The best way to trade this rotational market

Like the end of baseball season…well, at least for my beloved Mets. Another
year of promise and another year of mediocrity. BUT…there is always next
year…Yeah right. Now I turn my attention to the New York Football Giants. So
far…not bad!

E-mails

Here are a few outtakes from emails I received in the past week:

"This market is reminding me of 1987 all over again."

Had to throw the last one in there. I never have been told I looked like that
Boris guy…but in college, I was called Eddie Munster.

I brought up those emails because I have the sneaking suspicion there are a
few too many people who are expecting a major dump in October. October does
get a bad rap because of 1987. But did you know that October is the month
where a lot of markets have bottomed in the past? We will just see what
happens.

Dow 10,350…NASDAQ 2093…S&P 1200…RUSSELL 645…NDX 1551. These numbers
are very important support areas I have told you about recently. Amazingly or
not, a few of these support areas were hit to the penny and bounced. In other
words, a goal line stand was put in by the market in the past couple of days.
Before I continue, let me be clear about these support levels…a close below
these levels and what has been some a very ugly rotational market…will turn
into something of intermediate consequence…and that will not be pretty.

The good news is that the market did hold support and is now back in the
nauseating trading range that has been going on since the beginning of time.
Amazingly, despite all the recent internal damage, the market is only a
stone’s throw away from actually breaking to new highs. Regardless of whether
that happens, remember what I have been telling you. FEWER AND FEWER STOCKS
AND SECTORS ARE PARTICIPATING IN ANY RALLY. EVEN IF THE MARKETS DO BREAK OUT
TO NEW HIGHS, YOU MUST REALIZE THAT THIS TYPE OF NEGATIVE DIVERGENCE SMACKS OF
LATE STAGE ACTION. YOU JUST HAVE TO REMEMBER, MARKET TOPS COME IN ALL SHAPES
AND SIZES…AND TAKE TIME. So…regardless of any breakout to the upside, you
will not be able to just throw a dart. You are going to have to be stock and
sector specific as the market thins out.

Nothing has changed in the many areas that I have told you to avoid. As I
stated, I expected a bounce in the down and out RETAIL, GAMING, RESTAURANT,
HOUSING, FINANCIAL areas…and a bounce we are getting. I suspect there is
more to go…especially with the market putting in an effort here. Bounces in
these areas remain sellable. There are plenty of other sectors still in bad
shape…AUTOS, AIR FREIGHT, ALUMINUM, BANKING, CHEMICALS. HOTELS/MOTELS,
MEDIA, MORTGAGE-RELATED, NEWSPAPERS, PAPER and S&Ls..and that’s for starters.
Sectors that you should continue to overweight but only on pullbacks now are
GOLD, METALS, OILS and other COMMODITY areas that have been leading. OILS
continue to trade wide and loose but have yet to show any serious selling. The
good news is that the market found a low and is attempting to move higher.

The Positives:

The TRANSPORTS moved back above the 50 day average on the back of the RAILS.
Names like
(
UNP |
Quote |
Chart |
News |
PowerRating),
(
CSX |
Quote |
Chart |
News |
PowerRating) and
(
BNI |
Quote |
Chart |
News |
PowerRating) are leading.. The SEMIS popped
up the past couple of days. The SOX is back above the 50 day average after
being on the cusp of breaking support.. The SOX remains a very important
indicator for us.

WORLD MARKETS continue to roll and have shown no distribution whatsoever. On
the negative front, the U.S. market is lagging the rest of the world. Maybe it
is catch up time.

My sentiment indicators for the most part, are mixed but a few are standing
out…in a positive way.

Odd-lotters continue to short at a very high level while specialists continue
to short at a very low level. Guess who is normally right?

The S&P had a measly 3% correction but you could cut the negativity with a
knife. By some of the talk, you would have thought the S&P was down 25%.

I suspect October is going to dictate policy one way or another. I do not
believe this market can stay in this tight trading range for too much longer.
Stay on your toes.