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OUTLOOK FOR WEEK JULY 23
by Stephen Tetreault
July 23, 2007

As a technician the charts are flashing mega-divergences and SELL-signals on a near-term basis as during the past few weeks as we have seen some significant periods of whipsawing volatility. Investors still appear to be buying dips but then they seem perplexed quickly thereafter as each passing trading day brings another conflicting view of the economy, and this seems to be adding to the apprehension and skittishness.. I believe currently have two opposing forces at work, those who desire to book profits and greed or missing out on hyped-continued bull-rally...as there is excessive leverage all leaning to the LONG-side!!

This coming Wednesday, the National Association of Realtors will report on sales of existing homes in June. According to the consensus in a poll of economists, sales fell to a 5.87-million-unit annual rate from 5.99 million in May, the bulls certainly need and upward revision/surprise here. But they really need to see an uptick in new-home-sales as the very next day the pro-forma Commerce Department reports on new home sales. The consensus view is for an annual rate of 895,000 in June, which would be down from 915,000 in May. The housing sector has been a concern to investors as subprime mortgages sold to less credit-worthy borrowers have experienced rising defaults. Some hedge funds with investments in securities linked to the mortgages have had huge losses. Thereafter comes the GDP report on economic growth may help investors decide if they want to keep riding this proverbial bull market in stocks off into the land of Milk-&-Honey, while a torrent of new quarterly earnings reports will no doubt cause some skittish moments; as a majority of the SPX will be reporting earnings this week and next. So far our play-book, which is sell-the-earnings news has been providing us some very-nice returns; especially in those bubble-stocks that have been overly bloated prior to earnings! Basically setting the stage for, a selling event if the firm doesn't blow away earnings and provide great guidance; Oh I almost forgot the positive-bullish mantra of �we are exploring strategic alternatives� needs to be present to keep speculation alive if earnings are just mundane/in-line or the firm need to announce an huge irrational stock-buy- announcement or it will be taken to the proverbial woodshed for a whopping by the sellers.

The big report for the week could be the insight that the Beige Book and the GDP will afford investors. The Fed Beige Book a report from all of the 12 Fed-head-regional banks; will certainly be highly anticipated, as each report indicated strength/weakness on the economic conditions and trends in their area and the report is seen as a very specific update of overall economic conditions. Last month 7 out of 12 banks reported modest/moderate growth. The other five banks reported stronger growth with improvement from the prior period...hence the markets embraced this report very-strongly and I will be keenly watching this release this week; looking to see if whether the number positing positive trend results out strips negatives....as if more banks report stronger growth, it would be construed as evidence that this so-called recovery is still in churning ahead.

The real-market-mover this week will most-likely be the Preliminary GDP numbers (key word is prelim. hence it is a pro forma number that always get revised...hence the proverbial and potential crap-shoot surrounding the release: The GDP numbers for the second-quarter could act as a mega catalysts for selling and/or another leg-up for this market. Current estimates are for 3.1-3.3% growth in Q2 compared to a measly 0.69% growth rate in the first-quarter; while the whisper numbers (a service that I subscribe to) has the number coming in over 4.0% in the past several weeks, but even this number is starting to come down toward consensus expectations especially after several key economic reports were weaker than expected. The continued housing slump is also forcing a lowering of expectations. This past week the Hyper-printer of the greenback...Helicopter Bernanke said in his testimony to congress that the slump in the housing sectors was continuing and the bottom is still ahead of us; hence I'm very concerned that so many bulls are expecting a mega-jump up from a mere 0.7% to 3.2% on average...if this GDP pro forma number does come in line with expectations this will certainly lead toward a ratcheting up Fed-head rate expectations, as if it appears even in a pro forma state that this economy caught fire again and is suddenly accelerating, an interest rate hike is back on the table....conversely if the GDP comes in below 2% we could see expectations rise for a proverbial rate cuts by year-end despite a consistent move up in inflation. The Fed-heads need to keep the economy on a growth cycle and if the bottom in housing is still ahead they may not want to wait for it to begin easing rates...this is the premise being incessantly hyped about in bubblevision land....they almost never speak about real inflation.. Dropping the Fed rate indirectly impacts mortgage rates and buyer interest and could create more of a cushion to soften the landing when that housing bottom eventually arrives (many quarters away maybe even 4+/- years away, of course this is just my opinion).

We saw on Friday that a sharp drop in shares of equipment-maker CAt showed just how badly a stock can be hurt when there is an earnings shortfall�the stock dropped $4.18 or 4.81% to close out at $82.80 but it could have been a lot worse as CAT traded down to $78.26 intraday, before the hypsters helped to pout a floor under the selling. CAT missed by $0.24; they reported Q2 (June) earnings of $1.24 per share, $0.24 worse than the consensus of $1.48; revenues, excluding financial products rose 6.6% year/year to $10.61 bln vs. the $10.34 bln consensus. CAT reaffirms guidance for FY07, as they expect EPS of $5.30-5.80 vs. $5.60 consensus; and they went on to reaffirm total revenues of $44 bln.).

Despite Caterpillar�s problems, multinational corporations have been in a position to benefit from stronger economies globally and the weakening dollar that has been crushed of late (see my dollar-segment below). One of the primary reasons large-cap stocks {like the Dow components} have done so well is that they have a lot of foreign exposure and that is where profit growth has been coming from along with great currency translations when profits are repatriated�as we continue to see that their domestic profitability has been slipping for some time. Please do not forget that this past week or so there have been some spectacular earnings blow-ups and they have created some huge volatility spikes put, not to mention stress on the indexes. Remember when INTC reported a strong quarter but their margins were weak as well as guidance was weak as I forecasted it would be and the stock was hit hard....well so far the scenario that I suggested that stellar earnings and guidance is already baked into stock prices, and any disappointments will create a wave of selling...has been playing out right on cue. If the stock has already soaring on expectations then those expectations better come in and be beat as any minor hiccup in the earnings or guidance or maybe just missing a hypothetical whisper number can knock the stuffing out of these stocks that have run-so-hard-fast. Even very-good earnings can fail to push a stock higher that has already experienced a parabolic move this just proves that if you are going to speculate on earnings and hold over/into the announcement your best bet is to be SHORT!! (exception this week was ISRg...spanked me hard) but the rest of my Put/Short positions into earnings releases with appropriate hedges paid off handsomely.

In this coming week, earnings are due from the likes of pharmaceutical companies like MRK, SGP, ELY, BMY, BIIB, so watch this battered sector for some potential surprises. Others big players and potential market movers on the play list for earnings this week include such high-profile DOW names as AXP, BA, XOM, MMM, MCD, F; along with some high profile technology names include AAPL, QCOM, TXN, LSI, ALTR, LXK, LRCX, AKAM, FFIV; and other well known names as CL, COP, GLW, GENZ, AMZN, PRAA, XL, BWLD, HAL, STLD, AK, X, LM.

The SPX which earlier in the month finally surpassed its old all-time set in 2,000, ended Thursday at a new closing high; but then the selling on Friday mitigated the bullishness; as worries about earnings shortfalls and subprime mortgages led to Friday�s broad based drop-off and the red-weekly close broke a three-week trend of gains for the three big indexes as all of them managed to close slightly down on the week. The subprime problem is tied to a weak housing sector, where sales have faltered and prices have slumped.

The Dow swept past 14,000 for the first time Tuesday after a mostly tame inflation reading gave investors reason to extend an extraordinary but questionable rally (my opinion of course�see technical section below). The stock market's best-known and highly hyped barometer crossed 14,000 in the first half-hour of trading though it didn't close above that level until Thursday. The indexes have risen fairly steadily since the spring amid a continuum of M&A, buyout news and pro forma data that despite significantly higher fuel prices and the ongoing problems in the housing market and mortgage lending industry, suggests that consumers are spending and companies are still finding room for growth (not organic though). With the Fed-heads shouting and repeating their ever vigilant stance about inflation, the pro forma reports that have suggested that prices are rising at a moderate pace have added to the market's momentum, as it did this past Tuesday.

The Dow's latest accomplishment of crossing then losing the 14,000, mark does raise questions about whether these giddy-bulls are buying more on speculation than fundamentals and whether these gains can hold, as most of the Dow components have been sold off after reporting lackluster earnings. The market still faces issues including rising commodity prices especially oil prices that could crimp consumer spending. And any reduction in M&A deals could puncture the balloon/bubble euphoric sentiment, as could a further souring of subprime loans amid a cooling housing market.

Now the $64,000 question that we will most-like get an answer to this week is that after multiple weeks of rallies and rocket-ride snap-back rallies after selling it is time for the bad news bulls to reappear and buy this dip. I of course am not going to bet the ranch on it, but we have seen that for the most part they have been showing up in quantity just when you thought they had been loaded up on the slaughter-trains bound for the slaughter-yards to be turned into Hamburg...they counterpunch, and knock the stuffing out of the bad-news-bears and bloody them senseless. We have seen just how skittish the markets have been of late as this past week the Dow was sold-hard on large volume as it dropped nearly 150 points after investors received a handful of disappointing profit forecasts; then out of the clear-blue sky just 2-days later, we saw a mega-rally and orchestrated short squeeze that rocketed the Dow 283 points higher as the talking butt-heads being pranced about everywhere put a positive spin on a generally lackluster batch of retail sales reports�this rally and reasoning really caught me by surprise!!! So please remember we know that the Dow being a small group of only 30 stocks is that it is easy to cross-ling poor earnings reports with positive analysts upgrades to off-set the underlying weakness and that it is clearly less representative of the entire market, it is however a sign that these large-cap multinationals continue to drive this market, as they are hyped incessantly. Back on June 29th (Friday) as a negative news pounded the Dow to a 208 point intraday drop, then the giddy bulls mustered a stampede-rally that ran over the bears the very next day as it rallied for a powerful 350+/- point move in a couple of days the following week.

Please NOTE: I am still seeing quite a large number of smart money folks selling into strength time and time again; a clear indication of distribution. I believe wholeheartedly that this market is in the process of building a significant market trading exhaustion topping event, similar to the trading tops seen in March and September of last year and during March-April of 2004, and most recently during may of last year. As such please take on LONG positions very carefully at these levels as the risk to being long at these levels is compounding every day we churn upward...I believe that we are days at the days maybe a week or so away from a major stock-market correction....

Please do not disregard my MEGA Warning

Please take heed and start to become very cautious about the current state of this rally and the overall health of the stock-market along with the various indexes/sectors; not just here but abroad as well�.as I am seeing way to many negative divergences and overall similarities to the (1986-87 & 1999-2000) retracement periods or should I say stock-market implosions. The huge ground-swell of �greed� manipulation and down right global mega liquidity infusions mostly from �central-banks� is very concerning not to mention that from the recent-waves of data inflation abounds around the globe�as to much money, is once again (as it was in 1998-2000 due to the Y2K scenario) has created mini and mega bubbles around the globe. The incessant greed has become a major-contagion in my opinion and comparisons with elements of the last two significant market crashes especially in 1987 is startling. The persistent and relentless and of private equity deals and LBOs is also a major over-reaction at major market tops and that is also waving a huge-red-flag for me.

The huge dollar amount of M&A and LBO's announced so far this year has broken all prior yearly records.... This has been a powerful market driving force... the problem is that in all likelihood its a non-repeatable event. The combined value of merger and acquisition (M&A) deals announced worldwide during the first half of this year rose to a staggering $2.7 trillion this is a whopping 62% increase over the same period last year, this increase reflected a record 663 billion in deals announced during April, making it the busiest ever month ever for M&A/LBO activity. However, we have been see that the vast number of new takeovers has slowed thereafter as in May and June the activity has been held back by rising interest rates and the summer-doldrums. The good old USA accounted for the bulk of the deals, with a 41% share, followed by Europe on 36%. A record 47.6% of the deals were cross-border tie-ups, driven by strong trend towards global consolidation in the financials and material-sectors along with the energy sectors. Private equity firms continued to play an important role in global M&A despite rising borrowing costs, accounting for 24.3% of the activity. As of this past Friday, the total value of announced acquisitions worldwide reached $3.98 trillion for the year, exceeding the total of $3.33 trillion level of announced deals reached in 2000, according to Dealogic�.this is what I call folks a MEGA irrational swell of merger mania. This global expansion as they call it...is awash with easy money (petroleum-dollars, commodity dollars, and emerging market-dollars) and as you can see from the rush into stocks of late (despite the increasing risk) the move has been euphoric. This intensity of acquisitions has been driven by the surplus of cash held by corporations (as they have failed to find organic or inorganic growth opportunities) private equity firms and public companies alike as well as interest rates that have been at historically low levels for an extended period of time and the willingness of banks to provide financing no matter what the credit risk. If current conditions persist, the whiplash pace of acquisition activity could go on through the end-of-the-year...but what will follow once the liquidity dries up.

These deals have set records and have this massive amount of money and liquidity; demonstrates how much corporate cash has been accumulated due too, massive expense cutting, huge tax reductions and other non-repeatable events. This development is far from bullish in my opinion as once this type of activity evaporates....after the deals are done and the money isn't recycled�.most of the corporate profits that have been utilized for these activities along with huge-announced stock buy-backs will be not a result in profits heading forward, nor f deep cost cutting (mostly lay-offs and outsourcing of American labor, and closing of plants due to so called synergies). This indicates to me that corporations have basically exhausted their organic growth opportunities and cost savings as overall demand for their products is slipping and waning. They are now forced to shift into an acquisition and merger mode to maintain their so-called stock momentum. What is also quite disturbing to me of late, is the vast amassing of cash �liquidity� is a result of global corporations hording cash to the ninth-degree as they seem to have little ability to increase demand or grow their businesses. I'm also seeing many governments and central banks (printing and spending money at break neck pace) increasing money supplies which is inflationary by its very nature. Ask your selves if our economy is really so strong and the global economies are catching a draft right behind us (which I do not believe for an instance) then why are we seeing such a hording of cash by corporations and now nations; and why are the printing presses running full-bore.

We are seeing distinct contagions to the health of the US economy (we are the world's largest consumers). Meanwhile we are also seeing that the emerging markets are also slowing India and China.

The indexes have also been fuelled by traders and investors (like my self at times) who have been forced to cover (short-bets) that stocks would retrace. I must caution you as the market look ahead 5-8 months out and starts to price in material anticipated changes** So If you believe this rally has legs then you have to believe that: if the following premises do not hold logic support then be very cautious taking on new-LONG positions, protect profits and get ready to play SHORTS

During the past 4-5 weeks, I have been repeatedly been getting increasing-sell-signals that are indicating that this recent bull-rally which is on a run away-train path is approaching a massive-significant-correction, and I have been dead-pan wrong as the euphoria and giddiness persists to press the indexes higher, much further than I though possible�.and since my forecast almost 5-weeks ago that the market appeared to be topping the indexes have continued to churn higher as bullish momentum has still found the needed fuel (liquidity) along with speculative-bullishness surround M&A/LBO activity along with large private equity deals hitting the wires on a daily basis. Most so called economists and market guru�s like Kudlow and Cramer (hypsters extraordinaire the both of them) cry out daily that this is a different kind of rally, and that �this economic and Bull-run cycle is different this time� as this rally and robust economy can last another 8-10-years (I am scratching my head each time I hear that crap)...and I hate to admit but their recent record (past-4-5 weeks has bested mine). Unfortunately way to many average and newbie investors are being lured into this bull-trap as these are the same numb nuts **along with a host of other perma-bulls and talking-butt-heads* who were calling for significantly more upside as we entered 2000, and we saw what started in March 2000...as these were the highs that were posted and not seen again for over 7+/- years {remember the chants back then that the Dow was heading to 15,000-17,000, SPX to 2500 and Nasdog to 7000} and they were also the same flip-floppers who said that there was more selling to take place at the October 2002 lows so forgive me if I sound so darn skeptical as even a broken clock is right twice a day, and their record at forecasting market tops/bottoms is down right pitiful in general.

As I write this report this weekend we are at what I am calling extreme-levels of bullish mania/euphoria {an exhaustion topping scenario} whereas in October of 2002, the selling frenzy reached what is know as capitulation exhaustion bottoming process. I can remember back in late August/September 2002 I took a lot of ridicule especially from my perma-bear friends for reversing my bearish stance and becoming bullish, I was a tad early then but not very far off of the mark then folks. Now, I am once again accepting some scorn and sometimes-ridicule for my early call now for an exhaustion top. Currently I must admit I think that I am suffering a tad from being a bit of premature-bearish-mentality. I must confess that it’s easier to call a bottom then a top as irrational market-behavior/psychology always over-shoots, and these topping extremes can be violent and over-extended; currently this bull-run-rally and the participants are suffering from a severe dose of no-fear mentality wherein they only see up-side for their stocks and indexes and the fear of a pull-back or correction never plays into their decision to keep buying at these over-valued levels.

For those of you in my real-time chat room you know that I have been getting bloodied a bit’since I have been consistently charred/singed trying to broadly short these parabolic moves (on Friday for example I was hurt on several-plays like ISRG). The markets have been embroiled in an arena of almost absolute-bullishness. The bulls are showing no-fear and their immense greed has taken over.

Greed and Fear, those usually pesky and extreme motivators, are alive and only the greed-component is selectively active in the minds of investors today. The record level of speculation in most stocks is not just a function of normal greed, but of an attitude expressed by a host of investors I have listened to of late; this current new-generation of market participants (the young 25-35 year old hedge fund managers) know no fear of the stock market; nor are they showing any respect for the business and stock market cycles.

A significant number of investors today, particularly newer ones, are functioning with out their proverbial genes for prudence, caution and risk aversion, these greedy irrational investor/traders keep surging recklessly full-steam ahead. Those like myself, the rational/logical types (at least I believe I am) can and often get burned a bit as we tend to underestimate the exuberance-or dismay of the masses at tops/bottoms, as we fully understand the premise of the markets which dictate the potential for both gains and loss, and as such the total absence of fear never comes into play for us. Hence we tend to underestimate the last 5+/- percent of the bull/bear-moves as our indicators do not catch (as they look at logical and unemotional factors) the extremes in despair/ euphoria which so often creates both the astonishing level of stock prices at lows and tops and the potential for astonishing losses by bulls/bears that refuse to take profits thinking that the trend will remain intact forever.

I've seen it before, throughout 1999 to early 2000 when people were paying 50-150 P/Es for stocks based on silly ass metrics such as "eyeballs" and �clicks� and we were told daily that those high valuations would be easily be worked into as future earnings. The talking butt-heads stated repeatedly then that the investing future would be fabulous and that these were the investing times of our lives; so that we should buy-buy-buy and the that the so-called bull-train was departing for the land of milk and honey.

These so called experts not once sounded bells any caution nor did these so called great market guru�s warn the investing public (their clients) of the potential of a perfect storm brewing...they just continued to push the herd in front of this so called bull-train�they were so darn busy sucking in the next herd of new-bag-holders (its never-in their best interest, unless they run a short-selling fund, to talks negative about the markets now is it)�they were then just like I believe that are now out in mass looking for the next �herd� of sheep; or worse yet were they just plain stupid and unaware of the perfect bear-market storm that was brewing.

The markets with out any-concern for valuations, and sensibility continue to hit new highs almost everyday, despite the economic warning, business cycle earnings and general geopolitical uncertainty and a few of us conscious investors and traders have been hearing the warnings as they continue to resound louder everyday **SEE MY TECHNICAL-SECTION, fur further insight** (I'm growing deaf from the thunderous roar). But most investors never listen to reason; they are so blinded by greed they only dreams of grandeur...and piles of unrealized-profits or money. They do not see the danger below (those buying in 2000, the tops did not see the danger either) Most investors today are far too engrossed in their pursuit or riches, to step back and protect them�however they will be forced someday to see these dangers. Hopefully it will not be too darn late for them to react to protect their pent-up profits�as the proverbial plunge when it comes will catch most investors and those on bubblevision by complete surprise....most will be it a mega state on denial and when this unsustainable bubble breaks�.hopefully the air is expelled gingerly�then a look out below scenario...where the rats run from a burning-ship type of circumstance plays out. Remember my writings a few months back, "the coyote-analogy". I believe that we will soon hear such as the cries from co-called coyote-investors that just discovered that they ran off a proverbial cliff break will be a curdling and deafening cry, and those that do not suffer from short-term memory lose will quickly remember what happened in March of 2000�.

The US Dollar will it rally, or Crash, we are on the edge!

What has happened to our greenback? It appears that the talking butt-heads have forgotten all about the crumbling greenback as they only address it with positive connotations, and undertones {I guess iit is not in Wall Street�s best interest to publicize anything about dollar weakness, as it could lead to lower foreign investment in US stocks and bonds} as they are most interested in hyping the equity markets and their attention on anything that could derail the huge-swell of bullish tonality is out of their interest, and they will mot likely put their focus on anything that is a negative. Currently our currency is getting crushed and you wouldn�t know it from the mainstream financial media that our greenback has been stricken with a fast acting cancer. Right now our greenback is in a secular bear market and it appears that we could very soon be heading toward new lows. In my opinion folks if our greenback continues on its steady decline and hits and breeches through the recent lows, the implications will probably be profound and very negative once the reality of the situation sets in. Especially for American investors and speculators, as our greenback is the linchpin of our and most of the world's financial systems. When foreign investors who have been keeping our markets propped up with their savings see experience new dollar lows. I am forecasting that the massive inflows of capital from (petro-dollars, commodity dollars, and dollars as a result of our massive trade imbalance) that these foreigners have been pumping into our financial markets could stall and worse yet they could hit the withdrawal buttons.

Please watch the dollar folks (Daily Chart Weekly chart), it had been very weak of late; but during the past 5-6 secessions we have seen some renewed bullishness. It appears that it has made a potential near-bottom and as such those multinational firms like IBM, AMZN, GS, MMM, PG etc, that have been the beneficiaries of a weak dollar policy, could start to top, as they will not afforded a favorable currency benefit in their earnings.

I am very concerned folks as (Daily Chart Weekly charts) shows a very definite down-trend despite a remarkable bullish stock market performance which should have attracted foreign investment, the dollar has been sold repeatedly during the past 17-18 months by central banks, investors on a global basis. Since its last interim high in 11/16/2005 2005 [92.63] the US Dollar Index has relentlessly dropped to its recent low of [80.11] posted on Friday, and this has been a drop of almost 14%. Over the identical span of time, the SPX low on 11/16/2005 was 1230.72 and it has risen to 1534.10 this is a whopping rose 20.0% run thus if you were a foreign investor buying US stocks in late 2005, about 70% of your stock gains since then have been erased (evaporated) by their greenback losses, this is a mega currency translation repatriation nightmare. I would have thought by now that this huge negative swing in a currency�s value is not going to continue to motivate foreign investors into our markets. The dollar has been falling in value for almost 20 months now because of the ongoing global dollar glut of greenbacks thanks in part to Greenspam and Helicopter Bernanke, who have had the printing presses working 24/7 pumping out our currency. As a result we have seen a huge swell in supply which has clearly exceeded global dollar demand; and when such a structural surplus exists in any market place the only possible resulting action is a distinct weakness in the price of the underlying-instrument and as such a further decline is very likely on balance until this imbalance is corrected. When we reflect on the longer-term time frame we see an even more dismal picture; as our dollar has been on a down trend since October 2002, which coincides with our recent stock market bottom, and the bottom for the gold market.

Now for the really bad-news�.imagine if foreign central banks, become unnerved or become fatigued of this 5-6 years of huge dollar losses...and if they start to diversify out of their dollar assets/holdings into another asset class. To do this they would have to first sell their US assets, primarily US Treasuries and other high-grade bonds, to turn them into greenbacks. This first act alone would drive down bond prices and subsequently drive up interest rates (remember folks, our interest rates are so darn low thanks to China, Japan and emerging countries using excess dollars to buy our bonds, so in a matter of speaking we need to thank these folks for low rates not the fed-heads). If this dismal scenario plays out it doesn't take much imagination to see all the market bombs that could explode as if long rates rise (mortgage rates) in these precarious times where we are embroiled in a subprime fiasco, this would be a force 5-hurricane unleashed in the mortgage and other US debt markets. Now once the foreign central banks or foreign international investors sold their US bonds, they would in turn sell their US dollars and buy stronger currencies like the euro/pound etc. This would drive the dollar even lower! Thus we would see a worst-case scenario is a vicious circle forming and the eventual crashing of our economy. Hence China and Asia and other emerging countries could hold us hostage as if enough foreign investors sell US assets then dollars which would result in driving prices lower then panic could set in and the dollar could utterly collapse. An basically speaking folks a crumbling greenback in such a scenario would become a market Tsunami wreaking havoc on stocks, bonds, and our interest rates.

Everything I've discussed up to this point should be a alarming wake up call folks, as if anything even slightly resembling a dollar panic starts all of our asset-classes will take a beating. Unfortunately I haven't even addressed the scariest part yet. Thanks to dollar inflation most investment assets appreciate in nominal value over time, so for example there is never a danger that a stock index will hit an all-time low. So who knows how traders and investors will react to such an exceedingly rare event if we get some panic selling in our greenback? When the dollar slips again as I expect it will too new lows and god forbid drops under the demarcation line in the sand {80} could inflict tremendous damage to market sentiment. The last time the US Dollar Index came close to this all-important 80-mark was in late 2004 as it dropped to 80.39. And as you can see from the long term-monthly chart there were only four other times before that we have seen a test of these levels, and one breech! If the USD falls under 80 with conviction, technically-oriented dollar traders may panic and we could see serious acceleration lower. Now on the bullish side 80 has indeed held since the late 1991 and it may very well hold again. But the problem with pure technical arguments is that they risk getting dashed against the rocks by the fundamentals which ultimately drive secular-trending markets, and this time the fundamentals in the good old USA have been deteriorating. If worldwide dollar supply growth continues {thanks to the fed-heads who continue to create dollars out of thin air} to exceed worldwide dollar demand then the dollar's price on the international markets simply has to fall regardless of where it is technically is simple supply/demand. With dollar supplies growing perpetually (and this is also happening on a massive global basis as well) we need to keep a keen eye on the greenback, as all will be well until everyone eventually just gives in and screams that they can not stand the weak-dollar currency deterioration any longer; and they capitulate on it and the greenback utterly collapses like every other pure fiat currency has in history.

Folks why am I paying so much attention to the dollar; well its simple as the dollar's price action will be determined by demand; and unfortunately I believe that global dollar demand is waning; lets face it folks foreign investors (who unlike Americans actually have savings to invest) can invest in better-returning stock markets than the US and they can buy bonds in countries with higher interest rates than the US; why continue to come here with their money; especially as our economy weakens.

Most of the world's largest dollar holders are Asian central banks and central banks in particular, and right no the world's biggest dollar investors, are far too heavily concentrated in dollar holdings especially when looking at its current valuation. And if it breaks down through the [80] level it could spark them to refrain from buying and start some significant selling. Even Greenspam, the creator of massive bubbles recently stated that it isn't prudent to have too much exposure in any one currency, and any diversification out of their overweight dollar positions would be a big negative and greatly impact overall demand. Worse yet folks is the current actions of the Bush administration especially Gorge Bush himself�.our elected dictator (just my take) as global investors are extremely angry with his aggressive foreign policies. Regardless of what your politics are folks his actions in recent years have largely been seen as meddling imperialism by most of the Muslim world (oil producers) and the majority of the world; and this sentiment is worsening hence foreign investors are less likely to buy USA paper fiat dollars if their ticked off thanks to his actions; this could also hurt demand, and god forbid if he, through the backing of Israel attack Iran.

Please watch the dollar folks (weekly chart), as it has been very weak of late; and its close to a potential bottoming process, and as such those multinational firms like IBM, AMZN, PG etc, that have been the beneficiaries of a weak dollar policy, could top, as they will not afforded a favorable currency benefit in their earnings.

Strengthening Dollar

Advantages

U.S. investors can purchase foreign stocks/bonds at "lower" prices.

Disadvantages

Weakening Dollar
Advantages

U.S. capital markets become more attractive to foreign investors.

Disadvantages

Technically Speaking

Weekend Analysis 07-23-2007

I will be SELLING into what I expect to be one more up thrust move into what I believe will be a climatic top. After the following levels are triggered I am looking for a 40-65% pull-back of this last leg of this rally (the fib/retracement expectation) off of key overhear linear regression forecasted OHR. I'm of the belief that we have another potential minor leg higher before they slam the door on this euphoric rally. As always keep tight stops on any attempt to SHORt into strength and be ready to step aside or reverse course if the herd enters into another euphoric buying mode. I am expecting a major top to form in the following zones (Nasdog @ 2765-2695, Dow @ 14,140-14,200, Russell-2000 @ 849-853, SPX @ 1565-1575, these would be key OHR areas to SELL into utilizing SEPT-DEC PUTS on any-strength) My experience tells me that *hedge funds and mutual-funds* will move into and play high-beta, and liquid stocks and ETF's; such as the SOX, and other large-cap technology players as I said they would this past weeks in the rally attempt, when the selling starts they will surely dump them like a hot potato. PLEASE BE AWARE the aforementioned levels as they fall within my 90-95% confidence levels, the indexes however may stall ahead of these levels

Note�we have been rallying up from the reactionary lows of October 2002; that is approximately 57-months, **this is usually the starting point I use**�and its worth noting that the median of the past recorded 23 Bull-Market moves was for a 76% gain and the duration lasted 25+/- months; I tell you this in order to give you an historic perspective of where this particular Bull market stands in relation to others, and where a current Bull market's status might be�.as I said we have been on an upward trajectory since 10/2002 though some may like to use the March 12th,2003 *52-months** area, which would put us right way over the historic mean zone, so for the sake of argument, lets use the March-2003 lows for our calculations; what is important is that I have a large warning signal being waved as currently we are almost 5.7-standard deviations away from the typical mean gains on a average bull market�.The facts are that we have seen�.As of the close on Friday 7/20/2007�this rally which has never seen a real retracement (pause and back-filling) of 10-12% and as such is extremely long over-due for such a corrective move.

During the next 4-6 trading days in my opinion we will most likely arrive at the top of the intermediate trend which started with the bottoming of the 20-wk cycle on 3/5.

The cycles which lie ahead and price projections below for a top make this a high probability based on a number of technical parameters and matrixes. A perfect scenario for the conclusion of this trend would be the following: We start a short term correction on up-thrust on Monday ending the correction late Monday (maybe Tuesday-morning); then we produce a sell-off into the end of next week, ahead of the advance GDP numbers for the second-quarter...the following week we get a huge deluge of economic data....most of which could be market-moving.

My wave analysis work, that I explained last week is once again forecasting that we are on a brink of a major/major market inflection period �As I stated during the past week my wave/time analysis (turn-time) forecasts are pointing toward a Major/Major inflection this week on/between the 22nd -27th a slight revision due to volume....these signals are suggesting a significant move/event is going to happen (600-700 Dow points, 1255+/- Nasdog points and 50-75+/- SPX points) this wave will most likely last 19-28 trading days possible I believe the direction will be a counter move �down� as a stronger move up from here would be difficult to orchestrate (unless there are many-more shorts to squeeze) Complacency is still at an all time high and a potential reversal is not-yet-being telegraphed; especially when the bear-cub shorts are running scared and bulls have no fear�I believe unlike those on bubble-vision that we are very-near an exhaustion top, as this so-called economic boom (that has left many Americans behind) and as such we need to forge ahead in a very cautionary environment (especially if you desire to take on new long positions) as we are now trending in my opinion within a proverbial mine field and one slip and boom/bang�a bouncing-betty will be unleashed and explode. Stocks drop 3-4x quicker than they rise, so please remember that when in doubt, stay-out, if you enter the game, keep your share size manageable and utilize good money management techniques that I have emphasized many times until we can once again see an trend establish itself.....I believe that we have maybe one more minor...leg up and this rally top will then roll-over.

My indicators are flashing a mega warning signal. I got support from our old friend the Hindenburg Omen....as we saw that this past week we got another Hindenburg Omen conformational signal on Wednesday this week after our last confirming signal on July 11th., so far this is the largest number of confirming Omen signals that I have seen since 2001 as I have bore witness to 4-such signals in just over 2+ weeks. As such these signals are also confirming my strong-sell-signals

In my opinion this mega/large array of confirming sell-signals is warning me that this is a period to reduce my long-exposure and start to develop short positions on the major indexes as well as my favorite high-beta (crap-dog) players. meaning the overall potential for a significant stock market correction between now and August has increased significantly.

My indicators are still telling me that we are treading within a huge-mine-field here...and I have been reviewing several major-indicators that could I utilize that are indicating that we could see a mega-drop (selling event) in the very near-future. The percentage of stocks participating in this rally has been diminishing during the past several weeks despite the incessant hyping on the various bubble-media channels about a new-bull-market that retail investors better hop-aboard or lose out on catching the mega-ride up-the-bull rise ahead...its their excessive bullishness that has me very-concerned. They are still trying to draw retail investors into this market like a moth to a flame, and we all know what happens when a moth gets too close to a flame they get singed or get burnt. The last time that I saw a conjoining of signals like these was prior to the drop in February; and to put these type of sell-signals into perspective the last time my technical indicators indicated a potential mega-sell-signal (in early February) we saw that:

After the Dow triggered a "sell-signal" with confluence with my host of indicators (they started to trigger in late-January...early February) we saw that the plunge started just a few-weeks later on February 21st, the Dow plunged 743 points, or 9.4% in just 8-trading days thereafter. Then just like the Dow the Nasdog also had (as it has now) produced a sell-signal, with my indicators and it started it's drop on February 26th, and it quickly dropped 165-points in only 6-trading days, or 9.2%. The SPX made it a hat-trick as it was also developed a sell-signal that was generated on 2/6 and shortly thereafter just as the Dow did it started to plunge on February 22nd and it dropped 87+/- points in just 7-trading days a 9.4% drop.

When we get the pullback that I am forecasting it is likely to be initiated by traders/investors indulging in a huge bout of profit-taking following the giddy run up in stocks in the past 4+ months. The gains have mostly been boosted by huge speculation and hype not to mention incessant talking-butt-head-euphoria concerning M&A/LBO activity and company-stock-buy-backs...we are still seeing the game playing out of some corporate earnings that beat-the street (after significantly being reduced lower, something that has not been reported). However the markets are also sailing into a potential hurricane this next week and especially the week thereafter�it which it will be deluged by a flurry of economic news and monthly sales updates from the major auto manufacturers, alone with major inflationary data. The markets (investors/traders) will gain fresh updates on consumer spending, inflation, factory orders and the job market among other reports.

Crude closed higher....crude closed at $76.06 on Friday and it lost $0.01 on the day.... however it gained $1.93. Crude has rocketed off of the recent lows We are running into overhead resistance at 76.00-76.75 (if we breech through the zone thereafter it could be a clear run to $8000-81.00) keep in mind that a huge ....please remember that a large part of the SPX earnings come from energy stocks, and the markets will have a hard time sustaining any real bullish tonality with out these players.... (daily chart) (weekly crude chart).

The NYSE composite index lost 121.08 points on Friday (it lost 147.74 points on the week**) as it closed out the week at 10,072.93 it is starting to display EXTREMELY over-bought/extended conditions as in comes back into toward the top of the wedge formation on weaker money flows at 10250-10300, which will also act as near-term overhead resistance. The daily chart is looking like a near-term top could be hours/days away as its more than a tad bit overbought, and the tail end of this bullish move is being competed on weaker money flows and some renewed block selling Daily Chart the oscillators and divergences are pointing toward a near-term TOP could be days/no more than several weeks away and the resumption of a down-trend could take us back toward the 9250 then the nest support level of will come into play at 8550�the rising wedge formation on the weekly chart is almost complete and, we are seeing forming divergences in an extremely over-bought mode. Weekly Chart

The broadest measure of market breath, has always been the Wilshire-5000 lost 189.26 points on Friday, and it like the other majors it posted a loss on the week of 194.47... it closed out the week at 15,506.48... unfortunately for the bulls it is starting to display EXTREMELY over-bought/extended conditions with increasing divergences as it potentially sets up for a blow off topping process comes back into toward the top of the wedge formation is looking very toppy here and it may see some additional buying near-term, but a top appears to be hours/days away. daily chart I am looking at the 15,475-15,525 area as the topping zone thereafter a rollover to 14,450-14,500 is quite possible then a Fibonacci trigger of 38.2% at the 14,050 zone. The oscillators are over-bought now and many are flashing that we are entering a near-term sell-zone. The weekly chart is suggesting this may have been the last push before a sustained down turn comes into play, and a significant retracement ensues.

This weeks rally sent the SPX past its old all-time intraday trading high set in March 2000; and all were delighted on bubblevision until Friday came...then the sellers lined up due to multi-wave contagions....especially some key-earnings misses as the SPX lost 18.98 points on Friday or 1.22% to close out the secession at 1534.10 (the SPX posted all of its losses on Friday, as for the week it was down 18.40 points) it is still only down 20+/- points from the new-relative high...no need for bulls to panic just yet. The near-term 60-minute chart shows that we could come down and test the bottom of the rising-wedge formation at 1525+/- thereafter support comes into play at the even-round-1500 zone. Now its fair to say that volatility has certainly returned as we did see some strong whipsawing explosive selling and buying this past week. It is still worth noting that when the selling does appears it usually on significantly stronger volume than the dip-buying that quickly returned. The index looks from the bullish perspective ready to make an assault on the 1600 level if the bulls return in force on Monday...they will now need to press the index back to the old relative highs at 1555 first... If the bad-news-bears return from forced hibernation after being bloodied severely these past few weeks due to incessant orchestrated short squeezes, look for a retest of 1520-1525 zone (the 50Dsma = 1520, while the 50Dema=1516) which should provide near-term support. The longer-term charts are displaying a host of negative divergences however the tape had continued to grind higher during the past week. The money-flows in the index plainly stink!! The money flows have just started to return this month as new monies were put to work at the start of the 3rd quarter, second-half of the year. The ADX is still displaying a weaker trend and the CCI appears very over-bought at these levels once again the longer-term charts have been screaming a potential near-term possible exhaustion top-is-near but they have been signaling that for several weeks now. SPX Hourly Chart SPX Daily Chart SPX Weekly chart SPX-Monthly Chart

The Dow powered once again (due to timely upgrades and incessant hyping on bubblevision) rose to another all-time high as it pressed the Dow past 14,000 for the first time�.then on Friday the reaction was a seller-paradise after CAT and GOOG disappointed the streets the Dow lost 149.33 points on Friday to close out the secession at 13,851.08...(it was only down 56.17 points on the week and if you listened to the talking-butt-heads the end was near) of course just a day's rally form the relative new-closing high of 14,000.....The Dow succumbed to some profit-taking after a 2-week 500-point run....The Dow failed right at the top of its daily trend-line...and looks poised to test 13500...if the bulls return on Monday they will need to regain the 13925 level...to change the short-term, sentiment. We closed above the 10Dema at 13829, and this should along with the 60-minute 100ema @ 13772 provide a near-term solid zone of support....if broken, look for a decent/drop to 13600-13630

One reason that the Dow has rallied so hard is the M&A activity speculation in stocks like AA along with (rotation out of acquired stocks like AL into large-caps that are more liquid than small/mid caps) and the incessant stock buy-back announcements GE, MCD, WMT, XOM etc, not to mention strength in XOM .

Exxon Mobil Corp, after this week�s tremendous price appreciation became the only publicly traded company valued at above half a trillion dollars�.the increase pushed the market capitalization to $518-billion. Exxon�s 44% gain in the past 12 months has allowed it to widen the gap now by 26% over General Electric the next largest US firm. This just goes to show that my forecast/recommendation last November that the one sector poised for growth above all else was the commodity sector especially energy and that this year you needed to have exposure in energy (this will soon come to an end, as we may only have one tiny leg left up despite predictions of $80-$100 a barrel crude�As I believe the weight of new-regulations and potential wind-fall-profit-taxes stunt its huge growth and rightfully so in my opinion.

We have seen a constant parade of talking butt-heads talking up speculation in the energy markets and when coupled with some upgrades in technology have helped press the index to new highs. There is still a HUGE ground swell of bullishness as it still appears that the giddy bulls are hell-bent to retest the 14,000 level� the oscillators are over-bought on the near-term charts and the longer-term charts have a decidedly negative biases however we have seen that markets can over-extend-longer than moist can remain solvent�as the shorts (like-myself at times have been forced into covering their positions �The near-term charts 60/30 minute charts hit the oversold territory late on options expiration Friday....though we could see some additional bearishness...though we could see a reversal if the typical merger Monday plays out...the index on the Daily/Weekly charts looks quite tired. The bulls will need to press their late day tonality through the open to attempt a test of the now highly hyped Dow 14,000. Any subsequent selling by the bad-news bears and we could quickly roll-over and test the rising 50sma @ 13,625-13650 zone; the weekly charts shows that the bulls need to defend any near-term drop very-quickly as it is sitting right above What I refer to as a tweezer an overlapping of moving averages as the 50sma/ema are overlapping at 13,490/13,413 respectively and the index had recently bounced on very-light volume just a tad above them... if the bulls lose this levels to the bad-news-bears then look for a drop to 13,135-13,150 thereafter they would search to assault the 13,000 level�. 60-minute chart�.Daily Chart....Dow Weekly Chart�Dow Monthly Chart

The Nasdog was sold hard on Friday.... as it dropped 32.44 points...to close out the secession at 2687.60 this past week made a nice run to the weekly intraday highs of 2724.00�the index lost 19.40 points on the week.....it It has been juiced due to some very timely upgrades in the semi/chip group and continued speculation of M&A activity, not to mention huge �announced stock buy-backs. The Nasdog appears primed to make an assault to new relative highs 2760-2785 as each time is starts to slip, than bang a brokerage firm steps in and upgrades fundamentally weak stocks/sectors on the premise the worse is in and they the stocks can’tfall any-further. We saw this in 2001, and the nuts were wrong them but right on the near-term, as the upgrades clipped many a short trader like myself on the near-term, but on the longer-term we reaped mega profits. The Nasdog is bouncing at the top of the weekly rising wedge formation with multiple negative divergences forming on multiple time frames�.when I look at the last bear market full retracement tend on the weekly and monthly charts the Nasdog has rallied back up from the lows to the 38.2% retracement at 2675-2685+/- and the bulls make make another play for this zone next week as we are just 50+/- points away and this could be the nest bullish OHR zone to be assaulted. This rally is in the bulls to press or lose, after Friday's selling the Nasdog may succumb to further selling on Monday and drop to the 2650/2655 zone, thereafter look for support at 2608/2615 Nasdog Hourly Nasdog Daily Chart Nasdog Weekly Chart Nasdog Monthly Chart

On a technical basis�.

As I said this past week keep in mind is that I still believe we are in an an Elliott wave pattern.... analysis that we are in a major A-B-C correction, and my analysis is still valid. As Elliott wave analysis indicated the "personality" of a �C� wave is to entice the herd by getting them overly excited about a near-term corrective action has been completed and that the previous trend (up in this case) has resumed and that the path to riches lies with buying with reckless abandon as this bull-train is leaving the station. When we add to the fact that this is the 2nd wave correction we quite often see an even higher bullish tonality sentiment reading than the prior move (the February high in this case, according to my technicals) this is why most often the 3rd wave (down in this case, if my analysis is correct) are so bloody strong (excuse the pun) as they normally catch everyone leaning excessively to one predominant tone or path of reflection as they are led to believe with out contention that the previous trend has resumed its course and that new significant highs are assured. When the 3rd wave gets going it systemically shocks investors and traders who were convinced into the herd mentality�becoming the next round of proverbial lemming bag-holders�and by the time they recognize they're in trouble and start bailing, the move accelerates and gains momentum from margin calls and redemptions. I believe this will play out soon as we may get a slight pull back, another leg-up that completes the pattern then bang�.and I would not rule out this scenario starting in the next week or so�.remember the second wave down of the 3rd wave can be very violent as the fear {oh my god} principle takes hold.

During (1991,1994,1996, 2000) we saw similar chart patterns and trends as are forming now as trading volume started to diminish, something that often precedes a price decline, and a huge wave of bullish sentiment had gripped those markets as well as sentiment indicators, including opinion surveys of investment advisers and measures of market volatility, show complacency that typically occurs near market tops; unfortunately the current measure of complacency is much greater ands the fall could be much worse. Also I am seeing a similar patter evolve as we saw this past spring where the hot-money players were favoring emerging markets and so called defensive, high-quality blue chips and shortly thereafter the market succumbed to a nasty selling-event. These warning flags along with several others I will expound upon during my past weekend reports should not be ignored. I cannot rule out a continued grind up from these levels folks but the risk/reward warrants a very defensive stance and please be very careful when taking on new long positions as these indexes run at all time or near all time highs (of course the Nasdog is no where these levels) I have watch so many stocks get clipped 20-30% during the past few weeks on any signs of a hiccup/warnings.

This huge wave of bullishness has me very worried folks!!!!

Recently CNBC has been hyping only the bullish-perspective�the thoughts and hopes of a Bull-market that will last a decade or longer...well from my perspective a decade-long bull market is a huge rarity folks. Historically, most bull markets have run their course in 40-50 months and as such this one is certainly on very last extended legs. We saw a very extended bull market in the 1990's and just seven years after that record breaking great bull market all hell broke loose and it came crashing down hard and many some seasoned investors once again have been lulled into believing that the U.S. market is in the midst of another long period of gains because of global economic strength. Such a blatant disregard for the economic and business cycles, and the lack of domestic investment along with historic levels of deficits gives me a very sick feeling folks.

Whenever there is a stock market bull-market that surges in a parabolic mode like this one certainly has the hypsters inventing New Era stories to justify these nose bleed levels. I sincerely believe that this huge profit growth cycle which has benefited mostly from the methods employed by renowned chainsaw Al Dunlop, along with the crumbling greenback {The dollar's sharp decline could also have a damping effect, making investors shift heavily away from U.S. shares toward foreign stocks.} and the huge outsourcing and expense cutting (not real demand growth) and rock-bottom interest rates that have supported the rebound in the indexes should soon revert to average historical levels or even worse as most of the gains were built on non-repeatable events.

These past several weeks the bullish herd of co called experts being pranced about all over the airwaves on bubblevision credit the Fed-heads especially helicopter Bernanke with a proverbial ��soft landing scenario�� their so-called interest-rate policy of slowing growth to a manageable pace while staving off the possibility of a recession. When stocks have dropped of late, most experienced investors/traders like myself have been more than a bit surprised by the velocity of their recovery; as like there is a mystical fairy godmother that waves her magic hand and poof the market regains its strength.

The recent parabolic move in the stock market has been built on what I call a lime stone foundation. And this rally has rally parabolic as it is was built from the crumbling-foundation of one of the worst bear market for the Dow since the 1970s, and the worst for the SPX since the Great Depression; as during the brief 2000-02 bear market, investors fled stocks for gold, and other commodities, along with real estate and bonds. The Dow dropped a whopping 39% the SPX plunged a whopping 49.5% and the Nasdog fell-off the coyote cliff as it dropped a staggering 78%. We have also seen that this liquidity based (carry-trade) rally has strong participation from the foreign markets as well as many have rocketed even more than those of the U.S. since then, with Tokyo up 147% since the SPX bottomed on 10/ 9/ 2002, India up a staggering 392% percent and Shanghai up 268%. It is the overall global strength, and it is these developments suggesting that we are no longer the only strong engine of world growth, that has made many investors so hopeful that it will be different this time and to ignore excesses.

Maybe the limestone foundation of this recent rally is showing signs of cracking�

© 2007 Stephen Tetreault
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Stephen Tetreault
T-Waves
Southern Maine, USA
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