AheadoftheNews.com

The general media is telling you to buy an October dip, because we always rally hard in Q4. The odds favor such a play, but sometimes, it doesn't work that way: chart.
Crash or no crash, rally or no rally, stay on your toes because the market has shown us over the years that anything goes. Did anyone believe we would rally straight into December from August last year? And now everyone thinks we will repeat that performance. Maybe. Just remember that last year's correction into the summer was a three month affair. This blip we had in August was a three week tryst, a one night stand in market time. Have we really cleared all the cobwebs?

Morning update:
We finally get a drop below pivot for NQ and test overnight lows (2111). Yesterday's lows better hold for bulls (2109.50).

The complete absence of volatility is making trading very boring, long or short. The best trades are right at the open, after that it's like watching paint dry.

Open:
Heads up on construction spending and consumer sentiment coming at 10. NQ makes a new high, resistance is 2126.25, R1 and 50% projection August. Weekly R2 is at 2130.25. Support will be 2117.

Sept. 28 (Bloomberg) -- U.S. stock-index futures retreated after the interest rate banks charge each other for overnight loans climbed and former Federal Reserve Chairman Alan Greenspan said the housing slump has increased the odds of a recession.

Not to be a cynic, but as the quarter ends, you will notice more negative comments creep in the general media. Expect more of the same, including concern over earnings. The lower dollar is propping things up as European money finds everything cheap over here, but they will have their own set of problems pretty soon.

Techs continue their relentless march, with QQQQ now in plain sight of 61.8% projection August at 51.95, which is also the May 2001 high. Note how we are also bumping up against wedge resistance. Just a little more real bad news and maybe bulls get another push higher...Seriously,it has almost become surreal, as 83 oil all of a sudden is not a problem for the sector. Something has to give.

The NDX chart is nearly identical, of course, but the closing candle gives us a clearer hanging man. A drop from here would confirm that candle's topping pattern (I know, we've been there before, but how many times can you cry wolf?...) We do have a VIX at 17, now 20% (!) away from the 10 dma. 10% is already an extreme, so this number is enough to make a contrarian salivate.

When every website, blog, TV channel, friend, mother, ex-wife tells you to keep buying and you feel all cozy about the markets, SELL IT. I'm definitely getting that vibe about techs if oil keeps a bid.

In the MUST read column of the week, from Mynianville: link.

"...Both of us worked at major broker-dealers and ran large hedge funds so we’re pretty “up to speed” on the way the Street works. ...The residual grist is what you’ll read the next morning but to fully understand the market machination, you need to see both sides. To the earlier point, there are plenty of agendas in play that benefit from green screens and little, if any, motivation to paint the risks.
Ironically, when risk manifests—after prices fall—they’ll find their way to the front page when it’s too late to proactively position...I am trying to see all sides, including the potential that China “holds it together” through the Olympics...When push comes to shove, however, through the lens of “asset class deflation vs. dollar devaluation,” the same tide that lifted all boats could serve to swallow soybeans to Cisco to Citibank..."

Morning update:
NQ goes down and hits yesterday's gap open at 2110.50, now support. Basically the markets are being held up for bonuses and fees as managers probably suspect they won't get much in December. This tape is painful for shorts, which is why I recommend establishing a position rather than pulling your hair out trying to make sense out of this. When you barely trade below pivot for several days, you know gravity will eventually kick in. Patience.

WASHINGTON (MarketWatch) - Sales of new homes dropped 8.3% in August to a seasonally adjusted annual rate of 795,000, the slowest sales since June 2000, the Commerce Department estimated Thursday.
Sales are now down 21.2% in the past year, with no sign of a bottom in the crippled housing market.
August's sales pace was weaker than the 825,000 expected by economist surveyed by MarketWatch. In addition, sales in May, June and July were revised down.

I just don't see how we can justify ANY further gains, but there is still some performance anxiety and maybe a little window dressing, left although I think that's almost over with. Smart investors cashed out on this run-up.

Overnight:
Futures are way up even before we get the housing news. NQ hits 2021, 50% projection last week. Next resistance is 2126 and 2130, weekly R2. YM is above 14K and has weekly R1 resistance at 14092. Oil has put in another bid, now close to 81. The news better be excatly what they want. What do they want? More bad news and they get a rate cut, or too much bad news and a rate cut won't matter? Do the Feds really care about this news or are they waiting for the October non-farm payrolls next week? All questions that will be answered very shortly.

Sept. 27 (Bloomberg) -- European retail sales growth slowed in September, led by the sharpest drop in Italy since June 2005, the Bloomberg purchasing managers index showed.

A gauge measuring retail sales slipped to a seasonally adjusted 50.5 from 51 in August. The index is based on a survey of more than 1,000 executives compiled for Bloomberg LP by NTC Economics Ltd. A reading above 50 indicates expansion.

European consumers are more reluctant to increase spending after rising credit costs worldwide and turmoil on financial markets clouded the outlook for economic expansion. In Italy, the government said this week that economic growth will be weaker than expected this year and next.

Will the "idea" of another rate cut make the US consumer less cautious?

RIMM is looking toppy, printing the biggest red volume candle since April and 14% above its 20 dma, usually an intermediate top for that stock. You also want to see how AAPL, AMZN and GOOG behave tomorrow.

Meanwhile at the ranch, the cost of food and energy keeps rising, making the word "core" rather meaningless if you eat and drive:

Sept. 27 (Bloomberg) -- Wheat futures in Chicago rose to a record, extending the rally for a sixth day, after Ukraine said it will restrict grain exports because of drought, boosting demand for U.S. supplies.

NDX is now 4% above its 20 dma (green line). It has almost never reached such a gap and not pull back. We closed with a Doji right under 50% projection August (2089.67) and that is what bulls need to put on their radar. Also, compare the top formation in July, along with gap the previous day, to today's chart. Pretty freaky ressemblance.

Some statistics on window dressing, if you are wondering why that bid is there even though economic news is horrible: link.
Since the books are closed three days before, we could see some selling as early as tomorrow. In fact, some of the darlings, like AAPL and RIMM were down today. These are the stocks that all the loser fund managers had to buy this week because they did not have them earlier. The endless parade of fund managers on CNBC pushing equities to unsuspecting masses will eventually dry up.

Close:
The COMP closes right under 2700, 10 points off the highs. NQ looks like it will end the day in the morning gap, under 2110.50. The gap close is 2097.50 and we might see that soon. YM tagged 13999 (...) and has since retreated below the 13969 reistance level. It does look like a tired old bull at this point.

Closing hour:
YM and ES get more bullish than NQ as energy stocks get a bid. Oil is above 80 once again and it looks like the DOW will break out to the upside. NQ/QQQQ lagging now.

Just as NQ was about to close the gap at 2097.50, some BSC news came over the wires. Apparently the rumour is that they are trying to sell-off 20%. In any case, with higher oil, NQ (QQQQ/NDX) is a better short at this point. It is also much higher relative to its 20 dma. My usual sell signal is triggered automatically when we get 4% above that average, which was the case today.

PM update:
All of a sudden, things are not so bullish and the advance looks tired, as well it should be. SMH (semis) and XLF (financials) are once again down. Now MSFT and AAPL are red. GOOG has been negative all day. Bulls need NQ to get back above 2010.50. Watch COMP 2690 key support.

The Investor Intelligence percentage of bulls is now above July's number (55.6%). The bear percentage has dropped to 25.6% and I'm sure by the time we get the current reading next week, it will be even lower. This is a great time to start building a short position. It might go against you for a few days, but we should be headed down by next week. I recommend this strategy over trying to nail a perfect top.

Sept. 26 (Bloomberg) -- Orders for U.S.-made durable goods fell in August by the most in seven months, raising concern business investment will soften.

The interest rate cut scenario is getting more believers as economic news gets worse. The reality is that we are in end of Q3 window dressing and that's all that matters for now.

Overnight:
Oil catches a bid ahead of inventories. The two immediate levels of resistance are 80.45 and 80.80. The November contract corrected three points from the highs in three days, buyers are stepping in. It remains to be seen how much conviction they have.

Remember that we have durable goods pre-open. The market is waffling between buying bad news and selling it, depending on the mood of the day. The bull side dreams of more rate cuts and the bear side points to recessionary forces. It remains to be seen what the reaction will be on good news. Frankly, I don't think anyone can predict what the Feds will do until the October jobs report.

Putting aside high beta techs (for now), has the broader market peaked?

From Minyanville:

"The legendary trader W.D. Gann reportedly claimed that capital and commodity markets tend to top on or around September 22nd more often than any other day of the year. There is no apparently economic logic behind this reported observation... but... in as much as September 22nd happens to be the usual date of the Autumnal Equinox... Initially, we never took such notions seriously... however ... we have experienced first hand the October Massacre of 1978; the October Massacre of 1987; the October ‘Crashette’ of 1989; the 1997 Asian collapse; the 1998 Long Term Capital sell-off, etc. And remember the Great Gold Boom of the 1970s. While bullion peaked on January 21, 1980, the gold and silver stocks made their all time bull market highs on September 22, 1980. This day also saw the major peak in many oil stocks, which were enjoying a parallel bull market at the time. Also prior to the Great Crash of 1929, the last stock market index to make its then all time peak, the Dow Jones Utility Index, did so on September 21, 1929.”

ISEE closes at 175, another excessive optimistic high. This is when you have to keep a level head. Q3 earnings are not out yet, warnings will come and of course so will redemptions that many folks put in on August 15th for the end of quarter. Yes, there is rotation out of energy into techs, but the advance is too late in the game in terms of how far we are from the 20 dma. Everyone is now pricing in more rate cuts and expecting huge gains out of it, but this could also be 2000, another end of bull market rate cut that did not stop the eventual outcome. If long, I would sell into this strength. This is NOT 2006 and don't trade it as such.

NQ 38.2% projection August is at 2103.50, daily R1 is 2108.50. That 5 point area should be overnight resistance. On a breakout tomorrow, extreme high would be 2126.25, 50% projection August and 2130.25 weekly R2. Support is 2095.75 and 2099.50.

Closing hour:
Forget the window dressing noise and look at what is really going on. NQ/QQQQ/NDX hitting the July highs, on the strength of only two stocks, AAPL and MSFT. The COMP is not following and neither is the broader market including, to a lesser degree, small caps. Semis and financials are down and AD lines are negative. This is a perfect short set up at highs for techs, as far as I'm concerned. Maybe one more push higher, but cost averaging into this should get you a trade down to around NQ 2060.

Oil did the expected drop as CL gets large commercial hedgers moving in short to lock in price.

Noon update:
Rate cut hopes are bolstered, but it's a tough sell buying equities after the strong run we've had. Watch MSFT 200 dma at 29.44.
ES almost closed its morning gap and now has resistance at 1529.75.

We're also getting into end of quarter window dressing and some hedge fund redemptions. It could get choppy.

Morning update:
Post news: NQ moves back above last week's highs of 2080.75, now key support. The drop in oil is helping techs. SPX has a level of support at 1510. There was lots of negativity going into the reports so we could see some short covering, the question will be how long will it last. The dollar has lost multi-decade support.

Open:
YM hits my downside target near 13780. NQ bounces back and closes the gap. Markets await consumer confidence and home sales at 10. It's a good time to be flat until the news comes out.

Sept. 25 (Bloomberg) -- German business confidence fell to a 19-month low in September after the euro's appreciation dimmed the outlook for growth in Europe's largest economy.

This is going to put some political pressure on curbing any further Euro advance. If you want to short the dollar, I would do it against the Yen.

On Saturday, I recommending watching the 81.525/81.85 (QM mini) area for any weakness in November oil. These levels did not hold and we have seen a drop to the lower 80 level. At this point, unless there is a new geo-political event, increased hedging by producers could push prices down as they short forward contracts in order to lock in price. Long speculators could feel some heat if 81 (CL full) acts as resistance. Above 81.55, bulls regain control. Lower initial target is still the 10 dma, now at 80.05. If that breaks we could see 78.50, weekly S1. Upside risk above 81.55 is 81.82 and 82.20.
Note: most retail traders use QM, the e-mini, but funds and producers use the full contract, CL, so I normally post the CL chart but give some more specific QM prices at times.

Sept. 24 (Bloomberg) -- Lowe's Cos., the second-largest U.S. home-improvement retailer, said earnings this year may be below its prior forecast because a drought slowed sales of outdoor equipment and garden products.

I'm trying to find some good news, but it's only coming from analyst upgrades, not anything tangible. Caution is warranted for bulls. If short from today's highs, look at weekly pivots for YM or ES to lock in profits (whichever comes first).

Halo 3 after the close could be a big hit, watch the numbers tomorrow. Other than that, we have some heavy economic news tomorrow, including consumer confidence and existing home sales.

PM update:
The COMP has dropped 20 points since hitting that gap close I have been patiently waiting for to get short. Same with the Q's, down .40. Both semis and banks are down. I have to step away, but it looks like bulls could get defensive soon.

Morning update (2):

Morning update:
COMP closes the July gap while NQ makes new highs, but ES amd YM are lagging due to financials and energy. It's going to be tough to justify much more with all the news coming out tomorrow, but if we do go higher, watch NQ weekly R1 at 2099.50.
YM is making a triple top. I'm not much of a believer in those so I would not be surprised to see a higher high, maybe even YM 14K. But you have to be careful and not end up missing the boat. The 10 dma on YM is all the way down at 13689. I would stick to seeing how markets react at COMP 2690, which was the plan anyway. I must have posted that chart three times the past week or so. So far, it's resistance.

The calendar is light today, so that usually benefits the trend. The big numbers come out tomorrow. Nevertheless, keep an eye on that COMP gap close at 2690.
Oil is dropping and that should help techs.

ISEE equities adjusted closed above 200 on Friday and that is usually a sell signal (excess optimism). Note that we dropped to 120 quickly, so all of a sudden there is some nervousness. VIX S1 is 18.37.

Internet Recession Watch: Google Reports Ad Cutbacks: Link.

Updated COMP chart, with that yet to be filled gap at 2690.58.
Interestingly enough, the gap close is right at wedge resistance. Earlier this year, we saw many of these bearish ascending wedges get nullified, will it be the same in this environment? I will give bears the edge as we get closer to October. The sentiment turnaround is far too abrupt for this time of year.
Monday's are great for either shorting weekly R1's or buying weekly S1's with NQ. Let's see if we get one of them.

PM update:
ISEE printing 190, actually 290 at the open. That is an extreme in terms of bullsih sentiment. Everyone loaded on calls thinking next month will be up. I would not be so sure. As many of you know, I consider ISEE readings around 200 to be a sell signal. Not there yet, awfully close, but we might see it Monday.

Noon update:
Heads up, the COMP 2690 July gap close is coming into play.

Morning update:
The VIX drops below 19 for the first time in over a month, but ES is still stuck below the July 25th high of 1545. Techs are doing very well, but we still have not gone past the Wednesday highs and it might be tough with op-ex plays still on and oil stubbornly holding 81. At least USD is gaining a little on CAD and maybe that is a clue. EUR/USD had some early weakness but has come back a little since, but the 1.409 area seems to be an issue. Spot dollar came with a few cents of the 1992 closing low and has thankfully rebounded. It will be quite a crisis if it loses that level, but with some slower Euro economic news we could ge a respite in the greenback selling.

Open:
82 oil is a headwind. Watch that NQ 2071.25 resistance.

Overnight:

Sept. 21 (Bloomberg) -- European stocks rose, led by carmakers, after Goldman, Sachs & Co. recommended the industry. U.S. index futures gained.

ORCL is finally turning futures around. Watch NQ resistance at 2071.25, support 2062.50. Oil is still above 81, but did back off monthly R2 (81.85) and maybe some traders are expecting a larger drop? EUR/USD is probably overdone and due for some backing and filling. JPY/USD is definitely dropping. This tape is still dangerous to stay short in as long as NDX holds the 9/4 highs, although daytrades have been fine.

Lower highs, lower lows across the board, the key now is for ES (SPX future) to regain 1533.50, 76.4% of the correction. Semis are up, but financials are down sharply as are retailers and housing. We are done with SPX September options, what next? The Q's are pinned at 50, we will not know until next week what the true intentions are. One thing for certain: oil at 80 is not conducive to further gains.
Spot dollar came very close to the 1992 closing low of 78.33. The Euro backed off 1.41, but momentum forex traders are chomping at the bit. Only when the dollar regains its footing will oil drop, so equity bulls want to see a reversal and fast.
YM traders note 13844, 76.4%, current overnight support. ES is the only one of the top three that lost that level.

NDX is still above 2032.50, but barely (2032.61...). COMP equivalent (September 4th high) is 2644.45, so bulls know what they need to hold, or that double top gets confirmation. The bulls are still somewhat in control, but they are cutting it awfully close. NQ traders note that 2062.50 is lost (9/4 high) so the NDX future's contract is pointing to a loss of 2032.50. We will see how it plays out tomorrow, but so far no lift from ORCL. This is still option expiration week (and Bernanke knew this and got maximum punch out of it), so anything goes. Your best technical trades still remain at the open, the rest of the day gets noisy.

The overall modus operandi remains the same: short the markets on an NDX close below 2032.50. That signal has not yet been triggered, so your shorts should be day trades only, unless of course you shorted the Wed highs and have your stop at even. There will be plenty of downside if and when that happens, so don't be a sucker and jump the gun with an all in trade. A steep drop in oil could start a sshort queeze in the tech sector, so keep your QM quotes handy. By the way, EUR/USD will give you the oil ticks a second before. You see a Euro bid against the dollar, QM will follow and NQ will drop. It's like clockwork and snappy scalpers know this.

Morning update:
If you are trading NQ (QQQQ/NDX), watch oil. It's obvious that a bid above 80.70 is stalling efforts to get past the pivot. Overnight lows and S1 have not yet been tested (2052.50), although we did get a pin at Q 50.
You might also note that we are miles away from the NQ 5 dma at 2043. A little stretched to say the least.

Bernanke does not seem to care about the dollar and he might have his reasosn, but right now, it's in a mini-crash and headed for the 1992 lows.

I will be out of the office for the rest of the day.

WASHINGTON (MarketWatch) - In an indication that layoffs haven't increased significantly, the number of U.S. workers filing for unemployment benefits fell by 9,000 last week to a seven-week low of 311,000, the Labor Department reported Thursday. The four-week average of new claims - considered a better gauge than the volatile weekly figure - fell by 3,500 to 320,750, the lowest in four weeks. Meanwhile, the number of former workers collecting unemployment checks fell by 53,000 to 2.54 million in the week ending Sept. 8, also the lowest in seven weeks. The insured unemployment rate - the portion of all workers covered by unemployment insurance who are collecting benefits - stayed at 2%.

Yields jump up to 4.59%. Now equities are going to wonder if they will get more cuts this year. Was the non-farm payroll shock two weeks ago a seasonal aberration? Gold is shooting up on the news, moving above the key 740 level as wage inflation fears grow.

The COMP did not quite close the July gap, but did hit minimal projection off August high/low at (23.6%) and retreated, closing with a Doji. Don't forget that tomorrow is option week Thursday, a noisy closing day for SPX options.

NDX, on the other hand, did close that gap after coming within 4 points of the 2007 highs, which would qualify as a double top if we retreat from here. The previous Sepbember high of 2032.10 held up today and is key for bulls in the coming days if they want to knock out the July highs. Remember, it's the close that counts.

I know many of you want to hit it short now, but unless you know how to cost average in and out of a futures contract (or put on complex option strategies), I strongly recommend you respect the tape and wait for that NDX close below 2032, or a higher with a bearish divergence and a bearish close. Today almost qualified, but that bounce off 2032 should keep you honest, or at the very least incremental. If you did catch the high (you were given the NDX gap close warning intraday, after all), lower your stop to even and let the markets decide. These post Fed rallies are often a two day affair, so it should be a good trade if crude holds up. Oil's parabolic rise is keeping the TRAN below its 200 dma and putting the brakes on techs.

Is the dollar putting in a low? EUR/USD December futures hit 1.4011 overnight and have since backed off. The Bernanke cut could actually help the greenback. Trade imbalance improving, European political intervention (export protection) etc... A trade is developing.

Morning update:
The NDX gap close discussed last night is at 2053, the high so far is 2049.92, which could also be an option issue (2050). NQ has resistance above that at 2079 but we are now 13% off the August lows. A 7 fractal would put us at 14% and 2090, but I doubt we will see that. ES is at highs but the VIX is not confirming as it is well off its lows of 19.17. That is normally a warning for longs, but we still have noise associated with oil.

Update:
NDX closes the 2053 gap (2052.92). ES hits R1.

Update:
YM closed its July gap at 13943. Remember the same gap for COMP at 2673.79/2690.58 (yesterday's chart).

Sept. 19 (Bloomberg) -- Morgan Stanley, the world's second- biggest securities firm, said earnings fell more than analysts estimated as fallout from subprime-mortgage defaults drove down fixed-income revenue and produced losses on takeover financing.

The rally in financials could be premature. GS reports tomorrow and they are highly favored to come out with good results. Is it baked in? XLF has major resistance between 35.80 and 36.1f it clears 35.30.

Sept. 19 (Bloomberg) -- Consumer prices in the U.S. unexpectedly fell in August for the first time this year, as Americans paid less for gasoline and housing costs moderated.

Obviously the Feds knew of this report before the meeting, but the gasoline part will change next month. ES has resistance at 1546/1546 and 1549. NQ would be 2071 and 2079.

Meanwhile, at the ranch:

Sept. 19 (Bloomberg) -- Builders in the U.S. began work on the fewest homes in 12 years in August, raising the risk the real- estate recession will spread to other parts of the economy.
The 2.6 percent decrease to a lower-than-forecast annual rate of 1.331 million followed July's 1.367 million, the Commerce Department said today in Washington. Building permits dropped 5.9 percent to a 1.307 million pace, also the lowest since 1995.

Feds do the right thing and ES breaks out above 1503.50., now support. The key will be to see what NQ does once it comes close to closing the Sep gap at 2049.

Pre-Fed:
Bid up to ES 1503.50 which is still resistance. Obviously, it's the line in the sand for bears. Oil above 80 is just too much, but if we get a 25 basis point cut, will it hold? Let the trades come to you, don't rush this or better, wait for tomorrow. NQ needs to hold 2010.50. Breakdown sell-off would be 1998/2000. Breakout is 2025.

Sept. 18 (Bloomberg) -- Prices paid to U.S. producers fell more than forecast in August, diminishing concern over inflation as the Federal Reserve considers lowering interest rates.
The 1.4 percent decrease, the biggest since October, followed a 0.6 percent increase in July, the Labor Department said today in Washington. So-called core prices, which exclude fuel and food costs, rose 0.2 percent after a 0.1 percent gain the month before.

Short squeeze on the way. NQ might actually go up and close that September 5th gap (2049). ES hs resistance at 1505.25, 61.8% of the correction. Yesterday's gaps have been closed pre-open (NQ 2025.50, ES 1498.25) and are current resistance.
Oil is still a problem above 80.

Goldman is at it again. If you remember, last time they did this, the talk was 125 oil. Are they getting it right this time?

NEW YORK (MarketWatch) -- Goldman Sachs has upped its oil price outlook to $85 a barrel by the end of 2007 and $95 a barrel for 2008, according to a note published Sunday. Analysts forecast a high risk of a near-term oil price spike of over $90 a barrel.

Morning update:
Those fib turn dates are starting to look pretty ominous. Odds are that we put in the highs for the month on the 4th, opening day of trade. There are two key tests for SPX, one is 1480.50 and the other 1460. Needless to say, bulls need to close back above 1480.50, or they are in trouble. If we lose 1460, we should test the August lows. So far, bulls are trying to defend the 10 dma at 1473 (this is cash SPX, not ES by the way). With the Fed meeting, anything can happen, so I would let the trade come to you and not jump the gun. This is option expiration week, after all and Tuesday reversal are not uncommon.
Oil is suprising everyone and printing a bullish engulfing candle. Another attack above 80 could get a pretty strong short squeeze going, although the dollar would have to reverse course and fall. So far, DXY has a bid. Watch 79.05 on the November contract for QM.

Overnight session:
Hard down for futures, support at weekly pivots (ES 1485.25/NQ2009.75) seems to be holding for now.

LONDON (Reuters) - Thousands of nervous customers queued for hours outside branches of British bank Northern Rock on Saturday desperate to withdraw savings after it was forced to seek emergency funds to weather the global credit crunch...One branch manager was forced to ring the police when a couple barricaded her in her office after they were unable to withdraw one million pounds of savings, according to a report in the Sun newspaper.

I know I posted this story pre-open yesterday, but I think it is far more serious than Wall street made it Friday. Europe reacted very negatively, while the US markets proceeded as if nothing had happened. This is not a minor event. The last time we had a run on a large bank in modern times was in 1931, the crisis of the Credit-Anstalt of Vienna, which exacerbated the effects of the '29 crash (and was incidental in bringing Hitler to power). The domino effect can be devastating. Of course, this is not 1930 post crash, but the August cris