Thursday, July 27, 2006


Futures are up this morning as was Asia and as is Europe/UK. Gold jumped 8 bucks overnight because of the dollar slide. The Yen broke out of its trading range and is appreciating in value as is the Euro. Earnings are streaming in and seem to be overall strong. What's not to like?

I don't like the NR7 formation I see on all of the major indices. An NR7 is the "narrowest range in 7 days reading" and often precedes a change in market direction. Yesterday, of course, was an up-down-up-down day, totally psycho. Obviously there is enough cash on the sidelines to lift the market and enough sellers to dump it again. Glad I'm sitting this out.

The other thing I don't like is that the up/down ratio dropped again, this time to 47%. That is a neutral reading but taking it in sequence what we see are fewer stocks going up every day. That suggests a weakness in the market.

The third thing I don't like is that the VIX is better than 10% below its 10 day moving average.

Given those three things coupled with increasing earnings, end of the month festivities and a high probability that the Fed is done in August and this market is about ready to implode.

I think what it needs is a good flush-out to prepare it for the Fall. I wouldn't be surprised to see it go sideways-down into Friday then down-sideways into the Fed meeting. Then have a brief day or so of exuberance and then drop again until mid-September.

Later this morning I'll post a set-up using VIX and a stock from yesterday.

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