For Friday, August 16, 2002 
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<A NAME=stocks><H3>Stocks: Market Consolidates Near Recovery Highs</H3>
After the big surge higher Wednesday, the market spent Thursday trying to find direction,
consolidating sideways in what is likely a next-to-last wave sideways before a short term
rally into a top. The market has certainly shown the fabled tendency of cats: that is, it seems to have
nine lives. Each time it looks like the herky-jerky rally is done for, it pulls another life
out of the hat and frustrates the bears with a rousing jump. There are substantial resistance
areas directly overhead, though (for details, see our <B>Trading Page</B> comments and the
quarter-hourly S&P 500, NASDAQ-100 and Dow Industrials charts for Fibonacci resistance areas).
<P>
But, those lives may be running out for this cat. The current leg up is very likely the
final one. We've been approaching this market on a day-trading basis lately while preserving
longer term investment cash for a time when the market appears likely to trend. So far,
that has been the best way to navigate the twists and turns. The surge in our sentiment
gauges well into the <I>overly-bullish</I> category Thursday is a strong warning signal
that the market is getting deliriously happy (OEX players bet $3.04 that
the market would continue rallying for every dollar they bet it wouldn't, while the QQQ
traders went hog-wild, betting $9.34 on the continuance of the rally for each dollar bet
on the downside). There's nothing wrong with being happy, of course, but this level of
bullishness is downright giddy.
<P>
We will be looking for the market to form another short term top over the next couple of
trading days. If, on the next selloff, players continue to prefer calls to puts, we'll
have a strong sign that the bear market rally is over and that we're on our way to plumb
the depths again. Until then, we'll continue to look for intraday trades and, in general,
move to the sidelines by the close.
<P>
For Friday, it appears we could see just a bit more rally, then a move down to test the
bottom of the trading range. We're now extremely overbought on this bear market rally and
a big move to the downside appears to be very close in time. In any case, the risk greatly
outweighs the potential rewards, except for short term trades.
You can follow our intraday trading comments on the <B>Trading Page</B>,
linked from your <B><I>MyClues Page</I></B>.
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