Gold and Commodities Continue to Dive

SUMMARY:

- Stocks finish a down week with a modest recovery, bounced by prospects G20 might intervene on Europe's behalf.
- Gold and commodities continue their dive
- Is the market different now than in times past? Yes and no.
- A cathartic selloff and reversal is a possibility, but why would one occur now?
- Indices still at support, so regardless of our biases, be ready to take what the market gives.

Modest bounce holds indices at support.

Friday was rather anticlimactic. There was a modest bounce on the indices after some very sharp selling on Wednesday and Thursday brought SP500 down to its August lows. As the often the case ahead of a weekend after some sharp selling or a sharp rally, stocks will modestly revert to the other direction to end the week. In this case, there was a bit of short covering, and that was fueled by rumors or theories that the G20 or some other entity perhaps the IMF would come to Europe's rescue over the weekend. There is talk of a new bailout package or some other plan to help prevent the EU from falling apart as its individual members slide into default and bankruptcy.

As late as Thursday, there was new economic data out of Europe that was not positive. Germany and France both put forth PMI manufacturing reports that showed contraction. That is hardly the stuff that recoveries from financial crises are made of. It rattled the markets, and thus we had the kind of selloff we had on Wednesday and Thursday. Friday we got that bounce, and it is one I talked about as a possibility. Of course we were able to take some downside gain off of the table early as stocks did start a bit lower. They started to reverse, and we locked in more downside gain as we did on Thursday.

We were also able to pick up some upside positions on a few really solid stocks that are in the right sectors and showing very good action. I am not saying that the market will reverse, and I will expand on that later. But there is the possibility out there, and these stocks are in good shape. You have to be ready to take what the market gives, particularly given that SP500 and the other indices have basically held the August lows. NASDAQ did even better; it held its trendline up off the August low as well.

This was not a major move. It was more short covering, or just a relief bounce after all that sharp selling. How do we know that? There was no news that would have driven the market higher or lower, although most of the news was less-than-positive. One news story was that credit default swaps for French and German banks are surging to the upside. Credit default swaps are basically an insurance policy. It is not the kind that we are familiar with as individuals, but it protects against third party defaults. That was one of the problems with the financial crisis in 2008; these credit default swaps exploded in price. They were going thousands of percent, and at the time I think I reported that as one of the warning indicators of the meltdown that was to come.

It is a game of "who do you trust." You buy these credit default swaps, but who will cover them? It is a kind of shell game, passing the buck down the line and hoping that when you lift up your shell that the pea is underneath. That did not work too well, and as a result we saw massive bailouts. Nonetheless, it is a signal of problems. Credit default swaps are surging on the continent, both in numbers and in price.

The ECB said it would be ready to act "next month" if the outlook in Europe worsens. They do not want to rush it or anything. That is great. This rather lackadaisical attitude toward the problem is something the ECB and Europe in general has been renowned for during this crisis. Many in the U.S. entourage that went over with Treasury Secretary Giethner came back scratching their heads and saying that Europe does not seem to think this is a serious crisis. We know it is a serious crisis, of course; been there done that. Many people say it will not be as bad as Lehman. It may not be as bad for us, but this is definitely Europe's Lehman moment. The problems there could be even worse than they were in the United States.

As noted, futures were down early but were not tanking. They were trying to start rallying into the open, as you can see from the SPY five minute chart. Futures were moving up into the open still negative, but hanging in there. Stocks worked their way higher in a continued jagged uptrend through mid-morning. They peaked and then moved basically laterally the rest of the session with very modest gains.

SP500, +0.6%; NASDAQ, +1.1%; Dow, +0.35%; SP600, +1.4%; SOX, +2%.

There were gains to the upside, but they were nothing impressive by any stretch. Just more of a relief bounce after two days of gutting by the sellers.


OTHER MARKETS

As is often case, the other markets move in one direction when stocks move down; when stocks start moving back up, they flip and turn the other way. There has been an inverse relationship here, and we saw that again with most of the other markets on Friday.

Dollar: 1.3464 versus 1.3449 euro. The dollar was basically flat. It was backsliding just a bit on the session, but it was a strong move for the dollar this week. It affirmed its breakout after testing two weeks ago. Nice, strong upside move. Looking solid. You would expect that given the troubles in Europe. It took a long time for those European troubles to break the dollar free. When it was trading down in August and late July, I was pondering why the dollar was not making the break higher with all of the problems in Europe, particularly with money coming over to the States. That money finally broke it free, along with the fear, and the dollar shot higher. There is a lot of European money in the United States in short-term demand deposits right now. Not to mention Treasuries.

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Bonds: 1.80% versus 1.71% 10 year U.S. Treasury. Bonds were down on the day. A big move, yes, but hardly as big as the moves we have seen earlier in the week as bonds exploded higher after the Federal Reserve announced its "twist" plan. But let's face it, bonds were already moving up ahead of the "twist" announcement. Once it became the word of the week and was actually going to be implemented, bonds exploded higher, particularly on Thursday. Wednesday was not a bad day, either.

People are buying those long-end bonds because that is what the Fed will be doing. They will be selling the near term. It is not in an attempt to put extra liquidity in the market, but to compress the rate curve and hopefully make things more affordable. But I have talked about that. Number one, there is no new liquidity in the market. Number two, banks are restricted in what they can lend right now. Even if they can lend, they are too scared to do it. They do not want to turn the money loose. I say they are scared, but it is also about greed. They are getting free money. Borrowing at 0%, and then they buy bonds and get a 2-4% return. If you get guaranteed money like that, would you do it? If only we could.

That is why so many banks are opening up in communities all over the country. In my small town, we have had three banks open in the past nine months. These are new banks, not just new branches. It is absurd. Why are they doing it? They are getting paid to do it. I would open as many as I could if I was able to borrow for 0% and get a guaranteed 3% return. Guaranteed there is no risk. That is so huge, and banks are taking advantage. Most of the new construction in the United States is of banks. You tell me if Federal Reserve power is not really power. They control the money, and they are helping their own. They are not helping us. They will hurt us with inflation down the road, but that is another story.

In any event, bonds are surging because of the kind of payments they are getting from the Fed. It will be making it pay for banks that get free money to put that money into the bond market.

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Gold: $1,645.00, -94.00. Gold broke its relationship on Thursday. Stocks were down and gold was down. On Friday they seemed to resume, but not in the same force. Stocks were up and gold was down sharply. It was down other 100 points on its low. That is a steep drop. It is falling further than I believed it would. Why is it selling? There is a lot of fear out there, and you would think it would still be rallying. One reason it is falling is because hedge funds, individual, banks, and others are liquidating their gold holdings in order to raise cash for other areas. Hedge funds and mutual funds tend to hate to take losses because that shows up on their prospectus. They prefer to sell what is winning and keep what is losing in the hopes that there will be a recovery. That is backwards from the way you should do it, but it is what they are doing. It is causing gold to collapse.

When it drops 100 points in a day, those who are thinking about selling gold pretty much have their minds made up for them. They are selling, too, so it is snowballing and gold is heading lower. Great. Maybe gold will get down to $1600 where there is some support. It could even go down to the high back in May of 2011 at 1577. You are looking at 1575-1600. There will be some support there even down to 1550 where there is really solid support. There is about a 100-point range where we could have gold fall and then hold. Then it would likely be a decent buy if it can base out a bit and set up. Gold is in freefall right now. It just got overheated. When the lemmings rush, they rush, and then a lot of them run off the cliff or get squashed.

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Oil: $79.85, -0.66. Oil had a tough week. It was down modestly on Friday, closing below 80 for the first time in several months. It did try to rebound after tapping 77.50 on the low, and there is a support level. There is another almost exactly where oil touched on the day. There are also other interim highs in this 77.50 range.

Does that mean it will bottom and rally here? It could. It is sitting on top of a big base from 2010 just as the stock indices are sitting on bases from the summer of 2010 as well. There is nothing to drive oil back up at this point other than a fear of inflation returning. Maybe also if something is done over the weekend with respect to the EU that is viewed as stabilizing that area. Then oil would be in position to rebound from this support level. In any event, oil remains very weak simply because world economies and the outlook remain weak at this juncture.

Looking at the chart of oil, note that it has set up a big head and shoulders pattern. It is trying to bounce near the lower neckline. If it breaks there, you would expect it to fall further. This is a support level, so you would also anticipate a little choppy trade as it comes down to test it once again.

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TECHNICAL SUMMARY

INTERNALS.

Volume. The internals backed off considerably on Friday. Volume was down 32% on the NASDAQ and down 28% on the NYSE.

Breadth. Breadth was decent. 2:1 advancers over decliners on the NASDAQ and 1.6:1 on the NYSE. That was well off the -6:1 reading seen on Thursday during that selling. This was no strength, and it was a very modest, narrow rebound by the market. That is all the indicia of a relief bounce that really meant nothing.

New Lows. Dropped off to 379 on NYSE but the damage was done with the 1132 new lows on NYSE Thursday. That is an extreme level.

Put/call ratio. And yet another close over 1.0.


CHARTS

SP500. SP500 had a major selloff for two days in a row. The bounce on Friday was nothing more than an inside day. It really tells you nothing about the move. It could continue lower from here or it could rebound. You would expect SP500 to try to bounce off of its support because it is sitting right on top of the August 2010 base that launched the rally up through April, gratis QE2. There is no Quantitative Easing right now and nothing to really bounce the market to the upside. That puts it at a critical juncture because it will have to make a decision. Will it try to bounce and rally? And for what reason would we be rallying? More on that later. Or will we fold and come back down and sell into this 2010 base and perhaps beyond? That is the key question right now. I will address some of those issues in a moment, but this makes it a very important level. Once again, SP500 is trying to hold at this level.

On Thursday it tested lower and managed to cut its losses. It was up a bit on Friday. Very important support. We will see if it can make something of this support early next week or if it goes into a deep selloff which may in itself result in a reversal. There are so many twists and turns at this time in the market.


NASDAQ. NASDAQ is pretty much the same picture. Although it has not made it to its August lows, it did hold at the up trendline off of the August low on Thursday. Then it bounced back up to test that level on Friday. I moved the trendline, pulling it back up to these lows from September. On Thursday it only tapped the trendline and on Friday it moved back up to that trendline, but it did not recover. It is still below significant resistance as you can see from prior gap points, highs, and lows during the entire August and September period. This is a very important level at 2500. There is a lane right in the middle of all these prices, and that is right at 2500. NASDAQ closed at 2483. Big week for it as well. It did not go down to the August lows, which is nice, but it does not look all that spry where it sits as of Friday.


SP600. +1.4%. A decent move on the day, but it only put them up to the lower range of support. They recovered it, but I they do not look strong at all. No wonder small caps look bad; the economy in the U.S. is bad. A lot of the big multinationals have a lot of cash and have made a lot of money. That is thanks to the policies put forth by the administration. They did what they wanted to do in that respect. Unfortunately it has not cured the economy.

I know those guys are shocked up in Washington. They cannot understand how we do not have jobs with all the money they have given to these big companies. These big companies made a lot of money and are just holding it. That is what they do. They do not hire people. You would think that our leaders would know that, but that is a whole other story.


SOX. +2%. Nice bounce. Took it right back up to the August interim peaks. It has an important level to test as well next week. It just does not look that great. The big thing is we have SP500 and the Dow both holding their August lows. They tested them and held them, and that is a positive. They can make a bounce from there. We will see if they will, and talk about some of the possible avenues that could occur next week based on the historical patterns that occur during this time of the year.


LEADERSHIP

Technology/Semiconductors. AAPL had a decent day up, 0.5% or so. It bounced off the 10 day EMA and that July peak. AAPL is an interesting stock. More than one of my subscribers said AAPL is acting very strangely. It is very strong and is not being impacted by the rest of the market. Some are saying maybe it is being treated like gold. Gold was held in very high esteem. Everyone piled into gold and no one wanted to sell it until now. AAPL is the same way. It is very strong and is ignoring the rest of the market. This has happened before, back in the last recession. Name whichever one you want. Remember back in the Irrational Exuberance period in the 90's when Greenspan rattled the markets? It rattled the markets, but it did not rattle DELL. DELL continued to move higher and higher. We made a lot of money off of DELL and some of the stock splits, even when everything else was selling.

Some of the hardest decisions I made at that time was whether I could keep my DELL options, as they were still moving. I did. I hung onto some of them, and they made beaucoup money. There was no reason to sell on the interim pullbacks, and it ended up rallying nicely. Eventually, DELL broke of course, because the time of its money-making model had passed. During that time, DELL just ignored the rest of the market. That is what AAPL appears to be doing now. It does not make much sense other than the fact that people want to have a safe place to put their money. They know AAPL. They like AAPL. They put their money in AAPL, and they are leaving it there, as you can see by the chart. The money is staying, at least for now. We will see. Everything comes to an end. But for now, it is showing what we have seen in other bell-cow stocks over the past several decades. It does not mean the market has not changed. It has. There are a lot of differences now where the market rallies up and rallies down. You see false breakdowns where it looks like stocks break down and then reverse back to the upside.

That is one of the totally different things about today's market. AAPL broke below a trading range back in June. In an old market, this would have typically been a key selloff. You would say it broke below that support, it is very well defined, and it is going to tumble. It did quickly, but it reversed just as quickly. It rallied right back up. Not only it did it rally back up in the range, it exploded out of the range for a new breakout. We are still playing that breakout now.

The market has definitely changed. Breakouts out of trading ranges can be reversed right back down. Breakdowns breaking below a trading range are often reversed right back up. Why? You have big, program-trading money looking for places to put the money. They see opportunities at these reversal points, and they are making the market a bit different than it used to be. A lot of things are still the same, but some things are different and you have to adjust. The false breakdowns and false breakouts are one area where we had to adjust.

Other areas are holding well. SIMO had a nice pullback in the electronics area. KLAC has a nifty pattern that might lead with the MACD rallying higher, making a divergent bottom. It has a flag pattern right now. It could be very interesting. TIBX has a nifty pattern as well. Higher MACD, looking to make a break to the upside. We will see what happens on that. Semiconductors and electronics are looking decent.

Retail. Certain kinds of retail the high end and extreme low end are also performing well. DG looks solid. NDN had a nice break to the upside after a good test filled a gap. DLTR is moving well. We bought into TIF today with a nice break to the upside. We will see if it can continue on. RL continues to look very strong. It broke out, it tested, and now it is trying to move back to the upside. BJRI bounced a couple of nice days here. Looking like it could be putting in a rounded bottom and ready to rally as well.

Medical/Drugs. Medical is a defensive area, but some of the stocks in medical are not that defensive because they run well. They are not your standard defensive stocks. CELG had a nice breakout. It has come back to test that breakout, and it is starting to bounce. We will see if it can hold. It might prove to be an interesting buy to the upside. QSII is a computer software company in healthcare. It is moving right up. It broke out, it has tested, and it looks like it might try to move up again. ATHN is another one of those health management companies similar to QSII. It continues to perform well as we have seen.

Drugs are not hurting either. ALXN has been working very well for us in a nice, strong uptrend. That continued in force on Friday.

There are still sectors, and quality stocks in those sectors, that can make us money. They are setting up and moving higher. Seeing that out there, I still look at this as a possibility to a move higher. Particularly when you have SP500, the Dow, and the NASDAQ all above their August lows and holding those. If they get the right news they could break back to the upside and still make us upside money.



THE MARKET

SENTIMENT INDICATORS

VIX. The VIX closed down just 0.1% on Friday. That means it still held that break to the upside on Thursday when it gapped higher. It is holding at a very high level, almost matching the August peak. Volatility is once again at high, reversal-type levels. We will be watching to see if that happens. It was not able to punch higher today. There was some early selling, and it reversed off of that. We will see. It is holding a high level. There is still worry out there, but it has not been able to break through. Maybe it is time for a reversal and a rebound from the rest of the market. Again, we will just have to see what happens with respect to the SP500 and the other indices at their lows. That sure would indicate they might be ready to bounce. More on that in a moment.

VIX: 41.25; -0.1
VXN: 39.88; -0.37
VXO: 41.63; -0.53

Put/Call Ratio (CBOE): 1.15; -0.12

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 does not have the cash to drive it higher.

Bulls: 37.6% versus 35.5%j. Up slightly but still below the bears for the second week and a powerful bullish signal. Still just above that important 35% level considered bullish. Has crossed down through bears, a bullish market indication. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 39.8% versus 40.9%. A bit fewer bears but still well above 35% and well above the bulls. For a fourth week bears are over the 35% threshold considered a bullish indicator and have made that important crossover of bulls. For more 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.


NASDAQ

Stats: +27.56 points (+1.12%) to close at 2483.23
Volume: 1.964B (-32.25%)

Up Volume: 1.61B (+1.387B)
Down Volume: 300.53M (-2.389B)

A/D and Hi/Lo: Advancers led 2.18 to 1
Previous Session: Decliners led 5.76 to 1

New Highs: 4 (+1)
New Lows: 205 (-393)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg


SP500/NYSE

Stats: +6.87 points (+0.61%) to close at 1136.43
NYSE Volume: 1.131B (-28.14%)

Up Volume: 3.5B (+3.204B)
Down Volume: 1.6B (-5.06B)

A/D and Hi/Lo: Advancers led 1.6 to 1
Previous Session: Decliners led 6.3 to 1

New Highs: 33 (-60)
New Lows: 379 (-753)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg


DJ30

Stats: +37.65 points (+0.35%) to close at 10771.48
Volume DJ30: 223M shares Friday versus 306M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg


MONDAY

There is no doubt we will have news. It was the Fed and the "twist" this past week, but we still have a lot to come. New Home Sales, Case/Shiller. Consumer Confidence is expected to rise to 46.7. My friends, that is recession. Confidence has remained in recession levels since this selloff occurred. The textbooks may say that we have recovered and are no longer in recession. As far as the consumer is concerned, however, we have been in recession the entire time since the Lehman meltdown.

We have Durable Goods Orders. We have Initial Jobless Claims again. Every week you have to love that. We have the GDP for Q2. I believe that is the third and final estimate, and we will see what GDP comes in. It is expected to improve a bit. Yeehaw. We also have Personal Income and Spending to round out the week, and the Chicago PMI and Michigan Sentiment. We have news aplenty. That news will be important because the market is looking for something to grab ahold of.

What about action outside of just the news? There are trends that occur this time of year. We often have selloffs in August, though not as many as in September. There are still some in October, but October is kind of a follow-through month to September when the market actually bottoms. We are not there yet, but we are getting close. It does not have to be October it can be in September. What we have now is a sharp selloff back down to a prior low. We have had sharp selling, a bounce, and then a sharp selloff back to that low.

Sentiment is terrible. Bears fell a little and bulls rose a little, but they are still at a crossover point. That is a very powerful, bullish indication. But we have this pullback to support. We have all of the bullish indications from the crossover of the bulls and bears. We have a very high put/call ratio that has been high for quite some time. We have the high volatility index. We have a very high new lows reading over 1100 on the NYSE on Thursday. We have tremendously negative sentiment indicators, and we have the market technically holding support.

What often happens in this situation is a further selloff. A break of those old lows. You will have different technicians tell you different things. They will say that when you break a low and make a new low, that you have to come back and test that. We have done that on the Dow and the SP500. According to their theory, we have had that cathartic selloff and they should break to the upside. It is kind of like that false bottom I was talking about. There are two versions of that. One is not really what I consider a false bottom. It is more of this scenario where you have the retest. That would be another selloff early in the week.

Say that no one comes to the rescue of Europe over the weekend that those rumors were wrong. The market shoots lower, sells off sharply, well down into this August 2010 base. But then it reverses and slingshots back to the upside. That would be your cathartic selloff. It usually happens on a Monday or a Tuesday after this kind of Thursday selloff. This is really going toward the pattern. You have the big selloff on Thursday, you have a choppy, back-and-forth day on Friday. It traded in a range and then closed near the middle of the range. Then you have the big meltdown on Monday and/or Tuesday followed by a reversal. That is typically a bell-ringing time that you can buy for a new move higher.

Or you have the false bottom where it breaks down and looks terrible. It closes below that level, but then it comes back and makes the move back to the upside. We had that last summer with July and August. It broke below key levels, looked very bad, but only stayed down there a few days and then reversed. It tested once more, and then it was off to the races. That is the false breakdown, and we could see that as well a breakdown below this important support level.

The question is why that would happen. The market does indeed forecast in advance. In order for that to happen, the market would have to be forecasting better economic times ahead. Can we really expect better economic times ahead and near enough to make the market care? Let's face it. We have an election that is over a year away. If we get a new President, it would not be in until January. That is a long time. The market looks ahead a long time, but it will not look ahead that far because. There are too many variables out there with what we have being put forth from the administration. What the administration would be willing to sign from the Republicans and what the Republicans would be willing to pass from the President are two different things. There is not much chance of either one passing. We are not looking at anything that would change the situation.

Maybe that would be it. Maybe if we just left things alone and did not try to prop them up, they would finally fall off and then find their true bottom. That is one of the problems with this stimulus we have had. It has not allowed things to hit their bottom, and we have been slowly bleeding to death by a thousand cuts. That has not helped anybody as we have seen. Everyone is just miserable. Sentiment has been low record lows for years now, and it is getting worse.

You have to figure out how the market would see that there is some kind of turn coming. In the past, the market has typically bottomed and rallied when some kind of meaningful stimulus has passed. Almost to the day of the Iraq War and the announcement of some stimulus, the stock market bottomed under George W. Bush. It rallied and we had some great gains in the economy. 7%+ GDP growth. Very strong. It is just knowing that the stimulus is in place. It does not want to wait for the good news to actually appear in terms of better economic data.

The market knows when the right tools are put in place. One of the problems we are having now is that the market saw what the twist would be. The market saw what the President was going to propose, and the market realized that it was not going to pass. If it did, it would not do anything because it is more of the same old crapola that got us where we are right now. Just more in debt, wondering where all the jobs are as a bunch of multinationals are sitting on billions of dollars. More government intervention will not make that change. We would need the market to see something that no one else sees. That is often the case, but there has to be some reason out there for the market to move higher. Frankly, I do not see that as being the case.

I posit that there is no reason for the market to rally. There is no reason for the economy to improve other than just people saying "to hell with it," and spending some money at Christmas because it has been such a crappy year. Maybe people will try to make it a better year at the end of the year. We will see. That could happen it happened in 2009. People were tired of not spending any money after the Lehman meltdown and decided to have a better Christmas than any of the retailers expected. Then there was a shortage of goods, and they had to make last-minute orders to fill the needs. We will see.

Regardless of what I think could happen, we have to look at what the market is going to do and be ready for it. It is at support and it could bounce. We have good stocks that look ready to bounce. We need to be ready to play those if they are ready to move. I will continue to look at those. We have some good upside plays. We picked up some on Friday. We still have some such as AAPL and others that are ready to move. We have a few more over the weekend that look as if they could make some money and to the upside, for that matter if the market wants to bottom here.

We will have to see how Monday plays out and if it wants to ride lower or not. We will also have some downside plays. We already have some in position. If the market does make that cathartic run to the downside if it wants to dive toward those August 2010 lows or thereabouts we will make a ton of money on those. We will also have a few other downside plays in case that happens. We can make that money in a day or two if we make that kind of steep dive. That is fast money, and it is nice money. You get in, you get out, and then you play the upside.

Regardless of what our guts tell us, and regardless of what our brain tell us, the market will do what it will do. It is at a crossroads right now, and we need to be ready to play it. And we are. We are represented and have plays on both sides of the ledger. It makes it difficult when the market has been extraordinarily choppy. But it is at a resistance point. It is at a support point right now. It will go one way or the other, and we can make money even if it decides to go both ways, i.e., that cathartic selloff followed by a reversal. I will see you on Monday. Have a great weekend and enjoy it as best you can!



Support and Resistance

NASDAQ: Closed at 2483.23

Resistance:
2512 is last week's gap down point
2532 is the early August gap down point
2540 is the early November 2010 lower gap point
2546 is the early September 2011 gap down point
2555 is the mid-August 2011 peak
2569 is the November gap up point through the April 2010 peak
The 50 day EMA at 2574
2580 is the November 2010 closing high
2593 is the November intraday high
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
2612 is the late August 2011 peak
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2704
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows


S&P 500: Closed at 1136.43
Resistance:
1159 is the August up trendline
1178-1180 is the October 2010/November 2010 consolidation low
1196 is the November 2010 consolidation peak
The 50 day EMA at 1208
1209 is the mid-August 2011 high
1220 is the April 2010 peak
1227 is the November 2010 peak
1231 is the late August 2011 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1282
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low


Dow: Closed at 10,771.48
Resistance:
10,978 is the bottom of the November 2010 consolidation
11,178 from November 2010
11,452 is the November 2010 peak
The 50 day EMA at 11,509
11,555 is the March low
The August low at 11,700
11,717 is the late August 2011 peak
11,734 from 11-98 peak
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,997
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low


Economic Calendar

September 19 - Monday
NAHB Housing Market Index, September (10:00): 14 actual versus 15 expected, 15 prior

September 20 - Tuesday
Housing Starts, August (8:30): 571K actual versus 590K expected, 601K prior (revised from 604K)
Building Permits, August (8:30): 620K actual versus 585K expected, 601K prior (revised from 597K)
FOMC Rate Decision, September (14:15): First day in the bag

September 21 - Wednesday
MBA Mortgage Index, 09/17 (7:00): 0.6% actual versus +6.3% prior
Existing Home Sales, August (10:00): 5.03M actual versus 4.70M expected, 4.67M prior
Crude Inventories, 09/17 (10:30): -7.336M actual versus -6.704M prior
FOMC Rate Decision, September (14:15): 0.25% actual versus 0.25% expected, 0.25% prior

September 22 - Thursday
Initial Claims, 09/17 (8:30): 423K actual versus 418K expected, 432K prior (revised from 428K)
Continuing Claims, 09/10 (8:30): 3727K actual versus 3730K expected, 3755K prior (revised from 3726K)
FHFA Housing Price I, July (10:00): 0.8% actual versus 0.7% prior (revised from 0.9%)
Leading Indicators, August (10:00): 0.3% actual versus 0.1% expected, 0.6% prior (revised from 0.5%)


September 26 - Monday
New Home Sales, August (10:00): 293K expected, 298K prior

September 27 - Tuesday
Case-Shiller 20-city, July (9:00): 4.5% expected, -4.52% prior
Consumer Confidence, September (10:00): 46.7 expected, 44.5 prior

September 28 - Wednesday
MBA Mortgage Index, 09/24 (7:00): 0.6% prior
Durable Orders, August (8:30): 0.0% expected, 4.1% prior (revised from 4.0%)
Durable Orders ex Trans, August (8:30): -0.2% expected, 0.8% prior (revised from 0.7%)
Crude Inventories, 09/24 (10:30): -7.336M prior

September 29 - Thursday
Initial Claims, 09/24 (8:30): 420K expected, 423K prior
Continuing Claims, 09/17 (8:30): 3713K expected, 3727K prior
GDP - Third Estimate, Q2 (8:30): 1.2% expected, 1.0% prior
GDP Deflator - Third Estimate, Q2 (8:30): 2.4% expected, 2.4% prior
Pending Home Sales, July (10:00): -1.3% expected, -1.3% prior

September 30 - Friday
Personal Income, August (8:30): 0.0% expected, 0.3% prior
Personal Spending, August (8:30): 0.2% expected, 0.8% prior
PCE Prices - Core, August (8:30): 0.2% expected, 0.2% prior
Chicago PMI, September (9:45): 54.0 expected, 56.5 prior
Michigan Sentiment - Final, September (9:55): 57.6 expected, 57.8 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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