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Para quem quiser subscrever isto tente: http://www.21stcenturyalert.com/page/tc ... 003-02-14/


FRIDAY a.m.
February 14, 2003




Early Warning
by David Nichols

We exited our bearish Rydex positions at the close yesterday.

The final tally on these positions shows a gain of 10.2% in the Rydex Venture Fund, tied to the Nasdaq 100; and a gain of 14.1% in the Rydex Tempest Fund, tied to the S&P 500. We entered these funds on the close on Jan. 22nd.





During the day, I was hopeful that the short-term downtrend could play out all the way into the close, and we'd get a really good exit at the end of the day. But the down momentum petered out mid-day, which was where we took our profits in the options service.

I actually had it in mind that if a buy signal came early in the day, we could hedge our bearish end-of-day Rydex positions by buying the SPY and QQQ, and riding those up into the close, where we would exit all positions. This is a nifty way to hedge a Rydex position on the final day, if the market is clearly going against you. And sure enough, the buy signal came, but it was already late in the day. But we'll keep this exit hedging strategy in mind going forward, as there's no reason to sit there helplessly and watch the market move against us. We can at least hedge half the position, or if you have a bigger account, you can hedge the whole thing by doubling up on the SPY or QQQ hedge.

Yesterday's action brings up an interesting point about technical and sentiment analysis. Most people would argue that exogenous news flow causes the short-term fluctuations in the market, and that it's impossible to predict what the news flow is going to be. On the surface, this seems like a valid statement. But it's not entirely true.

While it's not possible to predict what the news story will be, it is possible -- through technical and sentiment analysis -- to tell what kind of reaction will come to whatever news flow crops up. And the reaction in the market, after all, is the important thing.

We've all seen times when a big piece of news breaks -- at least in our estimation -- yet the market shrugs and doesn't give the "appropriate" reaction. And other times, seemingly insignificant tidbits of positive or negative news can send the markets careening wildly.

Yesterday is a great case in point. All throughout the day yesterday -- as shown on the 5 minute chart of the OEX below -- the market had been leaking in the usual way, drifting down, down, down.

But then a short-term buy signal sprung up on our 30 minute timing model, which was our cue to exit our bearish options positions. We took profits on our OEX put spread and our QQQ puts right there, as it was clear that the market was now in a mood to react positively. Now don't get me wrong -- there was no guarantee that the market was going to go up -- there only existed the proper conditions for the market to go up.



And sure enough, the rally catalyst showed up very quickly after that. At 2:30, rumors started flying that Saddam Hussein's son had defected. (I believe this was reported on CNBC, although I stay as far away as possible from CNBC.) A furious rally kicked off, most likely initiated by shorts in the SPX and NDX futures markets scrambling to cover and book profits. The futures were zooming.



At another time -- such as the very early stages of a downtrend -- this rumor may not have produced such a reaction. But it came along at the right place and the right time to have a big impact.

It turns out there is a real story behind this rumor, although the rumor-mill got the details wrong. According to our intelligence source Debka, it was actually the right hand man of Saddam's son Uday who defected yesterday.

Here's an excerpt from Debka on what really happened. You can get more details later this morning when we post the full Debka report on our web site:

"Adib Shaaban, the right hand of Saddam Hussein's powerful son Uday, has defected.



DEBKA-Net-Weekly reports exclusively that this key member of Saddam Hussein's administration, who was charged with his son's most sensitive missions, traveled to Jeddah at the beginning of this week, saying he needed to clinch some gold transactions ahead of the war.

From Jeddah, he flew to Beirut and... disappeared.

Our intelligence sources report that Shaaban never really went to Beirut. He made his way under cover to Damascus three days ago and was picked up by an unmarked plane for an unknown destination.

As Uday's closest aide, he also managed a chain of official publications, including the authoritative Babel, and was in on the Saddam regime's deepest secrets.

Uday commands the secret army known as Saddam's Fedayeen, the leading force charged with the defense of the Iron Triangle and the custody of the weapons of mass destruction that were not smuggled out to Lebanon.

Uday is also the chief of the ruling Baath Party's covert service.

Shaaban must therefore be a veritable treasury of Saddam Hussein's secrets. In American hands, Uday's chef de bureau would be even more valuable than the proverbial smoking gun."


Sentiment Dashboard
by Adam Oliensis



SENTIMENT TANK: Drained 1% to 84% full. While sentiment may not have climaxed yet, it's grown very bearish.

SHORT-TERM: The hourly gauge flipped over into an advance phase during the last bit of the day on Thursday.

MID-TERM: The mid-term gauge progressed by 3 points to 95 in the decline phase. It's possible for this oscillator to stay at an extreme reading for some time. It's also quite possible to get a good technical buy signal from these levels. Our Confidence Diffusion Index (CDI) clicked back from 6 to 4. The VIX backed off from 40 rather than busting it wide open and the Put/Call Ratio was an honest 1.18 (bullish on a contrarian basis). (No shenanigans with an offshore player putting on a giant spread that confused the data.)

LONG-TERM: The weekly gauge remained at 43 in its decline phase. The weekly CDI dipped a point to 4. Keep in mind there could develop a tradable short or mid-term uptrend within the longer weekly decline phase.