition of retirement: Being able to do what you want to do, when you want to do it. We love providing information to people who are where we were years ago. Hope you have a great weekend, take care of yourself, and very good investing to you.

Support and Resistance

NASDAQ: Closed at 1680.14
The 18 day EMA at 1693
The 10 day EMA at 1702
The 200 day SMA at 1727
1770 is the mid-October interim peak
1773 is the May peak
1780 is the November 2008 peak
1947 is the October gap down point

1673 is the prior April peak
1666 is the intraday January 2009 peak
1661 is the April 2009 prior peak
The January closing peak at 1653 (intraday)
The 50 day EMA at 1626
1623 is the early April peak
1620 from the early 2001 low
1603 is the December peak
1598 is the February 2009 peak, the last peak NASDAQ made
1587 is the March 2009 high is getting put to bed again
1569 is the late January 2009 peak
1542 is the early October 2008 low
1536 is the late November 2008 peak
1521 is the late 2002 peak following the bounce off the bear market low
1505 is the late October 2008 closing low.
1493 is the October 2008 low & late December 2008 consolidation low

S&P 500: Closed at 882.88
The 10 day EMA at 894
896 is the late November 2008 peak
899 is the early October closing low
919 is the early December peak
930 is the May peak
935 is the January closing high
944 is the January 2009 high
The 200 day SMA at 946

888.70 is the April intraday high.
The 18 day EMA at 885
878 is the late January 2009 peak
The prior April peak at 876
866 is the second October 2008 low
857 is the December consolidation low; cracking but not broken
The 50 day EMA at 854
853 is the July 2002 low
848 is the October 2008 closing low
846 is the April peak
842 is the early April peak
839 is the early October 2008 low
833 is the March 2009 peak
The 90 day SMA at 825
818 is the early November 2008 low
815 is the early December 2008 low
805 is the low on the January 2009 selloff. KEY Level
800 is the March 2003 post bottom low
768 is the 2002 bear market low
752 is the November 2008 closing low but it is not broken and done away with
741 is the November 2008 intraday low

Dow: Closed at 8268.64
The 10 day EMA at 8336
8375 is the late January 2009 interim peak
8419 is the late December closing low in that consolidation
8451 is the early October closing low
8521 is an interim high in March 2003 after the March 2003 low
8588 is the May high
8626 from December 2002
8829 is the late November 2008 peak
8934 is the December closing high
8985 is the closing low in the mid-2003 consolidation
9088 is the January 2009 peak

The 18 day EMA at 8264
8315 is the February 2009 peak
8307 is the April 2009 intraday high
8197 was the second October 2008 low
8191 is the prior April peak
8175 is the October 2008 closing low. Key level to watch.
8141 is the early December low
The early April intraday peak at 8113
The early April peak at 8076
The 50 day EMA at 8039
7965 is the mid-November 2008 interim intraday low.
7932 is the March 2009 peak
7909 is the early January low
7882 is the early October 2008 intraday low. Key level to watch.
7867 is the early February low
7702 is the July 2002 low
7694 is the February intraday low
7552 is the November closing low. KEY Level.

Economic Calendar

These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.

May 19 - Tuesday
April Building Permits (8:30): 530K expected, 516K prior
Housing Starts, April (8:30): 527K expected, 510K prior

May 20 - Wednesday
5/15 Crude Oil Inventories (10:30): -4.63M prior

May 21 - Thursday
5/16 Initial Jobless Claims (8:30): 610K prior
Leading Economic Indicators, April (10:00): 0.6% expected, -0.3% prior
Philadelphia Fed, May (10:00): -18.0 expected

By: Jon Johnson, Editor
Copyright 2009 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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