MARKET COMMENTARY

August 9, 2008

Take a vacation from your problems. "What About Bob."

GENERAL COMMENT

Take a vacation from your problems? Yeah, that's what seems to be happening for Wall Street traders.

Under normal circumstances the Soviet Russian attacks on Georgia, especially oil pipelines, wouldn't be greeted with falling oil prices. [There is a story circulating this Sunday morning that Russians targeted pipelines but missed. How correct is that story I wonder?] When trading desks and hedge funds have their mojo going, just get out of the way and do like our friend Bob.

If you crave more fundamental information, I encourage you to follow Don Coxe's views in his webcast, Marc Faber's and perhaps any bullish comments usually found anywhere on CNBC's website.

But that's not what we're supposed to be doing so let's go straight to trading issues.

TRADING NOTES

I'm concerned with the effectiveness of our routine in entering trades on Monday's opening. Things are changing in markets especially given the growth of electronic third market activity. If you toss in a market order at the open there is no telling where your order "might" be routed.

The advent of ETF/ETN products linked to commodity markets where linked futures contracts may or may not be trading at the same time [agriculture for example] adds another element of risk for these types of orders.

Further, leveraged products whether long or short in nature requires more diligence for buyers and sellers given intraday tracking inefficiencies. So, tossing market orders in at the opening can disappoint.

Finally, a lot of nonsense can typically occur on any market opening and is truer on Monday's given the weekend news cycle and events in other markets.

Therefore, we may start posting fills from prices obtained at the 15 minute mark after the open going forward. This should allow prices to settle down and fills to be more effective.

Nevertheless, please remember everything we "suggest" is just that, a "suggestion". Each subscriber is on their own to either enter transactions or use alerts as a guide in combination with their circumstances and other input. We don't expect anyone to be an automaton marching in lockstep with what we're doing or suggesting.

As to markets we along with everyone else have been tiptoeing thru this volatile market minefield. We've done well to avoid trouble but also may have been too conservative with positions.

The DeMark 9 indicators we've been using have allowed us to capture some profits on short positions. This approach is working as we hoped and outlined in previous historical charts.

Speaking technically many markets are now presenting us with quite a mixed picture. The breakout rally in the dollar and short commodity trades still seem operative if not counterintuitive. If you listen to Coxe's recording you'll sense his frustration.

No matter how we feel about new signals and positions our job is to issue the alerts absent our emotions. So that's what we're doing.

Let's start with tech. The QQQQs haven't given a "complete" buy signal so we'll just take a partial position until it all comes together. The same is true for IGM.

While the weighted QQQQs rally the equal weight version is doing better but not as well. Naturally, this is due to the bigger names stealing the show. If the rally continues QQEW should join the party since it doesn't have that far to go to be in sync.

We'll be adding XLP [Consumer Staples] as a long position and use UGE [ProShares Leveraged Consumer Goods ETF] in DSP.

We'll be shorting most currencies [FXE, FXA, FXE, FXB] and are already short FXY and FXC.

More issues we'll be closing include: ILF, EWC and RSX based on DeMark.

With ILF you'll note another Yahoo/Finance screw-up as they haven't adjusted for the split in their data. But no matter, we still have the 9 count on our other charts.

I would like to short Base Metals but don't think that's feasible using DBB. While Deutsche Bank has a new double inverse ETN [BOM] for that index it trades less than 10K shares per day. We would like to add to our short USO and DEE positions after we see the reaction Monday to the escalating Russian/Georgian situation.

In World Indexes we'll be closing positions in Argentina, Brazil, Mexico, Amsterdam and Jakarta for example. Gulf States markets are weakening while most European markets are trying to make a comeback like their US counterparts.

CONCLUSION

The investment approach ideal is to successfully marry fundamental views with technical analysis. It's not easy since some of the best trades I've experienced occurred as these approaches clashed.

Intuitively I dislike most positions when I first put them on. It's my emotional side at work. The trick for us is to ignore emotions and concentrate on technical analysis and signals.

No one really knows which way next. Perhaps we will score that "three-peat" I've been mentioning where three most recent poor July's were followed by a bullish August. Then will we make new highs in October? Well - nevermind.

DeMark Indicators have been working well for us up until now. But, in the manner we're using them; they're only designed to highlight potential trend exhaustion rather than being a self-contained trading system. The trick is to incorporate them into our basic trading system which I believe is now completed.

I can't say I'm really surprised by what appears as bullish conditions. Given the large amount of cash with hedge funds and trading desks coupled with their black box quantitative strategies it's no wonder they'll push things around absent fundamentals.

In his commentary, Don Coxe suggests that the end of the commodity rally and perhaps an intermediate stop to stock market declines came with the Fed, Treasury and SEC actions around June 13th. Then the government took control of the markets bailing out the system and preventing short selling in certain targeted financial stocks.

The current theme and refrain coming from the Street is the dollar will rally as Europe slips into recession and declining commodity demand presses many emerging market economies and their currencies. Hence, a dollar rally. Okay, we're with that for now.

We'll start adding some long positions but it's hard to get excited just yet.

Let's see what happens.

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