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WEEKLY REPORT

A couple of weeks ago we said: "The scenarios we outlined last week are still valid; notice that the  indices have broken neither above resistance nor below support, thus, from a technical point of view,  nothing has changed since last week. The indices remained stuck in the same trading range, but since they were unable to take out resistance, the odds favor a re-test of support, which is what we expect for next week. In the case of the Dow and the SP, we expect further decline to the first downside targets."

Last week, the price  action by all the major indices turned out to be as we had described,  and thus, the scenarios we gave you  three weeks ago continue  to be valid and we will use them as "roadmaps" until the price action no longer resembles our forecast.

As of the close on Friday, we believe that the major indices, and more specifically NASDAQ and the SP, are at point (1) which represents minor support, the McClellan Oscillators are modestly oversold, the assets in the RYDEX bear funds are at the same level that in the past 3 months we got a modest bounce--see chart on the bottom of this page--the Thrust Oscillators  have turned up, and the Quantifiers have arrested their decline in the minus 14, minus 16 zone; therefore, although the overall trend remains  negative, a 2-4 day modest counter-trend bounce could be in the cards. If that is the case, we would expect NASDAQ, and the SP to rally up  to resistance at point (2), and then to resume their decline down to point (3).

Why do we believe that  there is more work to the downside?  First of all,  all of our technical indicators are in negative territory and declining, which means the internals are not in a position to support strength. Second, take a look  directly at  the internal action over the past few months as illustrated by the number of stocks trading above their 200 DMA in the NYSE, in the Dow, in the SP500, in the NDX, and in the SP600-Small Caps Index (see charts on the bottom of this page).  Thru-out the entire advance, which started last August--eight months ago--the number of stocks participating has gotten smaller and smaller, even in the leading  indices such as the NYSE and the Dow. We see the exact same picture by looking at the  McClellan AD and Volume Summation Indexes for the entire U.S. market (see last two charts from the bottom). In other words, internally, the entire market has been getting progressively weaker, while externally energy prices have been rising, and as of late, bond yields have been rising as well.

If we were looking at the same set of data 3-4 years ago, we would not hesitate to  suggest that the market was on the brink of collapse, because  if you examine market history over the previous 100 years, you  would observe that market collapses have come about from a combination of profound internal weakness coupled with external  shocks. However,  having observed the price action of the past two years, and  having seen the U.S. equity markets miraculously defying all odds,  we must confess  to you that although we are very cognizant of the market's precarious position, we would not be surprised at all if somehow the market's "guardian angels"   managed to save it once again!  History tells us that inevitably at some point, even this market will run out of  "lives." Have we arrived at that point now? We do not pretend to know, but it sure does look like it.

CHARTS  COURTESY OF CARL SWENLIN AND WWW.DECISIONPOINT.COM   CHARTS  COURTESY OF CARL SWENLIN AND WWW.DECISIONPOINT.COM

Ike Iossif

Special note: The charts that you are viewing, are the charts that we use in our afternoon meetings. The comments you read are the comments I make to my staff during the same  meetings. My purpose is not simply to tell you our conclusions, but to educate you about the market and show you the evidence that lead us to make those conclusions so you can judge for yourself.

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