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Friday, April 19, 2002  4:11 PM CST

Be sure to check back on Sunday for the regular weekly commentary.  All daily charts have been updated.

Thursday, April 18, 2002  3:40 PM CST

As I write this, MSFT has come up light on revenues and EPS.  Not good.  Considering Microsoft carries a lot of heft in almost any index, particularly the Nasdaq 100 (where it accounts for about 10% of the total index), the outlook for tomorrow is grim so far.  At this time, the shares are trading down about 5 points on very heavy volume.  SUNW, ORCL, etc. are also trading down heavily.  Right before market close, the S&P futures dropped out 5 and the Nasdaq futures dropped 15, and you can be assured that when the evening session begins they will drop considerably more.

The day was actually shaping up to be a rather positive consolidation day before news of the plane crash in Italy hit.  Even afterwards, stocks and bonds stabilized and ended the day on a quiet note.  Our sentiment indicators didn't jump too much on news of the crash, and quickly settled down when it became clear that it was an accident.  The STEM.MR model touched the 70 level, but it was not enough to trigger even a one star-rated buy indication.  However, hopefully from viewing some of these indicators you have come to appreciate the fact that it is never in your best financial interests to participate in a panic like we had midday (unless you're scalping of course).  Crowds are almost always wrong in the extremes, and if anything you should have been buying when the panic became palpable.  If you're able to watch the markets during the day, perhaps you were able to participate.

In any event, the .MR indicators at this point are exactly at breakeven.  We cannot get much more neutral than we are now in this model, and even the STEM model is now making its way back to neutral after flirting with the sell area.  The VIX and VXN are rather neutral in here, put/call ratios are nothing to get excited about and the breadth oscillators are continuing their merry time at the tops of their ranges.

Tomorrow should prove interesting.  We have option expiration along with the adjustment to tonight's earnings.  I'm assuming we're going to have a slap-down open, so the 1100 area on the S&P and the 1360 area on the Nasdaq 100 should prove to be pivotal.  If we can hold those areas, we have a good chance of going higher, as our longer-term sentiment picture is still rather bullish.  We will probably also get a STEM.MR buy signal at some point if current indications hold.

NOTE:  The S&P futures just re-opened at 1117 (down another 5) and the Nasdaq futures at 1372 (down another 13).
 

Wednesday, April 17, 2002   3:45 PM CST

We started out on a positive note, with INTC providing some bang to technology shares.  The enthusiasm quickly faded, however, no doubt in part to the extreme optimism yesterday that prompted a STEM.MR sell signal.  Our sentiment indicators didn't really move much today, so we are still hanging around overbought territory.  The two days of optimism has forced the STEM model into a very low range, with the fast moving average now in the teens.  If we have an up day tomorrow with complacency rampant, I'm quite sure we'll get a signal out of that model for the first time in a month.

If you've been reading the commentary, you know that I've been bullish since the weekend due to an overbalance of pessmism, but that has quickly changed on a short-term basis.  Now the .MR indicators are buried at the bottom, and the breadth oscillators are at the tops of their ranges.  A preliminary look at the weekly sentiment surveys show a mixed message, although we have a troubling rise in bullishness once again in the II survey.  Considering how the market performed during the survey period, it shows that the small investor is quite complacent, which is never a good thing unless you're short.

We still have some positives, however.  The put/call ratios and daily TRIN readings were extremely oversold coming into this week, and it will take some time to wear that off.  Other sentiment surveys are suggesting that individuals are not quite as bullish as the II survey would have us believe.  The commercial traders are beginning to unwind their short positions, according to last week's data (although one week does not make a trend of course).

So, where does that leave us?  Right now, unsure.  There is still room for the rally that started Monday to continue for quite some time, but not unless it works off this short-term overbought condition first.  If it just keeps going, we will fall harder than we otherwise would when the music stops.  And depending on how the COT figures and sentiment surveys look this weekend, the music could stop fairly soon.

Tuesday, April 16, 2002   3:45 PM CST

For as long as it took us to become well oversold, it sure didn't take long to reverse course.  I'm not suggesting that we're overbought on an intermediate- to long-term time frame, but short-term the indicators became overbought in a hurry.  That will happen when we've had a severe selloff and begin to rebound, but the degree to which some of the indicators came in was quite surprising.  The .MR indicators are all now overbought, and so of course is STEM.MR, which issued a SELL signal early this morning.  Due to the overall bullish nature of current sentiment and the strength of today's trend, I hope you followed your methodology if you were looking to sell short-term. 

The VIX and VXN dropped quite hard, almost to the down 10% envelope on the VIX.  There is still room for these to drop before becoming overly bothersome, however.  The breadth oscillators are at the top of their range, although they have been there for a few days even while the market sold off.  That may put something of a cap on this rally, so we will have to watch those closely.  The STEM model dropped quite a bit today, due to the extended nature of today's rally.  The fast moving average is now just above SELL territory, so if we get another day or two of strong rallies, we will probably see a SELL signal emerge from that model.

Technically, it was a strong day on higher volume so we could see this run quite a bit before running out of steam.  Be very careful if you look to short this market, because as I've been saying since Sunday, we became very oversold and are due for some relief.
 

Monday, April 15, 2002   3:35 PM CST

Today started out positive, but quickly turned around as a new Bin Laden tape was released and GE accounting issues continued to drag on that stock.  Then we had a bomb threat in D.C. that ended up being made by a 13-year old boy.  Nevertheless, it served to increase the fear and uncertainty in an already shaky market as you can see by the spike in the put/call ratios.  Our other daily sentiment indicators didn't move much (most likely because they are so oversold already), and the STEM and STEM.MR models are stuck in neutral.  Volatility has been quite low the past two days, particularly on the Nasdaq, and I think we should get some good movement in that index at least this week.  My bias, as is obvious from the weekend commentary, is still to the upside.  Now we have a positive sentiment environment coupled with major indices sitting on round-number support (the S&P at 1100 and the Dow near 10,000).  That usually makes for a good intermediate-term trade to the upside, so I will be looking long this week.