Reply #36: Today's WrapUp by Ike Iossif (Lotsacharts) [View All]

http://www.financialsense.com/Market/iossif/2004/0615.html

Summary for week ending 6-11-04

Last week (6-4-04) I said: "Last week's market action was one of the most extraordinary and conflicting we have seen in the last 16 years that we have been students of the markets. The indices had a hard time going down; they also had a hard time going up; however, on balance they had a harder time going down than going up! Several indicators are giving strong bullish signals such as the high put/call ratio, the COT numbers showing commercial traders net long, the NYSE member net buy/sell reached a new record number indicating that NYSE members bought the largest amount of inventory ever. Notice the chart provided by decisionpoint.com the previous two times that their buying activity came close to last week's record level was at the exact bottom in October 2002 and March 2003! On the surface, all the above are very bullish factors and the market ought to be able to capitalize on the set up and rally sharply. However, at the same time we got the volatility ratios back up at the top of their range, which they have been able to penetrate only once in August of 2000. Volume has been low despite the rally. There are more stocks below their 200 MA today than in the beginning of May, the McClellan Oscillator rallied 700 points, and the SP managed to gain just 4.1% when in the past the average price gain that has accompanied the up-thrust in the Oscillator has been 14%. New lows routinely exceed new highs, and most "good news" are sold into. On the surface, all the above are very bearish factors, and the market ought to feel the pressure. In other words, one set of data is painting a very bullish picture, while another set of data is painting an equally bearish picture. Obviously both can't be telling the truth; a patient is either dying or recovering; he can't be "dying and recovering" at the same time; these two states of being are mutually exclusive. However, that is what the market is giving us to work with in terms of data measuring its internals. Therefore, we'll rely for the time being on pattern recognition techniques in order to determine what the market will do next, and how to be positioned accordingly.

(Current Week) The Dow and the SP overcame resistance and closed marginally above it. At the same time, all indicators are above zero and rising, implying that the path of least resistance ought to be on the upside, at least for the short term. On balance the bulls have the upper hand. However, I continue to be bothered by the fact that the Volatility ratios remain at the top of their range, a top that has been exceeded only once since their inception, and that was in August of 2000, a real awful time to be buying stocks. Is it possible that the break-out is a false one, and the action of the past few days, will turn out to be a "bull-trap?" Anything is possible. That is why I insist all positions that were open due to the "break-out" have stops at the break-even level; therefore, if the markets turn down, there will be no harm done. The bottom line is this: Technically speaking, as long as the indices remain above support (see table below), the break-out is valid, and the trend is up, whether I am skeptical about it or not!