Like gold? Look at this…

Stocks wrapped up the month of July
with a lethargic session of sideways action yesterday. Both the S&P
500
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Jones Industrial Average
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stocks showed relative strength for a change, albeit not by a wide margin. The
Russell 2000 Index gained 0.1% and the S&P Midcap 400 advanced 0.2%. The
Philadelphia Semiconductor Index
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held on to last Friday’s gains and tacked on another 0.1%.. The $SOX remains at
resistance of its primary downtrend line, a pivotal “make it or break it” level.

Turnover dropped again yesterday, although the effect of
lighter volume is less significant on a day of consolidation. Total volume in
the NYSE declined by 4%, while volume in the Nasdaq was 10% below the previous
day’s level. A sideways session on lighter volume is normally bullish if it
follows a day of broad-based gains, as we experienced last Friday, but the
problem is that the previous day’s gains occurred on lighter volume as well.
Until we begin to see the return of institutional buying interest on the “up”
days, we continue to take all bullish sessions in stride. Market internals in
both exchanges were nearly flat, indicating equilibrium between the buyers and
sellers yesterday.

Over the past several days, the gold and silver stocks have
been stealthily moving higher. Between the two, silver stocks have been showing
slightly more relative strength, as has the ETF that tracks the price of spot
silver. The iShares Silver Trust
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line on July 27 and has been consolidating near its high since then. The
breakout above the downtrend line also put SLV back above its 50-day moving
average. If SLV rallies above the July 27 high, it will likely trigger
substantial upside momentum that results when a stock or ETF sets its first
“higher high” when coming out of a downtrend. This is illustrated on the daily
chart of SLV below:

As for the other sectors, Pharmaceuticals
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Utilities
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sectors closed slightly lower yesterday, so we are now stalking the
corresponding ETFs for potential entries on the pullback. On the downside, the
transportation sector has been ignoring the recent strength in the broad market
and may break support of its 200-day MA. The iShares DJ Transportation Average
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Our overall bias on the market remains the same. In the
short-term, keep an eye on the S&P 500’s pivotal area of resistance at the 1,280
level. We illustrated resistance of the prior high in yesterday’s newsletter,
and the S&P 500 has yet to break out above that level. The intermediate-term
bias also remains bearish as long as the major indices remain in technical
downtrends. A few stocks and ETFs have begun setting up for long positions, but
we feel the overall odds still favor the short side of the market. However, if a
higher volume “up” day occurs, it could easily change everything.

Open ETF positions: