Market Retest is What the Dr. Ordered 10-19-05

Good Morning.

The stock market is showing signs of panic, only fitting for the 18th anniversary of the 1987 crash. The news from Intel (INTC) continues to be spun negatively despite the fact that Andy Bryant, the CFO actually repeated the words we wrote in yesterday's closing post. Specifically, he mentioned how the build he is seeing in large customers may actually portend ramping up for strong fourth quarter demand. However, the market is in a pissed off mood and chooses to look at the glass as half empty, starting to think recession. The effects from this are to allow the stock market to further shake out anxious Bulls who attempted to time the bottom (yours truly included). The good news is that the market is now setting the stage to bring in some of the more patient Bulls. No doubt, most of them will buy at much higher prices however, the retest of recent lows should excite Bullish participants to put at least some money to work.

The new lows continue to contract on the NYSE despite the lower moves in the averages. The NASDAQ is also seeing significant contraction of new lows. We cannot overemphasize the importance of positive divergences occurring in an oversold market at the seasonally most volatile time of the year. This is what rallies are born from.

The question traders should ask themselves is to what degree they feel this market can rally. Regular readers know that we believe that the sustainability of the upcoming rally will be far greater than we have seen in many years. Therefore, we have chosen to maintain our very Bullish posture at this time.

Although the Semiconductors are leading to the downside we are still in forgiveness mode due to the fact that a final rinse post INTC was not out of the question. However, we require the Semiconductor Index (SOX) to start catching a bid by the end of this week in order for us to feel comfortable with the timing of our Bullish market call. Watch for improvement in Breadth and INTC's share price over the next couple of days as a key tell.

The Oil inventory numbers were released showing significant drawdown's. This is providing a little fire for the Bulls. Despite this, the afternoon action in technology is more important.

Don't panic.

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