New Format For Mid Week Update

Since April we have been working on advanced workspace in Erlanger Chart Room (ECR) to perfect the "market call". This process will continue infinitely as making a market call is a series of waiting to find another tool or indicator that can be added into the mix to improve the sensors or tools present on the aircraft carrier.
(the aircraft analogy was written for my friend Fari Hamzei, the ultimate navigator).

Just like in July everyone was calling for the market to drop. Then the market had corrected from 950 to 875. A drop of 75 points or thereabout. Now we have dropped from 1018 t0 995. Almost 25 points. It is amazing two down days and the world is crashing by design. It is not that simple.

As Phil Erlanger noted in this morning's video on http://www.goodmorningwallst.com the crucial level is 975, a test of the head and shoulders double bottom neckline. These videos are a must watch each week.

http://budurl.com/gmws081109

The market call is driven via Erlanger Chart Room. First the bias of the market is established. Then sentiment is reviewed. Third seasonal trends are noted. Fourth market timing tools from Phil Erlanger are reviewed. Next performance of the Russell 2000 to the S&P 500 is compared with breadth measures.

The process is rounded out with sector analysis of what is and is not working. Asset classes within the U.S. are compared against the world. The net result is the "bad mama jama".

The bias is positive. The S&P 500 is in its DMA channel on a daily bass, above it weekly and monthly. The ETD is in uptrend on a daily and weekly and in rally mode monthly. The one hitch here is the ENS is in some trouble on a daily basis but weekly and monthly look great. The NASDAQ Composite looks to be in respectable shape but has a few more chinks in its armor. The S&P 500 is leading the NASDAQ as of this update.

The prior reporting period saw short interest rise nicely. This has failed to confirm with the latest release. Shorts covered and did not press their bets. This is not a surprise as the market motored the last two weeks of the month of July. The fuel for a rally has been drained a bit here. Numbers are still coming so expect to see some more comments tomorrow night on this. Call action has yet to reach an extreme as money is blindly bet on calls. Sentiment will not help the market continue to plug higher.

The worst of the seasonal cycle lies ahead in September and the first half of October. A brief respite is in place for the next few weeks on the S&P 500. This requires some caution as it is hard to make money during this period as the legislative branch of the government returns and corporate chieftains come back from the beach to tweak their business models.

Erlanger's market timing tools the EBB and Squeezeometer remain in pretty good shape although the EBB is close to breaking below 0 on a daily basis. This could be another indication of sideways action. However, it is too early to reach a firm conclusion.

The Russell 2000 (small cap) continues to dust the S&P 500 however it is slowing a bit at this juncture. In periods of market weakness, the S&P 500 takes control.

Market breadth remains positive although the second derivate is starting to slow on several fronts. In particular, the Market Trin 10 Day Moving Average has dropped under 1 which is where the market typically starts to struggle.


There has not been a great deal of sector leadership change. What brought the market higher remains strong. Although technology, needs to be watched closely to make sure that its leadership position does not falter. The sector technicals remain in good shape.

In terms of assets classes stocks are doing better than treasuries. Investment grade bonds long strong as does high yield. Mature overseas markets are strong while emerging is struggling just a bit here. It looks like China is going to slow their growth a bit and kick start it later in the year when the world needs it more than right now. The surprise has been the strength of the U.S. dollar. It should struggle as the reflation trade kicks into gear. As a result, the commodity patch cannot begin an uptrend until dollar weakness becomes more pronounced.

IN the past few days, the equity market of several countries have begun to weaken and they include Canada, Sweden, Germany, Singapore, Taiwan, South Korea, South Africa, China, India, Israel, Turkey and Russia. Themes here are pretty obvious. Countries with heavy commodity exposure are struggling while those ties to China are also failing to see more upside.

That about wraps up the current state of things. Overall, buyers should be cautious here and shorts use tight stops. The uptrend is not dead rather simply slowing. The bulls remain in control until more data confirms trouble on the horizon.