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Thank you for your understanding and patience.

Jim Patterson
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Here is the Deal:

It was an enjoyable Holiday weekend. Traders were quick to leave on Friday and with relatively slow volume it appears they are slow to come back. Friday was a remarkably narrow inside day so Tuesday’s outside action is not a surprise. Taken together there is still virtually no discernable meaning that can be derived other than to say the action remains inline with the historical paradigm. For now let’s blame the morning weakness on the holiday and the first trading day after options expiration. If not for the early weakness, Tuesday would have been even less remarkable that it was.

The early weakness that pulled the Dow below 12,720 was brief. It was below the key level for only fifteen minutes. I guess down 50 points looked like a huge buying opportunity to some. However, the band of resistance defined by two Fibonacci upside extension lines running from 12,780 to 12-800 continues to contain prices along with the overhead trend line. Despite several late day efforts and a steady rally ramp from the morning lows, the Dow worked its self into a wedge and was unable to pop above the containing trend line. It closed on a weaker note.

Sometimes this gets a little scary. When everyone knows what is going to happen, that’s when it doesn’t work out any more. Please tell me I am not the only one that has figured out the game…For now, we might see another half hearted attempt to push higher, but in keeping with the historical establishment, any upside movement should be limited at best. A big volume upside breakout will register as a potential departure from history. Sliding lower will not. New support is now pretty clear at 12,700 to 12,720 based on Tuesday’s bounce. Note: if history continues, the pullback should trough between 12,640 and 12,700 at some point next week. Resistance comes in at 12,810 near the end of the day.

Wednesday we get the January CPI report and I do not expect anything earth shattering. However, at 2:00 we get the FOMC minutes and the market has enjoyed positive reactions to virtually all FOMC related data this year. If anything is going to cause a stir on Wednesday, the FOMC minutes will. Note the longer-term cycle momentum peak on the 20^th as that may induce some downward cyclical pressure.

Here’s why:

The Dow dropped 62.89 points in the first 90 minutes to reach its low of 12,704.68, right on support. For a moment it looked like something might really happen. But that was viewed as too much of an opportunity for the bulls and it quickly came back. It bounced to close 81.96 points from the low and 9 points off a new all time high of 12,795.93. The Dow closed at 12,786.64 up 19.07 points. That makes five consecutive positive closes, though Friday could have easily broken the string as it the Dow was up on only 2 points then. We should probably consider Friday a day of rest and Tuesday as a test of support.

About the time you become convinced it will never change is when the pattern will change. So, according to that philosophy, this thing should have changed by now…right? Heck, the action is so muted and everyone is so hedged, this thing may continue in its current form for weeks to come. I really don’t believe that, but the fact I am even saying it should tell you something. I am starting to feel like Bill Murray in Ground Hog Day. It’s almost like the same week over and over again.

The historical pattern called for a narrow range with a slightly higher high, but the net move shouldn’t be much. Tuesday’s new all time high is 16 points higher than the old high. That fits with the historical paradigm. The Dow closed 19 points higher which also the historical paradigm. The only thing different is the advance on a closing basis for this move is 234 points without a down day. The move in the second week of November was 239 points and lasted six days, with one being only a 5 point advance.

The market loves all things FOMC related, but things appear a bit stretched at this time.

The SPX dipped a bit more than expected challenging 1450 support. With the extended (mind you, keep that adjective in context) downside move the S&P was able to put on a huge rally and came back over 10 points to record a new high. Wow! What an impressive 4 point gain. Tuesday’s action doesn’t really change much. After 1458 comes 1463 resistance. It got to 1460 on Tuesday and closed virtually at the high of the day. The pattern and history suggest it is closer to turning lower than busting out to the upside.

Upon recovering the 76% retracement line, there were reasons to expect the NASD to reach its January high and it did. Surprising, it happened without help from GOOG and AAPL, which were heavy hitters in the early January iPhone rally. Seeing today’s lows violated will look remarkably negative, but unless or until an important support level is really broken, everyone views a pullback as an opportunity.

One thing running around in the back of my mind is the NASD. It has been going nowhere for almost five months now. If you compensate for the flakey iPhone rally in January, you are staring at a solid five month base formation during which interest rates have held steady and earnings have been strong. It is actually becoming an attractive setup for a serious upside breakout and there are some stocks that are acting equally as well. This line of thinking doesn’t fit with the paradigm discussion currently going on, but I believe it is worth mentioning.

While the NASD is base building, the BKX is going crazy. Last time I mentioned the BKX I mentioned a large Fibonacci target zone, 121.5 to 122.00. With a stout half point advance on Tuesday the BKX is just below the Fibonacci target zone. The BKX is also showing a measure of upside acceleration. Typically upside acceleration feels great while you are going through the process. The catch is the hangover is always a killer, especially if you are constantly buying into the strength. The BKX is nearing overhead Fibonacci resistance.

After a very narrow day, the daily trends are all back to buy signals. The 3-day trends won’t turn again until at least Thursday.

Detailed Trend Report on Web & CLX Count and Weekly Signal Counts & NYSE & NASD 5-day up and down volume charts

Total breadth was -1800, which seems to be a pretty common bottoming reading. It recovered to close at +1710, which is OK for the muted advance we saw. There was a slight up tick in buying activity though total volume continues to run at a reduced rate.

The 5-day RSI readings remain high and above the overbought 70 level. Interestingly, the Dow is leading the group this time around. In the past the NYSE has been the leader of the pack.

The Dow’s weekly trend count jumped from 17 to 21. This is a constructive development that needed to happen, especially considering the Dow’s new high on Tuesday. Ideally the count will peak over the next few days and turn lower next week with some sort of market pullback.

The historical pattern here suggests a little bit more strength to get the count up one more to 22, which is where all the peaks have been since the 25 readings in November.

In order for the market to really move, it needs a wind up. It needs a thrust lower to generate some concern and then it can spring higher. Or, it needs to pop higher so it can fall in wave of profit taking. The current environment is like playing pinball with no rubber bumpers. The ball is moving around, but with nothing to bounce off of, there is action.

History says a bit more strength within the context of constrained net movement. The CPI is unlikely to be a catalyst for prices to spring higher. However, at 2:00 PM the FOMC minutes come out and that will give the market something to overanalyze. In light of the “jam anything from the Fed” reactions we have seen since the first of the year, perhaps this is one will put some rubber on the bumpers.

Jim Patterson

Most Obvious chart resistance levels:
Dow 12,780 to 12,800, 12,863
SPX 1458, 1463, 1480-1489
NASD 2501, 2510, 2527, 2538, 2570
NDX 1841, 1847 (high), 1877 (minor Fib), 1910 (Major Fib Level)
NYSE 9503, 9650

Most obvious Chart Support levels:
Dow 12,680 to 12,720, 12640, 12,540, 12,437, 12350, 12,200, 12,080, 11,890, 11653
SPX 1450, 1434, 1416, 1403, 1390, 1378, 1362, 1354, 1345
NASD 2500, 2480, 2450, 2422, 2400, 2360, 2290, 2225, 2000,
NDX 1819-1824, 1810, 1790, 1772, 1745, 1700, 1650, 1465
NYSE 9360, 9290, 9110, 9060-9080, 8960, 8800, 8690, 8575

Here’s where we are now:

NASD 100 Index (NDX) Trading System, trade the QQQQ:

The NASD was expected to better its January high and with that the NDX is very close to doing the same. The early weakness had no teeth, as has often been the case of late. The NDX is not on track to reach its January high of 1847 just like the NASD.

S&P 500 (SPX) Trading

From 01-28-07: This is a longer-term recommendation, meaning I expect holding this position for several weeks to several months: Buy the SDS (ProShares UltraShort S&P 500 ETF) which closed at 58.24 on Jan 28. The SDS should move 2x the S&P 500 on an inverse basis. If the S&P 500 rallies to 1450 then we will move to a 200% long the SDS position.
Added 2-2-07 after the close: The SPX reached 1452 today. If the S&P 500 reaches 1452 then add another 50% to the SDS position bringing it to 150%. We will hold off on the remaining 50% for either higher prices or a breach of a key support level.
>>>> 2-6-07 the SPX pushed above 1452 today allowing us to add another 50% of our SDS short position at 56.15 today bring us to 150% short the SDS.

The historical pattern suggests the next move of meaning will be lower, but from a timing stand point, said move shouldn’t start for another day or two.

Tactical Stock Trading Powered by Patterson Relative Strength

New Long, CBEY @ 31.31. This is a PRS stock that jumped higher on Tuesday and showed strong volume on the move. The key for CBEY was recovering above $31 and it closed more than a percent above $31. Now if it can just hold it. Bottom line, CBEY broke an obvious down trend line. It has some resistance at $33 and overcoming that will look exceptional.

Let’s also add LNUX @ 5.27. A word of caution on, They report earnings on the 22^nd, after the close with an estimate of 3¢. It has traced out a healthy looking cup with handle formation.

ICLR rec Long 01/24 @ 39.53 stop 34 close, Target >46, closed at 42.30
LOGI rec Long 02/06 @ 28.96, stop 26 close, Target >35, closed at 28.85
DAKT rec Long 02/06 @ 36.69, stop 31 close, Target >44, closed at 29.36
CBEY rec Long 02/20 @ 31.31, stop 28 close, Target >38, closed at 31.31
LNUX rec Long 02/20 @ 5.35, stop 4.60 close, Target> 6.50, closed at 5.35

DAKT was upgraded on Friday. The point being, everyone has not totally given up on the stock.

PRS Open Actives making noise:
In addition to CBEY,
LVLT pushed up to 6.56, which looks solid. It really needs to pop higher though.
CPTS reached 22.30, but it was a low volume move. It needs to better 22.50 to look really good.

OMCL continues to act well, and an old long, SA, bounced solidly higher on Tuesday nearing its 52-week high.

Another interesting stock is TYL, which also staged a nice recovery on Tuesday.

Jim Patterson
Editor
Tactical Trading Outlook

TTO Weekend Update 02-18-07

Written by Jim Patterson
Sunday, 18 February 2007
************************** The Migration to the new website and server continues. Over the course of this week you may receive more than one copy of the Daily report. The goal is to ensure awareness of the changes and make sure all reports from the new site are getting through. If you have any questions or comments give me a shout. This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Thank you for your understanding and patience. Jim Patterson ************************ Here is the Deal: Yawn…. Friday the Dow staggered within a 25 point range. I was expecting a slow day but come on. The action was weak on the open followed by a regaining of strength as the internals strengthened over the balance of a very slow day. And this time I am blaming it on the cold. From an analytical stand point, the market could have been closed on Friday and it would not have mattered. It was a nothing day. Everything from Thursday night stands. All the indices held where they should have, including the Dow. The 12,720 area was never really in question, and with the internals improving over the balance of the day, late day weakness seemed less of a probability, even with options expiration. History says more tight range action ahead. We have a momentum cycle peak on Wednesday and if the pattern holds then look for the weakness to come in late next week, likely after the cycle date. 12,820 is resistance while 12,720 is support. That is only a 100 point range, and the market seems really happy with the tight range action. The next meaningful economic numbers are Wednesday with the CPI. The PPI was benign as expected and at this point I see no reason for any sort of earth shattering reaction to the CPI. The FOMC minutes do come out at 2:00 PM. Again, I am thinking benign, but the FOMC minutes have been a sort of catalyst of late. Perhaps they will get something going. For now, stick with the recent historical pattern until it doesn’t work any more. The good news is history says higher from here. The bad news is “higher” is defined as meaning a new high for the Dow that is only ten to twenty points higher meaning very little opportunity for a couple of days. Enjoy the day off. Here’s why: The Dow was up only 4 points at its high of 12,769.17. It then fell a remarkable 25 points to its low of 12,744.02. Friday was one of the narrowest ranges on record over the past ten years. The Dow closed at 12,767.57 up 2.56 points. History says another one to three days of this monotony as prices grind higher yet make virtually no progress. In fact, the pattern is so consistent, seeing a net change greater than 30 points up or down over one of the next two days will be something of a departure from the pattern. Tuesday is setup to be a down 20 point day, according to the pattern. The SPX has the same story. The best explanation is all the money is flowing overseas. There is enough cash here for the bulls to goose the market higher for a couple of days but then they need time to recharge their batteries. And, since there is no selling on the pullbacks, meaning no one is raising any cash, we are left with a market driven by program activity plus a slow but steady trickle of buying from the big money runners. 1458 is resistance followed by 1463, then about 1475. 1452 is “the level it should hold.” I feel like we are in a drought of no movement and I long for the days when the SPX consistently moved ten for fifteen points on a daily basis. That will happen again. I sure hope there is a gentile transition because consistent 15 point directional days would be a real shocker to this market. We do know those days will come again, but for now, the advance has stalled more or less right where it should have. Three of the 3-day trends turned down along with a couple of daily trends. I don’t see any workable message here due to the pointless nature of Friday’s trading. Technically it looks like a high level consolidation rather than any sort of real trend change. Detailed Trend Report on Web & CLX Count and Weekly Signal Counts & NYSE & NASD 5-day up and down volume charts Total breadth fell to -1800 in the first hour and spent the rest of the day on a steady ramp back to the positive side. With a final kick from expiration total breadth was +376 at the end of the day. And catch this; NASD breadth was way better than NYSE breadth. Perhaps that is signaling a change in the air. Then again, perhaps it was an astoundingly quiet day that we shouldn’t read much into. I didn’t expect much action but this is ridiculous. Even with options expiration, total volume was barely 2.2 billion shares. Directionally, there isn’t any selling. There isn’t much buying either. (Read: No Beef.) Internally the market worked off some of its overbought condition on Friday. The Dow’s weekly trend count improved by 1 to 17 from 16. Considering the index made a strong move to new highs, the count needs to improve quickly early in the week or it will leave negative divergence. In short, if the Dow ticks higher, the weekly trend count should jump. Failure to do so will convey what we all know, the quality of this move continues to wane. With no measurable changes to speak of on Friday, stick with the pattern until something happens to change it. Aside from the big pop higher over the middle of the week, the market is working indecisively higher. Enjoy the Holiday. Tuesday will probably be slow as folks struggle to come back to work. Sooner or later something exciting will happen again and we will have opportunity again. Jim Patterson Most Obvious chart resistance levels: Dow 12,780, 12,863 SPX 1458, 1463, 1480-1489 NASD 2501, 2510, 2527, 2570 NDX 1841, 1847 (high), 1877 (minor Fib), 1910 (Major Fib Level) NYSE 9503, 9650 Most obvious Chart Support levels: Dow 12,680-700, 12640, 12,540, 12,437, 12350, 12,200, 12,080, 11,890, 11653 SPX 1448, 1434, 1416, 1403, 1390, 1378, 1362, 1354, 1345 NASD 2480, 2450, 2422, 2400, 2360, 2290, 2225, 2000, NDX 1810, 1790, 1772, 1745, 1700, 1650, 1465 NYSE 9360, 9290, 9110, 9060-9080, 8960, 8800, 8690, 8575 Here’s where we are now: NASD 100 Index (NDX) Trading System, trade the QQQQ: The down open broke the early ramp, but then it just started a new one on the same track from the opening lows. Friday ended in a similar situation as Thursday. A break of 1815 will be viewed negatively, but unless or until it really breaks, it is just a pullback. S&P 500 (SPX) Trading From 01-28-07: This is a longer-term recommendation, meaning I expect holding this position for several weeks to several months: Buy the SDS (ProShares UltraShort S&P 500 ETF) which closed at 58.24 on Jan 28. The SDS should move 2x the S&P 500 on an inverse basis. If the S&P 500 rallies to 1450 then we will move to a 200% long the SDS position. Added 2-2-07 after the close: The SPX reached 1452 today. If the S&P 500 reaches 1452 then add another 50% to the SDS position bringing it to 150%. We will hold off on the remaining 50% for either higher prices or a breach of a key support level. >>>> 2-6-07 the SPX pushed above 1452 today allowing us to add another 50% of our SDS short position at 56.15 today bring us to 150% short the SDS. Due to the historical precedent set, there does not appear to be much upside potential. There doesn’t seem to be much downside either, but on a break of support, 1452 on Tuesday, there should be potential for a slide down to 1442’ish. Tactical Stock Trading Powered by Patterson Relative Strength ICLR rec Long 01/24 @ 39.53 stop 34 close, Target >46, closed at 42.22 LOGI rec Long 02/06 @ 28.96, stop 26 close, Target >35, closed at 29.13 DAKT rec Long 02/06 @ 36.69, stop 31 close, Target >44, closed at 29.65 DAKT was upgraded on Friday.** The point being, everyone has not totally given up on the stock. PRS Open Actives making noise: LNUX made a nice push higher on Friday, and it showed good volume. LNUX above $5.10 is in breakout mode. LVLT has come back to about $6.45, which almost fills a downside earnings related gap. If it can push above $6.50 and stay there for a couple of days then 6.50 should become a solid support level. OMCL remains in an interesting position, going above 21.35 = breakout FVE, very small stock, looks interesting consolidating around $12. PSPT looks constructive on a pullback around $22. Jim Patterson Editor Tactical Trading Outlook
Last Updated ( Sunday, 18 February 2007 )

TTO Mid-day Comment 02-16-07

Written by Jim Patterson

Friday, 16 February 2007

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Friday comments:

Headline:
Bloomberg: Investment in US Assets lowest in 5 years
In December, Foreigners sold stocks and American investors sent a record amount overseas.

The missing punch line is: And the stock market still went up! No wonder this rally looks fragile, weak, and consistently fails to show signs of sustained strong buying. Imagine what the rally would look like if all that money stayed at home. Take me back to the good old days please!

Three 3-day trends have turned down, the other two came close, but so far everything is holding at and or near expected support levels. Provided we don't see some kind of crazy late day options expiration related event, the bulls should rest easy over the long weekend.

After 3 up days in a row, we were looking for some pullback. The Dow has traded in an impressively narrow 24 point range. In short, despite options expiration, history is repeating on an exacting scale.

Total breadth is running -1050 after reaching -1800 in the first hour.

This consolidation should have further to go, but at the rate we are going it doesn't look like much of an opportunity. Aside from an expected options expiration related volume surge at the very end of the day....Yawn!

The weekend report will go out late Sunday Morning.

Enjoy the long weekend.
And Please let me know if you are experiencing any issues with the new email format / system.

Jim

More...

TTO Daily Update 02-15-07
TTO Daily Update 02-14-07
TTO Daily Update 02-13-07
TTO Daily Update 02-12-07
TTO Weekend Update 02-11-07
TTO Daily Update 02-08-07
TTO Daily Update 02-07-07
TTO Daily Update 02-06-07
TTO Daily Update 02-05-07
TTO Weekend Update 02-02-07

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