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ORIGINAL, INTERACTIVE SEMINAR ON TRADING USING
TECHNICAL ANALYSIS 

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Tempting that is, until the market hits resistance, turns on a dime (or in yesterday's case 10402) for the second time in a week, and the realization suddenly dawns: getting caught up in the excitement of a countertrend rally is a sucker's bet.

Yesterday's rally, or perhaps we should say enticing ticket to disaster for the novice trader, is all but forgotten today, the market's momentary respite from deterioration over, replaced by a reinvigorated case of econojitteritis following the release of stronger than expected economic data this morning.

The stock and bond markets received a triple dose of bad news this morning in the form of the not so benign three C's: Consumers, Confidence, and Creating products.

Stronger than expected August personal income and personal spending numbers set the ball of worry in motion this morning, with personal incomes rising 0.6% and personal spending galloping ahead 0.9%, yet another sign that the economy's main engine of growth, the spending addicted consumer, remains undeterred by this year's rise in interest rates.The report also showed the savings rate dipping to a record low -1.5%

Consumer demand shows no sign of easing, and if this morning's final revision of the University of Michigan consumer sentiment is any guide, spending will likely remain strong in the coming months.  The future expectations component of the survey rose 3.1 to a very optimistic 101.5. The economy is unlikely to slow until confidence, the second of today's three C's, falls back from its near record levels.

While consumers and confidence stirred a few jitters from their short nap, it was the NAPM survey which caused even the staunchest of inflation doves to quake in their boots. The survey came packaged without the slightest glimmer of hope.

The headline NAPM increased 3.6 to 57.8, its highest level in nearly 5 years, as a confident U.S. consumer and a recovering global economy fueled demand.  More bothersome, the prices paid component hurtled upward by 7.8 to a multiyear high of 67.6 as that upside breakout we've been talking about in the CRB Index made its presence felt.

The rise in the prices paid component can work itself out to ways: producers pass their costs onto the consumer and the CPI shoots up in coming months, prompting swift Fed action, or scenario B: producers eat their increased costs and corporate profit margins take a dive.  Either way the prices paid component is sliced, it is bad news for the stock market.

Despite the inflationary tone of today's reports, we still expect 'no rate hike, but a tighter bias' to be the order of the day next Tuesday, with a rate hike to follow before the dawn of the next millennium.

The trick that many fell for this morning, for the second time running, was a downward revision in the headline second quarter GDP figure from 1.8% to a deceptive 1.6%.  On the surface, and without digging deeper, the headline 1.6% figure would suggest the economy is slowing.  On closer inspection, after adding back what low inventories and a high trade deficit subtracted, and then factoring in an upward revision in consumer demand, the picture is less sanguine.

Beneath the headline number, the latest revision to second quarter GDP merely reinforced what the previous revision had already told us: demand is growing, productivity is slowing, and the possibility for a reemergence of inflation is bubbling beneath the surface.  As we said the last time second quarter GDP numbers made an appearance: strong demand and a necessary rebuilding of inventories will likely cause third quarter GDP to pick up, with 4% growth more probable than not.

The GDP number was the bright spot in today's latest round of econo-data-rama.  The Chicago Purchasing Managers Index unexpectedly declined to 53.8 in September, a figure that while lower than expected, still indicates that the manufacturing sector is expanding.  The prices paid component of the survey surged to 71,  a four year high, as rising commodity prices made their presence felt.

While the headline GDP and Chicago PMI figures surprised on the downside, new home sales did not, quite the opposite in fact.  New home sales, expected to decline 0.4%, shot up 2.9% to 983,000, their second highest level ever.  The strong growth in housing sales occurred with mortgage rates sitting at a 2 year high, and is yet another indication that consumer demand has yet to be dented by this year's rise in interest rates.

Today's economic data, while not enough to force the Fed's hand at next Tuesday's meeting, continues to indicate that further action will be needed by the Fed if it hopes to slow economic growth and correct the potentially inflationary economic imbalances that are building just beneath the surface.

We continue to look for the Fed to hold rates steady next week while announcing a shift towards a tighter bias, an event which will likely precipitate further weakness in the U.S. equity markets as investors are caught looking the other way.  We expect the Fed to take back last year's third rate cut before year end.

We were impressed--but not that impressed, there were too many loose ends left untied to consider yesterday's late rally anything but a momentary rest stop during the current correction.  Despite the late afternoon rally, the Dow finished the day well below its Monday intraday high of 10402, a level it must climb above before thoughts of a new leg up can be entertained. Also detracting from what should have been an impressive rally were a pair of surging figures outside the realms of the stock market: the CRB Index and the yield on the long bond.

Today, yesterday's rebound has failed to generate any meaningful follow through as the market slogs through the day, up one minute, down the next, in a narrow range, advancers and decliners in a dead heat, closer to support than resistance, all done against the negative backdrop of surging oil prices and a sinking long bond.

While the stock market's lackluster attempt at a follow through is disturbing, it is in the land beyond the equity where warning bells are ringing at a deafening shriek, a shriek that if sustained could quickly get the notice of the Fed, not in time for October's meeting, but definitely in time for November's.

Oil has galloped to a 2 1/2 year high today, with NY Crude crossing over its psychological barrier at $25 a barrel, after a report showed U.S. crude oil supplies falling to their lowest level in nearly two years. Gasoline inventories also fell as demand surged.  With oil at $25, and the supply/demand equation hinting at higher prices in the coming months, the words 'crude oil' and 'inflationary pressures' become intertwined, and the odds of a Fed move before year's end grow, Y2K or not.

Although recent surges in oil and gold prices have played their part in the CRB Index's rise, its rise has not been entirely powered by oil and gold, rather it has been a rise powered by rising prices across a broad spectrum of commodities.

Falling commodity prices and a rising dollar have been two of the great facilitators of the inflation-free zone known as the Goldilocks economy. With commodity prices having reversed their long downtrend, global economies on the mend, and the dollar under pressure, the pillars of the inflation-free zone are being rattled.

The dollar is doing its fair share of rattling those pillars.  While the media and many market participants have been busy breathing a sigh of relief over this week's rise of the dollar against the yen, with talk of a stronger dollar filling the air, the dollar has been quietly deteriorating this week, maintaining its composure against the yen, but gasping for breath against the euro and other currencies.

The U.S. Dollar Index has fallen below the critical support level of 99.1 during today's trading, with the index now at 98.84, a fall which has not gone unnoticed by the bond market.

Rising oil prices and bond yields, combined with a stumbling dollar are a potent combo.  Add to the brew an upcoming FOMC meeting, and a correction that has yet to see a capitulation, and the odds of  the Dow and NASDAQ breaking below the support levels that they successfully held yesterday are greatly increased.

Consumers that is.

September consumer confidence figures came in weaker than expected, with the September reading dipping to 134.2 from last month's 136, but remaining near historic highs. Blame it on the recent stock market decline, or blame it on Hurricane Floyd, but consumers are feeling a little less confident about the future, and about getting a job, than they did last month. The future expectations component of the survey slipped to 105.7 from last month's 109.2, and the jobs component dipped to 48.2 from 49.4. The slight dip in confidence was evident throughout the survey, with fewer consumers  planning to buy cars, washing machines, and houses than last month.  That's the good news.

The bad news is the readings remain at extremely high levels, and this month's slight contraction in

With today's consumer confidence numbers out of the way, the market still must digest two more readings on the economy before next Tuesday's FOMC meeting: tomorrow's Durable Goods data and Friday's NAPM survey.  We do not expect either survey to be an earth shattering, Fed mind turning, event.

The market must now wait a week on pins and needles, with the likely outcome of next week's meeting a disappointment to many.  The recent concerns over dollar/yen weakness and the stock market's 5% tumble last week have tilted the odds against a tightening at the October meeting, but we do not expect the Fed to give euphoria a chance to reblossom.  Instead, the outcome of next Tuesday's meeting will likely be an uttering of those dreaded words "tighter bias".

The consumer at the shopping mall isn't the only one feeling a little less confident these days, investors in the stock market have also experienced a slight dip in their confidence levels.

Yesterday's question, "next leg up or dead cat bounce?", is being answered in today's trading, although in retrospect, the question was answered before the day began, with yesterday's failure of the Dow at the 10400 resistance level the clue that the question would be resolved to the downside.

The key support levels of 10258 on the Dow and 2727 on the NASDAQ are looking more like new resistance levels at this point, and the Dow is currently struggling below last Friday's low of 10187.  If the two major averages fail to move back above these levels by the close, we would expect the selling to intensify in the run up to the next FOMC meeting.

The Dow and the NASDAQ are not the day's only trouble spots of course, perhaps more troubling from a technical perspective is the failure of the transports to move higher despite a sharp sell off in the XOI (oil index).

Like the consumer at the mall, the confidence of the average investor may be a bit lower these days but underlying confidence in the market remains historically high, with 'buy on the dips' still the underlying theme. The investor's drop in confidence has been a gradual drop, rather than the steep loss of confidence that is needed in order for a bottom to be put in place.

The stock market does have a few points working in its favor today: both the Dow and the NASDAQ successfully tested and held support on Friday, the dollar is rallying strongly against the yen following the G7 meeting, and perhaps most importantly, a noted market guru has once again stepped in to calm frayed nerves.

Viewed in a vacuum, the fact that the support levels of 10258 on the Dow and 2727 on the NASDAQ did not turn into resistance levels should have us jumping up and down with joy in our technician's shoes, with thoughts of the next leg up dancing through our heads.

Since we never view anything in a vacuum, we're not jumping up and down with joy.  Despite Friday's successful test of support, and this morning's strong rally, the stock market's overall technical picture remains miserable.

The infamous Advance/Decline line made yet another new multi-year low on Friday, and in the midst of today's rally, our old friend Mr. Divergence is back at work after someone forgot to invite the Dow Transports and Utilities to the (rally) party.  The Dow Industrials despite an 88 point rally thus far, have been a disappointment in today's trading after the index failed to move above resistance at 10400, ....and did we mention new highs/new lows, with only 22 stocks making new 52-week highs during today's rally while 206 of their compatriots were sinking to new 52-week lows.

The stock market's technical picture remains bleak despite today's rally, and with 70% of stocks in intermediate term downtrends and 57.6% of stocks trading below their 200 day moving average, the trend remains down, and shorting rather than buying remains the order of the day.

Aside from a bounce off support, there were of course other factors that sparked this morning's rally. The surge in the dollar against the yen following Saturday's G7 meeting has also given the stock market a lift, but one which we do not expect to last.  The G7 meeting succeeded in calming nerves temporarily, with carefully worded statements of concern emanating from its confines, but words alone will not do the trick of stemming the yen's rise.

We suspect that even if the Bank of Japan moves to increase the money supply, the dollar will gain only a temporary respite from the downward pressure it has been experiencing.  The attraction of improving Asian and European economies, when coupled with a record U.S. trade deficit, will continue to exert a downward pull on the dollar.

While the dollar played its part in today's bounce, perhaps the largest contributor to the day's more upbeat tone was a weekend pep talk by a noted market guru (whose firm it should be noted has a healthy tech-laden underwriting business) who called the U.S. market "undervalued" and tech stocks "attractive" at current levels.

The pep talk stood in stark contrast to words uttered on Saturday by former Bundesbank head honcho Hans Tietmeyer who warned of unspecified "bubble" economies.

The question for the market now is who is right on the valuation question: cheerleading analysts and market gurus with a stake in sustaining excess, or the growing list of central bankers (and the I.M.F.) who have warned of excessive valuations in the U.S. equity market.  We'll let you decide, but with valuations at historic extremes we've already made up our mind.