HOTS Options Commentary

[Hamzei_Analytics]

HOTS Opening Commentary (Issue #23)

All those sell signals and warning signs that I have talked about in the last update, have finally produced a sell off on Thursday and Friday. There was no escape, just about everything went down. Small Caps led the way lower, while NASDAQ tried to resist the selling due to Microsoft’s heroics. Meanwhile we took nice profits on a couple of bearish positions, which we established just prior to the decline. The question right now is whether this is the beginning of a down trend or just a normal correction, which is almost over. In my opinion, the answer is neither one. The market had a good rally to important resistance levels, where it got to a point where there is simply no more reasons to buy. At the same time the economic and technical conditions are not scary enough yet to bring back severe declines. My expectation for next week is for wide swings (especially after the FED meeting) with downside bias. 1225 represents support on September S&P futures. 1598 is a support level for September NASDAQ 100 futures. A daily close below these levels will look bearish on the charts and may bring more selling. It is important to watch NASDAQ’s relative strength, because it is difficult for the market to go down without NASDAQ.

The chart above illustrates that NASDAQ composite has run into problems at the appropriate resistance level, and the strategy should be to sell strength until this trend line is broken or the market gets oversold. I will be watching the enthusiasm of a rebound to assess whether and how we need to be aggressive on the short side.

On a short-term basis it will be interesting to see if bears can close the market below the support level outlined on the SPX chart below. A continued weakness in the Bond market can be a catalyst for further selling in stocks

Good trading to all,

Dennis Leontyev
Options Strategist & Editor,
Hamzei Analytics

 

[Hamzei_Analytics]

Dennis Leontyev Weekly Options Commentary

Equity markets have been in a slow choppy decline for over three weeks. Volume is running below average and internals are in line with a typical summer correction action. So far stocks has been acting like a usual correction in a bull market, but this is about to change starting Monday morning. Katrina will probably have a dramatic short-term effect on several asset classes. Usually an event like this creates a panic-type situation, which is a necessary ingredient for a bottom (even if it is a very short-term bottom). Since a lot will depend on this event, I would like to concentrate on event driven trading in this update.

This time the event is a hurricane called Katrina, which can potentially kill a lot of people, damage one of the US cities and ruin 1/4 of energy business and a major port. So, what action makes financial sense? The obvious, of course:

1. Unleaded gas will go up because some of the refineries are damaged
2. Crude oil will go up because the port is damaged and infrastructure is damaged
3. Equities should go down because this has a negative impact on the economy.
4. Bonds will go up because they will represent safety.
5. US Dollar will go down, because New Orleans is located in the US.

That is it. A trader does not need to know anything else. This is Finance 101 at work. So, all a trader needs to do is the following: Buy Oil and Bonds, Sell Stocks and US Dollar.

Now, 24 hours later the event is over (lets assume that was a bad event).

A trader is long oil and bonds and short stocks and US Dollar. What to do now?
And now everything is returning to normal and the event is over. So a trader needs to justify his holding by something other than the event. If he can't do it, he gets rid of them, and by doing so, he returns those markets to levels where they were right before the event. They always come back to pre-event levels.

Does anybody actually think that intelligent and successful traders in the institutional world do what I just described? Of course not. These event-driven moves are done by two forces:

1. FEAR because if you are on the other side of this so-called basic logic, you have to cover your position or

2. All a trader took in college is Finance 101 and a trader doesn't know any better, and actually believes that Katrina will move the market according to logic on a long-term basis.

These moves are made by short-term traders. Some of them will capitalize on the event and some will not. But these events never have lasting effects of more then a few hours (maybe a couple of days). On Monday or Tuesday an I-Bank portfolio manager will call a meeting and ask his VPs who manage $50Billion whether we need to change our allocations to asset classes like Bonds, Equities, Currencies and Energy based on Katrina. What do you think they will decide to do? Nothing. They will not change anything, and therefore the market will proceed to do what it intended to do before the event. And before the event the stock market was searching for a short-term bottom and a bounce. So this is exactly what I am expecting, but this time it is going to occur in a dramatic fashion.

Dennis Leontyev

 

[Robertral]

Equity markets have been in a slow choppy decline for over three weeks. Volume is running below average and internals are in line with a typical summer correction action. So far stocks has been acting like a usual correction in a bull market, but this is about to change starting Monday morning. Katrina will probably have a dramatic short-term effect on several asset classes. Usually an event like this creates a panic-type situation, which is a necessary ingredient for a bottom (even if it is a very short-term bottom). Since a lot will depend on this event, I would like to concentrate on event driven trading in this update.

This time the event is a hurricane called Katrina, which can potentially kill a lot of people, damage one of the US cities and ruin 1/4 of energy business and a major port. So, what action makes financial sense? The obvious, of course:

1. Unleaded gas will go up because some of the refineries are damaged
2. Crude oil will go up because the port is damaged and infrastructure is damaged
3. Equities should go down because this has a negative impact on the economy.
4. Bonds will go up because they will represent safety.
5. US Dollar will go down, because New Orleans is located in the US.

That is it. A trader does not need to know anything else. This is Finance 101 at work. So, all a trader needs to do is the following: Buy Oil and Bonds, Sell Stocks and US Dollar.

Now, 24 hours later the event is over (lets assume that was a bad event).

A trader is long oil and bonds and short stocks and US Dollar. What to do now?
And now everything is returning to normal and the event is over. So a trader needs to justify his holding by something other than the event. If he can't do it, he gets rid of them, and by doing so, he returns those markets to levels where they were right before the event. They always come back to pre-event levels.

Does anybody actually think that intelligent and successful traders in the institutional world do what I just described? Of course not. These event-driven moves are done by two forces:

1. FEAR because if you are on the other side of this so-called basic logic, you have to cover your position or

2. All a trader took in college is Finance 101 and a trader doesn't know any better, and actually believes that Katrina will move the market according to logic on a long-term basis.

These moves are made by short-term traders. Some of them will capitalize on the event and some will not. But these events never have lasting effects of more then a few hours (maybe a couple of days). On Monday or Tuesday an I-Bank portfolio manager will call a meeting and ask his VPs who manage $50Billion whether we need to change our allocations to asset classes like Bonds, Equities, Currencies and Energy based on Katrina. What do you think they will decide to do? Nothing. They will not change anything, and therefore the market will proceed to do what it intended to do before the event. And before the event the stock market was searching for a short-term bottom and a bounce. So this is exactly what I am expecting, but this time it is going to occur in a dramatic fashion.

Dennis Leontyev

insightful, but lacks content. 5/10 see me

LOL

 

[Hamzei_Analytics]

insightful, but lacks content. 5/10 see me

LOL

What I posted is the opening commentary.......the details that follow are for paid customers only

good trading, fari

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary (Issue #26)

200-year history of the stock market has shown us that only one development works every time, and I repeat – every time! Death, blood, catastrophe, devastation and wars are always buying opportunities. Always! This is a terrible thing to say, but this has never failed, and some studies show that the more horrifying the event is – the more stocks rally after that. The psychology behind is rather simple. Markets always look forward, and as soon the bad event occurs, the probability of it happening in a near future diminishes substantially, and therefore the thinking is – we have less bad events to anticipate. Another reason is liquidity, which is immediately provided by the government. More money means more economic activity, which in terms provides support for stocks. The longer-term effects are usually discounted during stressful times, and traders concentrate on immediate healing effects. That’s what we are seeing right now. The question becomes: what is the longer-term picture? This question, however, requires a lot more thinking than achieving a positive end-of-the-month result. And if you are a portfolio manager, you are going to get paid at the end of the quarter, and not in a year or two when the true economic effects of current activities will become evident. So the current environment for portfolio managers requires substituting longer-term thinking with buying now and asking questions later in order not to underperform the benchmark. That is how NYSE composite index arrived to the new all-time high, which, if you believe that the stock market is a leading economic indicator, means that things have never been better in the United States from the economic stand-point. Strange, isn’t it? NASDAQ on the other hand needs to rally 250% in order to confirm this economic paradise. Talk about a divergence.

And what about short-term picture? It is mixed. More bad news from Katrina will obviously bring more buying for the reasons described above. Options expiration week should also provide more support for stocks. I am expecting S&P to get to new recovery highs this week and then to begin to run into problems, because buying at 5 year highs requires long-term thinking. And that is a big problem.

Dennis Leontyev

 

[Hamzei_Analytics]

Dennis Leontyev's Weekly Options Commentary

Hurricane Katrina is viewed by Wall Street as the best event for the US economy, therefore it brought NYSE composite to all time highs. Not only this is the only index trading at new highs, the number of new 52-week lows on NYSE is the highest in 5 months and McClellan oscillator is in negative territory. As I mentioned in my last report, buying at all time highs requires long-term thinking and this is a problem. The bond market is falling and Gold is going up like crazy. September is the best month for Gold, but this September is fueled by inflationary forces. The government will probably print $200 Billion dollars to help rebuilding efforts. The bullish view is that it will help the economy, and the bearish view is that half of it will be wasted and the other half will find its way to Halliburton. I am still looking for leadership in this market and having hard time finding any other than oil stocks. Even the housing index, which was one of the steadiest leaders throughout this bull market, is falling. Fed Funds Futures project a 94% chance of another rate hike this Tuesday. I believe, however, that the FED is not cynical enough to raise rates this time without saying something positive like “we are close to the end of this cycle”. This could be welcomed by the street and become an excuse to finally get to 1260 or thereabout on S&P. My opinion is that if your time horizon in trading is longer than three days, it does not matter where you establish your protected bearish strategies – here or two percent higher. My cumulative tick remains on a solid sell signal since the end of July. This indicator has a time horizon of longer than three days. Last week our firm issued a recommendation to our long-term portfolio clients to drastically reduce their US equity holdings.

Dennis Leontyev,
Chief Options Strategist and Editor
HamzeiAnalytics Options Trading Service (HOTS)

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary

To all HOTS Subscribers:

Despite the majority of our indicators being on the bearish side and the market decline last week, bears are still unable to take control of the market. It was surprising to see that such negative news and economic uncertainty couldn’t even drive S&P 500 down to test 1200 level, which is the August low and 200-day moving average. This spells resiliency. S&P futures are trying to rally in the Globex session on the news that hurricane Rita didn’t wipe out Houston and caused only a minor damage. This is an important point: regardless of my opinion on economics and position of technical indicators, Wall Street turns every news positive and looking for an excuse to buy. Maybe this is just temporary, but until the sell side is capable of breaking and closing S&P 500 index below 1200, I view bears as just capable of talking and no action.

Bond market has completely lost its identity and decided to follow Crude Oil almost tick for tick. This actually proves the fact that just about every financial asset class has become a hostage of the Oil industry. This is disturbing not only from a trading stand-point, but also from a long-term effect on the economy. While Greenspan is on a mission to “kill a conundrum”, or to put it in English, to make long-term interest rates to rise, the Government continues to spend uncontrollably, which is partially being financed by foreign buying of the US long-term bond and note obligations. That is why we see obvious signs of inflation – just take a look at Gold – but we don’t see the Bond market going down. All this confusion will eventually be resolved, and although it is difficult to predict the exact economic outcome of this disconnect between the FED and the Government, it has extremely dangerous long-term implications for the economy and therefore for all asset classes. But right now, the street is wearing rose glasses, and I will join the bears only if and as soon as those glasses are broken.

Dennis Leontyev
Chief Options Strategist and Editor
HamzeiAnalytics Options Trading Service (HOTS)

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary

Last week’s market action could be summed up in one phrase: Bulls won!


There were many opportunities for the sell side from technical, news, fundamental and any other perspective, but instead of selling, bears have chosen to voice their opinion in media and sentiment surveys. There is not much more to say at this point. Every pull back should now be bought. Bears will obtain control only below 1200 on S&P 500. We are long S&P puts, which we will sell sometime next week depending on the internals. The current situation is very similar to 1998 – 1999 trading environment when indexes kept going up while market internals kept deteriorating. Don’t argue with this picture. This is typical for a late bull market stage where the more you diversify – the more you underperform, because the strength is based on a very selective group of stocks. The obvious bearish divergences should be ignored at this point, and although I don’t think we will experience more hurricanes to provide market support, a couple of terrorist attacks like in London or Bali should be enough to push S&P to a new recovery high above 1250.


Most importantly we are entering a seasonally strong period for paper assets during the year, which ends in 5. Yesterday I have tried to explain what it means to a friend of mine who is not in finance, and he looked at me like I am crazy and asked me if the biggest portfolio managers in the world make their decisions based on that. The scary thought is that I am afraid the answer is yes. I also think that only a catastrophic terrorist attack can put this paper seasonality during a year, which ends in 5 into jeopardy. Keep it simple: buy now, ask questions later.

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary

To All HOTS Subscribers:

Welcome to October! Stocks started to decline right on the first day of this famous month and still going down without a rest. Most indicators turned negative and oversold at the same time – another typical October behavior. Right now investors are afraid of everything: inflation, slowing economic growth, rising interest rates, high energy prices and deteriorating technicals. Same conditions that have been with us for many months, but as soon as the calendar turned to October 1st, traders decided that it is OK to be scared and sell. It works almost every year.

I see portfolio managers are becoming increasingly concerned about the expected October bottom and a year-end rally. Their bonuses depend on it – and this is the only thing that matters. Current oversold conditions will help interpret any economic data bullishly in order to save the year, which ends in 5 (2005). Failure to do so might create panic. Volatility is picking up and therefore it is going to be difficult to pick a long entry point. From a technical perspective, I believe a little more fear is needed to stop the decline.

SPX weekly:

The chart of S&P 500 shows that not everything is lost yet. NASDAQ is still trading above its 200-day moving average, which gives some hope to the buy side. Internals, on the other hand, are just horrible. I expect a bounce from slightly lower levels. The quality of a bounce (if it occurs) will tell us if we entered a bear market or this sell off is just another scare like we had in April of this year and August of 2004.

Good trading to all,

Dennis Leontyev
HOTS Strategist and Editor
Hamzei Analytics

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary

To all HOTS Subscribers:

The first eight days of October saw selling pressure, which cannot be compared to anything the market has experienced over the last three years. A relentless selling like this is not likely to disappear in one day. Thursday and Friday was a rather pathetic low volume attempt to stabilize prices, which is expected from severe oversold conditions. It will take awhile to heal the technical damage that was done over the last couple of weeks, therefore the best bulls can hope for is a retest of the recent low or a lower low with positive divergences. S&P 100 index (OEX) was leading the decline and actually managed to fall all the way to April lows. I am afraid this is an indication of what is about to happen to other indexes like the S&P 500, Dow and maybe even the NASDAQ in days or weeks to come.

OEX daily:

Although I am not convinced yet that this is the beginning of a new bear market and there is a good chance of a year-end rally after bears are done selling, I believe there is a lot more work to be done on the downside before we can start thinking in bullish terms. The following weekly chart of S&P 500 (SPX) shows a breakdown, which is now being tested by Friday’s advance.

SPX weekly:

Dennis Leontyev
Options Strategist and Editor
Hamzei Analytics

 

[Hamzei_Analytics]

HOTS Opening Commentary (Issue #32)

To all HOTS Subscribers:

Say hello to volatility! After months and even years of low intraday ranges, we are finally experiencing wild swings in major equity averages. The VIX (volatility index) is trading above 16, which market participants for many years considered an extremely low level but have now come to view as extremely overbought. I mentioned in the last HOTS Update that the persistent selling pressure is considerably different than prior sell-offs over the last 3 years. This makes me wonder if the market is trying to price in something that the financial media have not yet talked about yet. We are all aware of the concerns facing the market, such as inflationary pressures, rising short-term interest rates, potential consumer difficulties, over-priced real estate, fiscal deficits and high energy costs. None of these is a new development. So what, then, is new? Answer: Political problems! 99% of the time, it is a poor idea to base trading decisions on political developments. However, with several top members of the governing party of the most powerful global economic power under investigation and the probabilities increasing for major indictments, it is beginning to concern the investment community. I am not here to express my political view. Further, I am aware that half of our readers think that what is happening is an attempt of an opposing party to regain control, while the other half thinks that the White House will finally get what it deserves. The point is that these investigations might escalate in the near future and the market, which appears very uncomfortable with this new uncertainty, is reflecting it in the tape’s price action.

Market action over the last week looks like a corrective volatile chop after an initial decline from the beginning of October. Buying pressure is almost non-existent, and the rally attempts we have experienced were mainly driven by short-covering. Despite the fact that several sentiment measures have approached levels associated with bottoms in 2004 and 2005, the market internals and price action are very different from the rally off those bottoms. Another important fact is the apparent complacency in the face of this price action, as the main dispute among traders over the last couple of days appears to be whether to buy now or buy 1% or 2% lower. Frankly, I do not hear the word “sell” which could be become a big problem. Short-term rallies will likely continue to be a part of this market, but based on my indicators, I believe that we are nowhere near an important bottom and we want to be on a short side of this market. The two trades today directly reflect these views.

Dennis Leontyev

 

[Hamzei_Analytics]

HOTS Weekly Commentary (Issue #33)

To all HOTS Subscribers:

Last weekend, I wrote that short-term rallies would be a part of this market, but I believed (based on my indicators) that the market was nowhere near an important bottom. Though I have little to add to last week’s comments, current market dynamics since last week’s comments only serve to bolster my belief, as evidenced by: 1) internal selling pressure increasing underneath the surface; 2) sharp “one-day wonder” rallies occurring on lesser volume; 3) a dearth of any leadership by important groups; and 4) a lot of “hoping and praying” for an end-of-the-year seasonal rally. That said, the bulls do have one thing working for them this week: the next two days are historically very bullish. However, if I were a bull, I would be very concerned that statistics and seasonality are the bullish arguments this year. On top of these arguments, the bullish argument adds a great and healthy economy to its case -- but what have we gotten? Down 2% so far this year. What is wrong with this picture? Actually, there are too many things wrong, but the most important wrong thing will likely show up a few months from now because the market likes to look forward -- and in this case, it does not like the future.

There has been a lot of talk lately about sentiment analysis and its contrarian application. The main question is: Why doesn’t it work as well as it used to a few years ago? Here is the answer in a form of question: Do you know anybody who doesn’t claim to be a contrarian? It seems like over 90% of traders are contrarians. So who are they going against?

Technically the S&P 500 index has been stuck right below its 200-day moving average. I expect the next downswing to start in the middle of next week and test April lows at about 1140 sometime in November. This is my bullish scenario.

S&P 500 daily:

Dennis Leontyev
Options Strategist and Editor
HamzeiAnalytics Options Trading Service

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary (Issue #34)

To all HOTS Subscribers:

In light of recent views in the last HOTS updates, the market surprised me by rallying last week. Although it remains my belief that the current advance is purely a seasonal phenomenon, it is not wise to stand in front of this moving freight train. That said, I view this rally as the last bullish stand before a serious decline occurs as: 1) there are fewer and fewer stocks making new highs on every rally attempt; 2) the strongest sectors over the last two weeks were Transports and Energy (what a combination!); and 3) overbought conditions together with significant resistance overhead might be too much to overcome.

On a short-term basis, I expect a consolidation with a downside bias with a possible test of the 1200 level, which will either prove to be a short-term buying opportunity or a breakdown point.

S&P 500 Weekly:

It will also be interesting to watch the bond market action over the next few days. I believe the FED is targeting the wrong problem. Despite the possibility of increasing inflationary pressures, our indicators point to the likely possibility that the economy is nearing a weak period, which has historically been a positive environment for Bonds. FED officials are running out of reasons to continue raising interest rates, and both technical and sentiment pictures suggest that a reversal in Bonds is rapidly approaching.

Dennis Leontyev
Options Strategist and Editor
HamzeiAnalytics Options Trading Service (HOTS)

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary (Issue #35)

To all HOTS Subscribers:

Seasonality has completely taken over as a main trading indicator of the stock market. Although it is difficult to argue with statistics, it is as difficult to rationalize the seasonal effect on paper assets. I believe it will be almost impossible for stock market bears to regain full control during the remaining weeks of this year simply because of the calendar. On a short-term basis, indexes may enter a consolidation period due to a number of overbought indicators and steadily diminishing participation in the rally. The following chart (courtesy of DecisionPoint.com) shows the percentage of NASDAQ stocks trading above their 200-day moving average. Despite the NASDAQ trading near 4-year highs, there are only 43% of stocks trading above their 200-day MA. Also, note that each new NASDAQ high is associated with fewer and fewer stocks participating.

There are a number of indicators for both the NASDAQ and NYSE that paint the same picture, a picture that is very similar to the end of 1999. Just like in 1999, it was not wise to short the market in November and December. I am not going to bet that we are within weeks of the beginning of a bear market (which would result in most indexes losing half or more of their value as was the case after the peak in 2000), but the similarity in many technical and monetary indicators is striking. We are in a bull market stage where the more you diversify, the more money you lose. To participate in the latest stages of this bull, the best bet is through positions in index ETFs simply because they are the last ones to reverse trend even as a majority of stocks have already entered into a bear trend.

During the coming week, I am expecting a choppy environment with any attempts at a decline ultimately absorbed by expiration-related buying.


Dennis Leontyev

 

[Pitscum]

great story.

but...................

do the punters buy or sell??????

 

[Hamzei_Analytics]

We do not include the advisory part here -- just the commentary part -- the advice portion is for subscribers who have read and signed the regulatory disclosures...If you were a subscriber to HOTS, I am sure you would appreciate that policy.

Thank you for writing.

Fari Hamzei
Hamzei Analytics

 

[Pitscum]

the world and his mother can commentate.........what would differentiate you from the thousands of companies like yours out there is when you give vanilla, black and white trading descisions....i.e. to go long or short. seeing as you're not prepared to put your monkies on the line and give people an insight to what trades you really do, friad i can't differentiate you from the others...

in conclusion, your commentary is like all the others out there im afraid. not bad, not good.......

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary (Issue #36)

To all HOTS Subscribers:

Market indexes continue to march higher, while most stocks have already entered a bear market. Such a large divergence has occurred only seven times over the last 80 years. Following each occurrence, the S&P 500 Index eventually experienced a decline measuring at least 15% (with an average of 22%). After such a breadth divergence, it usually takes a few months for a final top to occur. Should this pattern repeat, a top of consequence would occur between now and February, though I doubt that S&P 500 will make the final top before year-end due to seasonality and upcoming bonuses. Short-term indicators suggest that there is some room on the upside. The resistance zone can be seen from 1253 to 1275 on S&P cash. I expect the advance to slow in the coming days, with best trading opportunities occurring after a one or two-day decline. The psychology of this market is rather simple: the opinions of institutional traders I know are split: half of them are bullish and therefore not selling, and the other half is bearish and not selling because they are waiting for January. I am with the second half. Currently, both NYSE and NASDAQ composites are trading at new highs, yet fewer than 50% of NYSE and NASDAQ stocks are trading above their 200-day moving averages. December 1999 was the most recent time this occurred, which was in the middle of much stronger economy and the FED raising interest rates. The bullish argument in comparing the end of 1999 and the end of 2005 is that in 1999 we had an Internet Bubble. Back then, however, it was not called a bubble – it was called the “New Economy.” The S&P 500 Index (without internet stocks in it) proceeded to decline 30% before September 11th. The big money is in the big moves. Keep this in mind as you position your portfolio for next year.

S&P 500 Monthly:

Dennis Leontyev
Options Strategist and Editor
HamzeiAnalytics Options Trading Service (HOTS)

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary (Issue #37)

To all HOTS Subscribers:

Recent impressive economic reports have confirmed the US equity market’s strength and provided necessary support for major stock averages. Seasonality continues to play an important role in the advance from October lows. Although some short-term overbought conditions may slow down the rally in the coming days, I believe that the most bearish scenario is going to be a trading range, where 1250 area on S&P 500 will act as support and 1280 as resistance. There is a decent chance that S&P can run up to 1300 before this year is over. I am still concerned about next year due to major long-term divergences and the selectivity of the rally, but the probability of making an important top in December is rather low. This environment is ideal for day traders and very short-term traders, where one should trade on a long side, buying temporary weakness. If the rally continues without a pullback, I would stay away from chasing it.

S&P 500 Weekly:

The trend line connecting the tops of 2004 and 2005 is at 1277 next week. I expect this level to be tested as a minimum before or after a pullback. There is not much resistance above this level from a technical perspective.

Dennis Leontyev

 

[Hamzei_Analytics]

HOTS Weekly Options Commentary (Issue #38)

To all HOTS Subscribers:

The market has entered into a consolidation mode over the last two weeks, which appears to be a logical pattern after an impressive November advance. Despite some longer-term concerns, there is very little evidence supporting a major top at these levels and at this time of the year. The Fed announcement this Tuesday, as well as expiration forces, will most likely produce a move out of the consolidation mode by the end of the week. Internals are supportive of at least one more advance to higher highs for this market, and this week could be the right time for this to happen. With respect to the S&P 500, 1250 (plus or minus a few points) remains an important support zone, while 1275 – 1280 should represent resistance. The Dow Jones Industrial Average is barely positive for the year, and my expectation is that institutions will attempt to push it higher (at least to 11,000) before year-end. I believe that even if the Fed language is not friendly for the market, a possible sell-off will be contained and will last no more than a few hours, whereas a friendly Fed may create an open invitation to celebrate Dow 11,000. Also keep an eye on the Midcap index, which continues to lead this market higher and shows no signs of reversing.

MDY (Mid Cap ETF) weekly:

Dennis Leontyev