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Fear Popping or False Alarm - Are You Listening?

Opening Whisper

The market appears to be lulled into a near term story that we are in a sweet spot. And whether that story is fact or fiction perchance there's still a little energy left for August on top of a very profitable July rally. On Friday the Q2 GDP (advance) came in at 3.4%, just slightly below expectations. Of course this is for the quarter that is behind us and does not tell us necessarily what lies ahead. The real story however is that today the market did not crater too badly in the face of the lower GDP number and higher oil prices. When weaker economic news does not impact the market significantly, this is a bullish sign. Equity volume has been moderate to higher on the NYSE. The Chicago PMI came in stronger than expected.

One worrying sign for the bulls is the 10% rise on the VIX on Friday. In sympathy, the CBOE put/call ratio popped higher indicating that some fear is moving into the market. These fears may cool somewhat next week if we can continue to interpret earnings and economic news based on the fact that we are in the middle of a summer party.

Today was a down day, but for the NDX, COMP and SPX indices, we have had an up week. The OEX and INDU are not moving and have been flat for 2 weeks. That is a negative indicator. Big picture for the week - stock buying is still in place on good volume. The SPX finished the week at 1234. We did not get the big breakout above 1235. That also could stall the rally.

Our Trading System - What The Numbers Are Telling Us

Our BUY signal is still in place though it has lost some acceleration. Our indicators are all still solidly in buy mode. At this point there is no hint of getting a cash signal.

We appear to be moving into quadrant 3 where our weekly MACD histogram will be at a maximum and start to lose momentum over the next 3 weeks even if the market moves somewhat higher. Chaikin Money Flow has become more positive on the NDX daily charts. This week we will again watch the CCI closely and should it and StochRSI start their decline, we will look to move to cash or immediately to a sell.

NDX - Expanded 6 Month Chart Model - Friday July 29, 2005

What About Bonds? The ten-year note yield seems to be oscillating around the 200 day moving average for the last 2 years. The oscillations are decreasing, but still revert to the mean. Eventually we will see a breakout of the current 4.0 - 4.5% range. Conventional thinking is that we will breakout to the upside (inflationary - rising rates). Opposing viewpoints argue that yields will be range-bound for years to come as investors seek the safety of notes & bonds over stocks.

3 Year Daily 10 Year Note Yield

What About Gold? - Gold mining stocks ($HUI) appear to be fighting significant upside resistance. HUI is at a line in the sand that must hold here or it will be headed back down to the 165 support level.

3 Year Daily - Gold Bug's Index $HUI

What Is The Current Sentiment?

GE and Citigroup continued to lose ground this week. These leading stocks are giving us a leading indication of where equities prices are going. GE and C must hold here and make a dramatic turn if we are going to move the broader indices much higher. (No Charts)

This week the VIX and CBOE Total Put/Call ratio bounced off of bottoms and turned up rather dramatically as equity prices turned down. Next week will tell us if Friday was a fear blip or something of more substance. The $VIX and $CPC will naturally move inversely with stock prices, but there exists a certain level on both, above which we might get a substantial tidal reversal when the money once again starts flowing from buying to selling. I have taken a stab at those levels on both charts. A break above 17 on the VIX and 1.10 on the CPC could produce a six-month sell cycle crushing the hopes for the typical year-end rally. We are not predicting a sell-off, but we are simply placing our "watchpoints" for future reference.

6 Month Daily VIX

6 Month - Weekly CBOE Put/Call Ratio

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

We are in that part of the MACD cycle where we need to be looking for any excuse to go to cash and perhaps then move to a sell signal. The king of indices, the S&P 500, must hold 1220 and make a push higher in the next few trading days. If repeated attempts at 1240 are met with continued selling, we might just go to cash and let the speculators sort out which way they want to take the index.

NDX closed the week at 1605. We have raised our stop to NDX = 1580 based on our gain for the week. Exit to cash (RYMXX) on any daily close of NDX below 1580. We recognize that this is a very close stop but we need to hold our substantial gains for the year and would prefer to be stopped out prematurely rather than lose some of those gains. We will figure out how to re-enter should that become necessary.

Market Listener Trend Timing Summary
Current Signal: 100% BUY (Bought RYVYX Rydex Velocity 100)
Subscribers were advised by email to BUY RYVYX before the close on Friday July 8.

Conservative Investors: You should begin to sell your RYVYX holdings and move gradually to cash. There is likely a very limited upside for the next week or two.

Fault Tolerant Cash Safety Stop (FTCSS): Raise the Cash STOP to 1580 on NDX. Exit the long RYVYX position and go to the safety of cash on a daily close of the NDX below 1580. Any NDX weakness which breaks below that point could accelerate downward. We will raise stops during the week if the rally continues.

An email will be sent to subscribers if there is a mid-week update.

The Market is hesitating here. The next signal may be coming soon!

The Market Listener Indicators
(YTD Gain/Loss with RYVYX & RYVNX approx. +28.2% as of July 29 Close)

Week Ending  Slo. Stoch. 
 ML Signal1 
July 29, 2005 Buy Buy Buy Buy Buy
July 22, 2005 Buy Buy Buy Buy Buy
July 15, 2005 Buy Buy Sell Buy Buy
July 8, 2005 Sell Sell Buy Buy Buy
June 24, 2005 Sell Sell Sell Buy- Cash
June 17, 2005 Buy Buy Buy Buy Buy
June 10, 2005 Buy Sell Buy Buy Buy
June 03, 2005 Buy Buy Buy Buy Buy
May 27, 2005 Buy Buy Buy Sell++ Buy
May 20, 2005 Buy Buy Buy Sell++ Buy
May 13, 2005 Buy Buy Buy Sell++ Buy
May 06, 2005 Buy Buy Buy Sell+ CASH
Apr 29, 2005 Sell Sell Sell Sell Sell
Apr 22, 2005 Sell Sell Sell Sell Sell
Apr 15, 2005 Sell Sell Sell Sell Sell
Apr 08, 2005 Sell Sell+ Sell Sell Sell
Apr 01, 2005 Sell Sell Sell Sell Sell
Mar 24, 2005 Sell Sell Sell Sell Sell
Mar 18, 2005 Sell Sell Sell Sell Sell
Mar 11, 2005 Sell Sell Sell Sell Sell
Mar 04, 2005 Sell Sell Sell+ Sell Sell
Feb 25, 2005 Sell Sell Sell Sell Sell
Feb 18, 2005 Sell Sell Sell Sell Sell
Feb 11, 2005 Sell Sell Sell Sell Sell
Feb 04, 2005 Sell Cash Sell Sell Cash
Jan 28, 2005 Sell Sell Sell Sell Sell
Jan 21, 2005 Sell Sell Sell Buy- Sell
Jan 14, 2005 Sell Sell Sell Buy Sell
Jan 07, 2005 Buy Sell Sell Buy Sell
Dec 31, 2004 Buy Buy Sell Buy Cash
Dec 23, 2004 Buy Buy Buy- Buy Buy
Dec 17, 2004 Buy Buy Buy Buy Buy
Dec 10, 2004 Buy Buy Buy Buy Buy
Dec 03, 2004 Buy Buy Buy Buy Buy
1 This Market Listener signal is our base signal. The MACD is our primary weekly input, but can be "out-voted" by the other faster indicators on a daily basis when we need to go to cash to implement our Cash Safety Stop (CSS). You should not base your trading on this or any other single indicator. With Rydex Dynamic funds, we can trade in the morning and 5 minutes prior to the close during the trading day/week when I see that one or more of the fast signal indicators have changed signals. This is particularly important if I am going to a CASH position in order to preserve capital. The above table shows the results of the end-of-week, WEEKLY SYSTEM MODEL SIGNALS.

Listen To What He Says

NASB Mark 4:3-9 "Listen to this! Behold, the sower went out to sow; as he was sowing, some seed fell beside the road, and the birds came and ate it up. Other seed fell on the rocky ground where it did not have much soil; and immediately it sprang up because it had no depth of soil. And after the sun had risen, it was scorched; and because it had no root, it withered away. Other seed fell among the thorns, and the thorns came up and choked it, and it yielded no crop. Other seeds fell into the good soil, and as they grew up and increased, they yielded a crop and produced thirty, sixty, and a hundredfold. And He was saying, "He who has ears to hear, let him hear."

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

Wishing you all the profit you can handle,

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