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Friday, July 5, 2002  2:35 PM EST

All daily charts have been updated except the CBOE Ratios and Composite model.  Those will be updated later this evening.  Be sure to check back on Sunday for the regular weekly commentary.

Thursday, July 4, 2002

Market closed.

Wednesday, July 3, 2002  6:35 PM EST

There will be no commentary for Wednesday due to a holiday traveling delay.  My apologies.

Tuesday, July 2, 2002  11:39 PM EST

Due to a web of technical problems that has carried over into evening, I am without a majority of my data tonight, so the commentary will be short and to the point.

The 10-day TRIN is now at 1.77.  Over the past 40 years, this indicator has been higher only twice - the October '87 bottom and the October '97 bottom (paying subscribers check out the TRIN chart archive on the site).

Today recorded a NYSE up volume ratio of .11 (i.e. up volume accounted for 11% of total up volume plus total down volume), which is in the bottom 2% of readings over the past 40 years.  The 10-day moving average of the up volume ratio stands at .34, which is also in the bottom 2% over that same time period - this is major-league oversold.  You can see a study posted to the site on June 3rd that looked at up volume ratios under 12%.  It has a tendency to lead to outperformance, particularly over the intermediate-term.

The NYSE daily cumulative TICK indicator is now at an oversold level last seen at the September 2001 bottom and prior to that, the mid-October 2000 short-term bottom.

For the 7th time in the past 30 days, the CBOE put/call ratio registered a reading over 1.0, which is an extremely rare flurry of excessive put buying by the options crowd.  They've generally been on the right side of the market recently, but that will not hold out over time - especially when the OEX put/call ratio records a string of very low readings like it has lately (suggesting the "big money" is buying calls while the small public money is buying puts).

The Composite model is now sitting at 83%, which is tied for the highest reading over the past two years (9/17 and 9/18 also recorded readings of 83%).

Over the past month, we've had two instances where all four models were in BUY territory, and both times lead to explosive (but quick) rallies.  We're in the same position now, and I will once again be looking to go long.  We also have a slight seasonal bias working for us.

As is obvious to pretty much everyone, the market is incredibly oversold and sentiment has reached a negative extreme rarely seen.  That doesn't mean we HAVE to rally in here, of course, but from data gleaned over the past 40 years, the odds suggest we should.

Monday, July 1, 2002  7:22 PM EST

In the weekly commentary, I suggested that we were close to or at overbought conditions on many of our short-term indicators, and the real test would come on the next leg down.  We're close to testing the last panic lows (or are already there now in the case of the Nasdaq), so the next few days could be critical.  Well, every day is critical, but the next few even more so.

I said it was likely we would see another 10-day moving average TRIN reading greater than 1.50 this week, and it didn't take long to accomplish that.  With the TRIN closing at 2.11, the 10-day moving average increased to 1.60 from 1.43 on Friday.  In the past 36 years, the 10-day TRIN has only been higher on 7 unique occasions (note: paying subscribers can now see a 30+ year history of the TRIN on the site in the chart archives). We'll be dropping a reading of .92 from the moving average tomorrow, so any reading higher than 1.60 will give us the highest average TRIN since October 1997.  In order to approach those levels, we would need a major multi-day selloff.  The Nasdaq TRIN, however, closed at 7.73, which is the highest closing value seen over the past three and 1/2 years.  The 10-day moving average, at 2.78, is also the highest in that time frame.  This market is incredibly oversold.

Volume on the NYSE was the lightest we've seen in a week, which is to be expected prior to a vacation holiday.  What volume there was, though, was heavily skewed to the downside, as the up volume ratio barely made it above .20.  That in combination with an advance/decline ratio of -1000 is what caused the high TRIN reading we saw today.  After only one day of selling, though, the breadth ratios have a way to go before they could be considered deeply oversold.

The cumulative TICK indicators are working their way back down to oversold.  However, as I say on the description next to the indicators on the site, I have found that they are most effective at identifying overbought conditions within a downtrend or oversold conditions within an uptrend.  For example, take a look at the NYSE intraday cumulative TICK indicator for the past two months below:

The trendline shows we are obviously in a downtrend, and each time the cumulative TICKS reached the overbought level, it coincided with at least a short-term top.  But it wasn't nearly as effective at identifying bottoms.  So when I say that the cumulative TICKS are becoming oversold, it is simply a heads-up, and I wouldn't put a whole lot of weight behind it.

We do have a slight seasonal bias to the upside over the next few days, as it's the beginning of the month and the day before a major holiday is traditionally strong.  In his book "Winning on Wall Street" (pg. 158), Martin Zweig found that from 1952-1985, on the trading day before the July 4th holiday, the market was up 85% of the time with an average return of 0.46%.  Updating his work, I found that since 1985, the market has been up only 53% of the time, with an average return of 0.12%.  The average up day was 0.58% while the average down day was -0.40%.  There's not much of an edge there, but there is a small upside bias.

For such a bad day, we sure don't have much to show for it sentiment-wise.  The hyper-volatile STEM.MR model didn't even make it to oversold territory, although it shouldn't take much more of a push to get us there.  The NDX is now at the lowest closing level since early 1998, so we will have to see if that ushers in any additional selling, although it is still above the recent intraday low of 980 reached during last Wednesday's gap-down open.  The S&P is also so far holding above the recent intraday lows, although it is sitting just above the lowest closing lows since September 2001 and before that the 1998 Fall low.  If this is truly the intermediate-term low that I think is entirely possible (even probable), then it would not surprise me to see a serious break of the recent lows on an intraday basis before there is a reversal attempt to close us higher.  If we see the type of panic readings that I laid out last Tuesday, then I will be a buyer at the first sign of a turnaround.  I will once again be one of those bottom-fishers that everyone so despises.

 - Jason Goepfert