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The trend is UP for NASDAQ.
SUMMARY Last week (3-24-06) we said, "The positive climate going onto last week enabled the indices to push higher with the Dow, the SP500, and NASDAQ reaching 11335, 1311, and 2333 respectively, as we had suggested. For the coming week the overall technical climate is neutral, while at the same time we have a "news item"--the two day FED meeting--which could very well act as either a negative or a positive catalyst for price movement. Assuming that the price of oil stays between $65 and $61, and taking into consideration both the technical readings and the chart patterns going into next week, one must conclude that the odds are better than even in favor of weakness early on in the week. Subsequently, after the FED makes its announcement the weakness may accelerate, or we may see a positive reversal with strength replacing weakness, and prices moving higher to re-challenge resistance. Having spent the last 17 years as students of the markets, our view is that at the present time being mostly in cash or hedged seems to be the most sensible position. Why? Take a look at our three market timing indicators. One is on a sell signal, one is on a buy signal, and one is neutral! It makes sense to take a position when all three are on the same page, because the odds that you have taken the right position are better than even. At the moment, the odds are only 1:3 in favor of whatever position one adopts. Thus, with the odds worse than even in favor of whatever position one takes, it makes sense not to have/take a biased position at all. There is a time to be long, there is a time to be short, and there is a time to be in cash. In our professional opinion this is the time to be mostly in cash, or hedged when it comes to the equity markets." (Current Week) Notice that the price of oil and the yield for the 10-year T-note are near their highs of the last two years. Consequently, we believe that over the next 1-2 weeks we have two possible scenarios ahead of us. 1) Oil and bond yields will re-test their highs and then they will pull back, in which case the equity markets will be under modest pressure over the next 3-5 days, and then they will rally as oil and bond yields retreat. 2) Oil and bond yields will advance decisively above their previous highs, in which case the equity markets will remain under pressure, and in all likelihood, they break below support and they will decline to the first downside targets. The key point is this: the equity markets are in a "high-end" consolidation, the outcome of which is dependent upon two different variables--oil prices, and bond yields. Investors/traders should not attempt to take a bullish/bearish position with regards to the equity markets, unless they can determine with a reasonable degree of certainty where oil prices and bond yields are headed. The equity markets are the wrong class of assets to focus on at the present time. Currently, the equity markets are not in charge of their "own destiny;" they are at the mercy of two other markets--oil, bond yields--which in turn are both vulnerable to exogenous events! At times like these, equity investors who are risk averse ought to be mostly in cash, or in hedged positions. Investors ought to be primarily concerned with preserving their capital instead of "catching" the next move. One of the lessons that we have learned in our 17 years of being students of the markets is to never worry about "missing" something that is coming, but to always worry about that "something" not missing us when it finally comes! Please also read: ETFs.
Ike Iossif
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