Opening Whisper

When and where will we see these quiet markets begin to move again? I am not necessarily getting impatient mind you, because I know that we can profit from mildly oscillating markets. But I am looking for those larger trending moves which can be very profitable as we trade at beta 2.0. It must be somewhat like being on a safari. We proceed with caution, stalking our prey, evaluating the landscape, and keeping our eyes peeled for signs of life. And in listening carefully to the markets daily noise, we might see through our filters, something of a pattern that tells us that we are getting close to that big bull or bear. A real 12 to 15 pointer would be nice. Bag him. It would be a great catch.

I believe it was at a workshop by the legendary trader Larry Williams where he said, "Small range days eventually become large range days and large range days eventually become small range days". He was speaking of the cyclic nature of the futures markets, but the same applies to all markets in general. Quiet periods give way to hectic periods. Low volatility evolves to higher volatilities. Lackluster volume becomes heavy duty volume. We can expect things to change. It was Solomon that wrote: "To every thing there is a season, and a time to every purpose under the heaven,... a time to break down and a time to build up". The season for a big move is coming eventually. We need to be ready.

The equity markets have been relatively quiet since early 2004. Next week we will take a closer look at the evidence for a larger move this summer and what we might see in the October to December time frame. Could we get two big moves yet this year? How about new highs on the Dow Industrials before the summer is over? Then maybe a sell-off to 8000 - 8800 as we get closer to 2006 earnings reporting period. Buy in May, sell in September?

Oil is at all-time highs. The University of Michigan Consumer Confidence number for May rose dramatically, probably due to lower oil. Recent oil price increases may dampen consumer confidence when we see June's numbers next month. Manufacturing slowed in some sectors in May as witnessed by the Philadelphia Fed report. PPI and CPI were tame. The current account deficit increased dramatically. The dollar index has relented late in the week and commodities are on the move again, including gold. Next week's light economic calendar bodes well for the bulls.

The S&P 500 and NDX-100 held at support and moved higher this week. If this week has truly been our "critical point of order" as mentioned in last week's report, then the verdict is in, we passed the test and we should be in buying mode. The summer rally is apparently not over yet. If you have any question about this, look at the daily or weekly chart of the $SPX. The S&P 500 index is leading the bullish case into the summer.

Our Trading System - What The Numbers Are Telling Us

Our system model has recovered the buy signals on the faster indicators. The weekly MACD has strengthened again this week. The system model chart is telling us not to worry about going to cash, but to buy. The fast MACD's on a daily chart of the NDX are curling up as well.

NDX - 6 month Chart Model - Friday June 17, 2005

Our buy signal was out of sync with the market last week, but has gotten back in sync again this week. Sentiment is not at extremes, SPX is overbought on the daily stochastics, NDX is coming out of oversold.

What Is The Current Sentiment?

The NDX/SPX ratio is revealing weakness in Nasdaq technology. This does not mean that the NDX will not see some more gains this summer, but the broader market is out-performing the Nasdaq for the last couple of weeks. It may be telling us that the summer rally may be limited in scope without the necessary tech leadership. Technology needs to find its legs.

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)

The next chart is a look at the relative strength between the Broker Dealer Index (XBD) and the NDX 100. We see that in mid-May of this year there was a downward spike in the ratio which has since recovered sharply. Is this a buy signal? Similar signals may have been given in March 2003 and early July 2004.

3 Year Weekly $XBD / $NDX Relative Strength

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

Our weekly MACD buy signal has strengthened. The daily stochastic on the NDX has started to turn up above the 20 level indicating a short term buy. I believe that we should set a very tight stop here. Let's use a point just above the lower Bollinger Band at 1520. The market must move up with our MACD signal next week, or our signal is again out of sync. By setting a close stop, we can retain profits until we see where the next short term trend will be going.

The Market is whispering... Summer Rally! Are you listening?

The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX = +23.21% as of June 17 Close)

Listen To What He Says

KJV Ecclesiastes 3:1
"To every thing there is a season, and a time to every purpose under theheaven: A time to be born, and a time to die; a time to plant, and a time topluck up that which is planted; A time to kill, and a time to heal; a time tobreak down, and a time to build up; A time to weep, and a time to laugh; a timeto mourn, and a time to dance; A time to cast away stones, and a time to gatherstones together; a time to embrace, and a time to refrain from embracing; A timeto get, and a time to lose; a time to keep, and a time to cast away; A time torend, and a time to sew; a time to keep silence, and a time to speak; A timeto love, and a time to hate; a time of war, and a time of peace."

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