Opening Whisper

Definition: "point of order" - A question as to whether the present proceedings are in order or allowed by the rules of parliamentary procedure.

This week's proceedings in the halls of Congress have caused us to raise a point of order with Chairman Greenspan. Exactly when WILL you know why the bond market is in this conundrum? Are we to assume that it will only be crystal clear after-the-fact? Why are the longer dated treasury yields not rising with the short end rates? Only the historians will get it correct, but the Chairman is clueless at this point in time. I did hear his explanation of the basis of yield on the 10-year note as regards the various maturity dates and I really did not understand it. Was that explanation supposed to be helpful? Did he say that the relative yield on the 10-year had actually strengthened? Relative to what? Certainly not relative to the 3-month T-bill! It's no wonder that I stick to safe and sound technical trend analysis. I might otherwise be confused.

The equity markets gave back some of the momentum gains of the last 6 weeks. Is the momentum fading or is this pullback just part of the natural order of rallies and retracements? The major risk is definitely on the downside since this latest rally seems to have been due only to the updated and increased Q1 estimated GDP and the prospects for rising earnings reports for the second quarter. It has been led by Nasdaq technology which has given up some relative strength again this week.

The S&P 500 would need to hold the 1185 level and the NDX would need to see support at the 1500-ish level to have an orderly retracement before heading higher once again. A dramatic decline below those levels would signal a breakdown of the natural Fibonacci support level. Next week is equity options expiration week and we will be getting PPI, CPI, manufacturing and other important economic insights. Has manufacturing and capacity utilization slowed again this past month? Volatility is likely to increase as we get into the econ data of next week.

We seem to be once again at that inflection point, that no-man's land where the momentum indicators are advising that the markets are not "keeping up" with the recent upward acceleration. Next week should raise a "critical point of order" from which we might get an idea of where the proceedings are going. Is the summer rally over or are we to get another leg up?

Our Trading System - What The Numbers Are Telling Us

Our system model has lost one of its fast indicator buy signals this week. The StochRSI rolled over to a sell signal. The rest remain on buy, but the Slow STO is likely to fall next week unless the market gets off to a significant rally on Monday. Looking closely at our NDX model it looks like a buy, buy smells like a sell. Our MACD did strengthen this week.

When we get into this neutral zone on the model, we have to look at other indicators to give us advice on whether we should stick with the buy signal or just be safe and go to cash for a week. The volume has NOT been heavy or accelerating. That's one clue that tells us that the rally may be overdone. The NDX/SPX relative strength ratio has faded again this week. That's a second clue. For more clues see the current sentiment section below.

NDX - 6 month Chart Model - Friday June 10, 2005

Our buy signal has been out of sync with the market this week. As we know, this must happen at changes in trend. Just as in any electronic feedback control system, our trend following system relies on negative feedback inputs to get error corrections which then get our model moving again in the corrected trend direction. At this time, the negative inputs are not sufficient to trigger a new signal.

What Is The Current Sentiment?

The Semiconductor/NDX ratio tells us that the semi's are trying to lead the tech rally higher. The semiconductors are outperforming (see chart below) and could lead us higher or at least keep the market afloat in an options expiration week. Options open interest also appears to lend support to keeping the market from falling dramatically.

3 year Weekly Semiconductor / NDX Relative Strength Ratio

The CBOE Put/Call Ratio (symbol $CPC) and Nasdaq Summation index ($NASI) charts are still bullish on this week's charts. (No charts shown)

What about the relative strength of the EU markets versus the U.S.? The chart below shows that the French CAC has strengthened relative to the S&P 500. The FTSE and DAX markets show similar trends. How can this be true if the EU is moving toward recession? Is this relative strength due to the dollar rally? Will euros start moving into the U.S. equities market from Europe if the dollar holds up and EU stocks begin to lose some value? A change in this trend could provide a boost to US equities.

3 Year Monthly CAC / SPX Relative Strength

Where Do We Go From Here and How To Listen For the Next Signal?

Our weekly MACD buy signal has strengthened slightly on a down week. The daily stochastic on the NDX is not quite yet in oversold territory so we could have some more downside next week. We need to hold the 1500 level as our stop exit point at which we will go to cash pending better visibility on the next trend leg.

The Market is challenging our system model! Keep listening?

The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX = +20.49% as of June 10 Close)

Listen To What He Says

NASB Romans 4:1 "What then shall we say that Abraham, our forefather according to the flesh, has found? For if Abraham was justified by works, he has something to boast about, but not before God. For what does the Scripture say? "ABRAHAM BELIEVED GOD, AND IT WAS CREDITED TO HIM AS RIGHTEOUSNESS". Now to the one who works, his wage is not credited as a favor, but as what is due. But to the one who does not work, but believes in Him who justifies the ungodly, his faith is credited as righteousness."

I am working on the art of listening and hope that you are also.

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