The Stakes are High 9-30-05

Good Morning.

Overseas markets were mixed, Gold is slightly higher, and Oil is trading down. The economic news was largely weaker than expected: Personal Income came in at -0.1% versus an expected rise of +0.3%. Consumption was worse at -0.5% versus expectations of -0.2%. University of Michigan's Consumer sentiment numbers have just hit coming in lighter then expected at 76.9 versus estimates of 78. However, Chicago PMI was also released coming in much better than expected at 60.5 versus consensus of 51.5.

The stock market finally put in an oversold and overdue rally yesterday. The internals were strong across the board but we are dubious about the legitimacy of that rally. Window dressing is the likely culprit. The fact that it occurred all in one day was agonizing many Bulls who moved to the sidelines before it occurred. Keep in mind if there was to be a day this week that would have had upside performance from window dressing, it was logical for it to take place yesterday.

Despite the doubts of sustainability that we have over yesterday's action, we are cognizant of the fact that legitimate buying often follows bogus artificial up moves. Therefore, we will adhere to our Bearish viewpoint, but keep our stubbornness in check. We believe the stock market is setting up for a very nasty pullback yet, quick intraday long-side plays are probably still available for the extremely nimble. For those who choose that particular adrenalin rush, may we recommend that you keep your positions small as well.

The NASDAQ is in a downtrend and below its 50 day simple MA. The Bulls will need to show another convincing move on volume in order to gain the respect from institutional buyers. The Bulls still have an oversold market and momentum from yesterday in their corner. However, Bears are licking their chops to sell the market once the artificial bid dissipates next week. The tension and the stakes are high. This market will certainly not be for the faint of heart over the next couple of weeks.

Good Trading.

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