Teerão admite que instalações nucleares foram "muito danificadas" por ataques dos EUA

[Pata-Hari]

MONDAY a.m.
August 18, 2003



Turning Point
by David Nichols


The path of maximum frustration in the markets continues to be sideways. Remarkably, the S&P 500 finished off the 11th consecutive week with a close coming somewhere between 975 and 998.



It'll take a close outside of this range to get more people fired up and ready to step into the breach. Right now we're seeing the same small pool of shares flipping back and forth among short-term traders. Those with a longer term view have already made their bets, and are now waiting for a resolution in either direction before repositioning.

We won't see too many opinions change while prices stay in between this tight range. But a move outside of this range could make things interesting in a hurry.

Actually, an upside breakout from here will present the most challenging environment for everybody, as a downside correction from these levels is still the most "obvious" trade. The bulls almost expect such a correction after a big move up, and the bears are counting on it as long overdue. It's this "long overdue" notion that has me thinking there may be one more solid upside test in the cards, as all the bears finally get cleaned out once and for all -- ahead of the inevitable drop, of course.

Pulling back to look at the monthly chart shows, surprisingly, that there is still room to the upside for this bear market rally. As I've remarked frequently in the past, previous bear market rallies like to go back up to tickle the underside of the breakdown point. On the monthly chart, this level comes in at SPX 1040.



So can the bear market rally fire up again and make a run for SPX 1040, the monthly breakdown point? I'd have to say it's possible, even with sentiment already so generally bullish. It may be the bears' turn to completely surrender this time, and it just might take a trip up to 1040 to accomplish this.

On another note, it's also worth repeating that these down-up bear market patterns have been roughly doubling in length since the top in August 2000. Right now we're already in the time frame where the downside acceleration can once again kick in. If, as I think, we're still locked in this vicious bear market cycle, then the coming down-up move should take a long time, and the relentless downside pressure could last for many months. It won't so much matter when you put your short positions on in this scenario, just as long as you have some.

But it may yet have to be tougher than this on the bears, before all this can play out. Since we still have a half-position in the bearish Rydex Tempest Fund (RYTPX), then we may have to reposition if the market can move above SPX 1000 and hold on. We'll likely hedge by buying the SPY -- the ETF linked to the S&P 500 -- and then take off the Tempest position and look to re-load into this same bearish fund on a move toward SPX 1040. I'll update subscribers intraday if any such action is needed.

Having said all this, the market can of course also just break down from here and keep on going lower. The upside forces have had a real chance to make some progress over the last 8 trading days, but could only muster a slow grind higher into options expiration on Friday. So in the shorter time-frames, the market is ripe for a pullback. A higher open this morning will exacerbate this, and could be a really good set-up to go short.

Options subscribers and more aggressive speculators should consider this a "heads-up" to expect some action this morning on a higher opening, as an early move towards SPX 1000 presents a very good risk/reward shorting opportunity. With the VIX mired in the low 20s, the burden of proof is on the bullish forces to prove they have enough strength and stamina to get over that important resistance.

Sentiment Dashboard
by Adam Oliensis



SENTIMENT TANK: Drained 4 points to 4% full of negative sentiment on Friday.

SHORT-TERM: Neutral.

MID-TERM: Progressed 6 points to 48% on the advance side but confidence remains low at a barely-bullish 1.

LONG-TERM: Weekly gauge was flat W/W at 93/7 with a neutral confidence reading of 0.

BOTTOM LINE: The market is stalled on light volume in the summer doldrums. There is too much bullishness as represented by the very low level of negative sentiment in the tank, so the market is susceptible to an unexpected shock. We'll keep waiting patiently for a signal on the next important direction.