Vol. 072108 Number 1


RedRoadmaster@aol.com


Dear Friend,

• Options Expiration Friday was quiet after a hot market week.
• Crude Oil broke its 2008 Northside trendline.
• Inflation/Recession offer opportunities.

Last Friday the Market paused to refresh after a week of good action

The oversold bounce I have been expecting happened, and when it did the move was strong, fast and a hard charge North. Now we will see it can head to key overhead resistance after pausing to refresh on Friday.

• Last Friday key’s: Citigroup reported losses of $2.2B and gapped higher on that positive news.
• Crude Oil was flat on the day. Gold was down on the day.
The US$ was flat after its bounce, but does not look good in here as it stalls at the 10 day EMA, possibly making a lower high, thank you Fed.
• More inflation in the mix and that means opportunity.
• Bond rose, but are well off the highs hit not so long ago; investors slowed their run to the safety of US Tr’s.

Friend, last week’s action was technical only, an oversold bounce. The data had virtually no cause for the run, except the Crude Oil adjustment that was in the cards anyway.

The Big Q: can the Bulls continue this run?

The Big A: Maybe…


TECHNICAL: Intraday last Friday the action was up and down off of the open: higher for DJIA, lower for the NAS, and flat on the S&P 500. It seemed like the market was weary and out of steam to end the week after the oversold reversal on Wednesday and Thursday.

INTERNALS: One word, flat on the pause to refresh.

CHARTS: Holding up OK, the loss leading NAS is holding its 10 day EMA on the low. Again, a pause to refresh on the way up to the 50% retracement, or to the 50 day EMA. The 50 day EMA will be the first real test of resistance on this bounce.

LEADERSHIP: Almost every sector, and commodity that moved sharply in one direction or the other on Wednesday and Thursday paused last Friday. This is typical after a strong charge North. The leadership remains thin at best, and we will see how the market acts this week in part two of the attempt of a rally.





Crude Oil headed South last week breaking its Northside trendline.

Last week Crude Oil gave the DUG options players, the ultra-short ETF that plays a decline in Crude Oil, a good Northside gainer, indicating that the Crude Oil rally was spent in the near term.

The Big Q: Will Crude Oil continue its fast slide?

The Big A: Very likely, but not so quickly from Friday’s close.

Note: A 12% drop in less than a week typically will not continue without a bounce in between. One analyst that I read put it this way: “The second trendline of 2008 is a logical point for a bounce. After that bounce and a move up toward the 10 day EMA, however, it will likely be done and heading lower once more, this time to the low 120's. Then a bounce, then a slice through the 120's . . . If there are no shocks to the system.”

The was a potential shock to the system last Friday as violence in Nigeria and it did not effect or bounce Crude Oil, as the market ignored it.

Friend, if Crude Oil moves South through 120 that could be the move that saves this economy.

Econ 101: In world of supply and demand, it was demand, and perceived supply that drove prices into the US$140+bbl, that price then killed demand, and started to undermine world economies, and now t prices are falling on what we call, Demand Destruction.

As with the bankers and investment bankers, greed got in the way of the Crude Oil producing countries, and now many world economies heading South.

Demand will plummet. China has said that after the Olympics it is prepared for slowing, and there is more in store in the US, the EU, India and Southeast Asia. So there is hope.

China and India have been buying up reserves fast in a kind 70's like fear of running out that caused consumers to cue up for hours to keep their tanks topped up. These countries bought everything they could to keep in reserve.

Friend, Crude Oil could lose the US$30 limited supply fear premium, and when the diplomats work things out with IRAN, and when we get out of Iraq Crude Oil prices will be back to US$ 80bbl that number that Crude Oil is being carried on the book of the Major Energy companies.

When that happens things suddenly look much better, and that thing may pull the US out of this recession.

With Crude Oil back below US$100 bbl, consumer confidence will jump on anticipation of lower gasoline prices jumps.

Just on last week’s move the market anticipates a $0.20 drop in pump prices this week based, and plans that were put off are now on again, both for business and the consumer.

The irony, the move that killed the economies helps revive them as the cycle of supply and demand continues to work.

Good bye Ethanol, why, because we do not need our food prices rising higher on the US Gov’s initiative.

On the other relief systems; we more near term drilling here in the US, and we need to harness the wind, develop hydrogen sources, nuclear, and geothermal. For it will be with a combination of solutions will we buy enough time to come up with the real solution that gets our vehicle fleet off the internal combustion engine.

We are in that transition and when we get there, we all win and our standard of living heads North.

The Plus Side of Inflation/Recession.

Check this out my pal has this to say: The Phillips Curve pundits say it does not happen: they say you cannot have a slowing economy and jumping inflation.

1. Hard facts prove otherwise. Even as the economy slows faster and faster, inflation rises faster and faster. Those understanding money supply and supply and demand know that slowing economies produce less supply of goods and services, and that causes an immediate jump in inflation.
2. Add on to that the impact of a recession and the usual attempts to combat it with interest rate cuts and easy money, and you have a falling US$ and then even more growth in inflation.
3. Now if you fall into depression you may at some point deep, deep down in the bottom of the trough see inflation slow simply because demand falls to zero.
4. The one time the Phillips Curve works is at the bottom of Depression.
5. Given that we typically avoid depression in our economy that makes the Phillips Curve worthless.

Friend, I expect that we will see inflation continue to rise even as the economy slips.

The Big Q: What good can we get from it?

The Big A: Not a whole lot as a country, but as individuals you can use it to your advantage.

• As we head into recession you will see a lot of good stuff go On Sale
• You will see very aggressive auto promotions, farm equipment and other machinery On Sale too. Some with federal incentives.
• You can use this slowdown to pick up big ticket items that are aggressively priced and then use the tax incentives already in place ($250K of section 179 expensing for small businesses) that give us a solid 1-2 savings punch.
• Boats will also go off for fire-sale prices.
• If you saved your money as you made it you will be rewarded with tremendous bargains on long-lasting goods.

So, when everyone is selling, you can be buying if you know when. Stocks will lead the way, but you will want to buy them as they are ready to surge back North. When the time is right, load the boat as in the fall of 2002, and in March of 2003.

This is what to do as inflation runs higher, start considering paying off debt because inflation makes US$ worth less and less. Your household mortgage is not going to cost more dollars just because the US$ you owe are worth less.

Friend, when inflation stats to peak, and I will tell you when, it is a good time to pay off debts with dollars that are worth less. The US$s you make after that will increase in value after you eliminated the same dollar amount of debt but with US$s worth less than the ones you are earning as inflation declines. Get it?

• VIX: 24.05; -0.96. The week saw VIX rise to 30.81 on the Tuesday high just as the NAS came off its bottom, and closed in the Green helping to launch the upside move on the week. The original CBOE data was not correct as it showed a spike to 38 intraday midweek last week. That means VIX did not hit a level indicating a reversal. The move North to the 40's remains elusive on this selling wave indicating to me that there is still plenty more work to ge done here, and that this action is relief action only.
• VXN: 30.49; +0.62
• VXO: 25.46; -0.46

Put/Call Ratio (CBOE):0.92; +0.06. Three straight sessions below 1.0 on the close after 13 straight above 1.0. Result, the bounce.

Bulls vs. Bears:

Bulls: 27.8%. The Bulls were flat last week, up 0.4% from 27.4%. In March the indicator did its job with the dive below 35% and the crossover with the Bears. Now it is going above and beyond, as the Bulls and Bears crossed over again. The move into the lower 40's is significance, a move to 35% is a bullish indicator.

For reference: The Bulls bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.

Bears: 48.9%. The Bears rose from 47.3%. Not a lot but it is one of the best indications that sentiment is getting extreme on the negative side. Remember that 35%, the level that historically indicates too much pessimism.

For reference: Bearishness peaked at 37.4% in September 2007 topping the June 2006 peak (36%) on that move. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that sparked new rallies (30% in May 2005, 29.2% in October 2005).

NASDAQ

Stats: -29.52 points (-1.23%) to close at 2282.78

Volume: 2.269B (-14.5%).

Up Volume: 933.089M (-1.025B)

Down Volume: 1.305B (+582.477M)

A/D and Hi/Lo: Decliners led 1.22 to 1

Previous Session: Advancers led 2.16 to 1

New Highs: 54 (-4)

New Lows: 113 (-13)

The NAS Chart: http://stockcharts.com/h-sc/ui?s=NAS

The NAS gapped lower last Friday, sold to the 10 day EMA, rebounded to hold support, and cut its losses, and it is in good position to bounce higher this week to the 50 day EMA at 2355.

SOX (-0.68%) sold last Friday too, rebounded off the 10 day EMA to close at a minor loss. It is also in shape to make a run North to resistance at 380 + 14pts.


S&P 500/NYSE

Stats: +0.36 points (+0.03%) to close at 1260.68

NYSE Volume: 1.729B (-12.24%).

Up Volume: 978.468M (-407.994M)

Down Volume: 707.817M (+160.511M)

A/D and Hi/Lo: Advancers led 1.16 to 1

Previous Session: Advancers led 2.7 to 1

New Highs: 31 (0)

New Lows: 135 (-10). Hit over 1100 new lows last Tuesday just as the market turned on the extreme action.

The S&P 500 Chart: http://stockcharts.com/h-sc/ui?s=sp500

After two strong sessions the S&P 500 finished flat last Friday, good action after the strong move North. It now looks to be set up to continue the move North this week up to the 50 day EMA at 1314, the 50% retracement level from the losses off of May’s high.

The S&P 600 (-0.29%) also finished the week in good shape. It formed a short double bottom over the past two weeks at the March lows and moved North off Thursday’s reversal. Now the small caps are set up to continue the move North this week up to the 372 level (closed at 363.49)

DJIA

The blue chips continued their upside movement, aided Friday by the Citigroup losses that were in the billions, but not as many billions as expected. Find your catalyst and hang onto it baby. The Dow put in the best move on Friday, but even after three upside sessions it is still below the prior 2008 lows, the closest the January intraday low at 11,635. Will move with the rest of the market and move up to that prior low and the 11,750 resistance level. Things will get tougher from there.

Stats: +49.91 points (+0.44%) to close at 11496.57

VOLUME: 378M shares Friday vs. 335M shares Thursday. Volume rose all week with the strongest last Friday. It was Options Expiration driven, and fueled by the reversal that caused even good short covering action.

The DJIA Chart: http://stockcharts.com/h-sc/ui?s=djia

What to expect this week…

Crude Oil will be in trader’s sights to see how it comes off its second trendline of 2008. It could bounce some, and pressure stock to start this week, but that action could just set up a better point to rally from.

Earnings come in heavy this week, and so far there have been very solid results except for some disappointments in the Tech Sector, leaving the NAS oversold and in a good position to continue the oversold rally after this pause to refresh.

Many of the contrary indicators hit extreme levels, and are lining up. The VIX is still low, and with the Fed no longer the put behind the interest rate market, the VIX is no longer under the governor it was in January through May. It really needs to spike over 40 for the market to consider putting in a bottom, and friend you know that after the VIX spikes it takes several weeks for the actual bottom set.

Crude Oil is a key in here, and this first move South is good. I expect to see modest bounce and then I want to see it head South again to US$120's bbl. That will help set up a market recovery, and if it really collapses stocks will take off and charge North. Sinking Crude Oil, and the bottoming in the housing market is strong.

Basic market history tell us that we will pause to start this week as Crude Oil tests its run South, then the market will run North toward the 50% retracement level, the key level of resistance to test.

Again, if no external forces bear down on the market, history says we get a run up to cut half the losses, and from there we see what kind of strength there is: a turn back down to test again , or a Summer rally.

Crude Oil and Energy are on the watch list, as they come off of their relief bounce we should look for more opportunity to play the Southside, as Crude Oil and Energy need to work off more of the excesses. Again, watch the Crude Oil stocks as they rebound, trapping some players who are listening to the pundits and the select some for more Southside action as they set up over this week.

Friend, if the indices run up to the 50 day EMA, or that 50% retracement level that I have been talking about above, and reverse you will want to play the Southside move. So, watch for stocks that stall at resistance, and start to reverse. Be ready, stay tuned…




NASDAQ: Closed at 2282.78
Resistance:

2286 is the first April 2008 gap up point.

2339 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation

2340 from the March 2007 low

2358 is a 50% retracement of the June to July selloff.

The 50 day EMA at 2356

2370 from the April 2006 peak

The 90 day SMA at 2378

2378 is the mid-February peak; 2379 from the October 2006 peak

2386 is the August 2007 intraday low

2388 is the June 2008 low

2392 is the April 2008 peak

2419 is the January 2008 peak and the early February peak

2451 is the August closing low

The 200 day SMA at 2473

2500 from interim August lows.


Support:

2261 is a March 2008 interim low

2202 is the January 2008 low

2155 is the March 2008 low

S&P 500: Closed at 1260.68
Resistance:

1270 is the January low
The 18 day EMA at 1268

1317 from the February low

The 50 day EMA at 1315

1320 is a 50% retracement of the May to July selloff

1324 is the April low

1331 is the June low

1343 is an ancient trendline

1370 is the August 2007 intraday low

1374 is the March 2007 closing low

1387 is the April 2008 intraday high

1396 is the February 2008 peak

The 200 day SMA at 1396

1406 is the August and November 2007 closing low

Support:

1257 is the March low

1244 is an August 2005 peak

1240 to 1221 are September 2005 peaks1234 is the July 2006 low

1224 is the June 2006 low

1176 from the Q4 2005 lows

1167 is the January 2005 low

1154 from the May 2005 lows

1142 is the 2005 closing low

Dow: Closed at 11,496.57
Resistance:

11,634 is the January intraday low

11,670 is the May 2006 intraday high; 11,642 closing

11,731 is the March 2008 low

The 50 day EMA at 11,863

11,982 is a 50% retracement of the May to July selloff

12,050 from the March 2007

12,070 from the early February 2008 lows

12,250 from late March 2007 lows

The 90 day SMA at 12,291

12,518 is the August intraday low

12,573 is the mid-February high

The 200 day SMA at 12,697

12,743 is the November low

12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007

12,786 is the February 2007 peak

12,845 is the August closing low

13,092 is the December 2007 intraday low

13,133 is the May 2008 high

Support:

11,317 from March 2006

11,061 from February 2006

10,912 peak from March 2005

10,854 from December 2004

10,701-10,705 from July 2006, July 2005




July 21 - Monday

Leading Economic Indicators, June (10:00): -0.1% expected, +0.1% prior.

July 23 - Wednesday

Crude Oil inventories (10:35): +2.95M prior

July 24 - Thursday

Initial jobless claims (8:30): 366K prior

July 25 - Friday

Durable goods orders, June (8:30): 0.1% expected, 0.0% prior

Michigan sentiment, July revision (10:00):

New home sales, June (10:00: 505K expected, 512K prior




Last week I uncovered a Little Gem, MIV Therapeutics, Inc. (MIVI) in the medical sector and, sent an Alert. Here is the Re-cap from a technical point of view.

MIVI is in a trading pattern preparing to break out to the Northside, last week; it has a high of $1.85/shr vs. a low of $1.57/shr, closing last Friday at $1.75/shr.

Fundamentally MIV Therapeutics, Inc. looks to be a good company with advanced life saving products. (http://www.mivtherapeutics.com/).

MIVI is a “Little Gem” coming off of a bottom, and deserves your checking it out. I do not own MIVI at this writing, and nobody paid me to give you the Alert.



Have a great week.

All the best,

RedRoad Master

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