Traders' Focus

For too long the markets worked their seductive wiles on me. I once believed that I had mastered my emotions and the markets' squiggles... until I became familiar with Tim Villano, and his market analysis Traders' Focus.

Tim brings a gimlet eye to the market, and an unusual perspective: he has price confirm (and conform to) his multiple indicators of sentiment and Elliot Wave analysis. His analysis is so spot-on that I am hard-pressed to recall the times he has been wrong, if ever.

If you trade the markets, you should subscribe to Tim's Traders Focus. (Also see "Friends" in sidebar.) I proffer as example of Tim's outstanding analysis, today's comments...
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The Trader's Focus
Wednesday, February 23, 2005

a research summary of Lakeville Research, Inc.
P.O. Box 688 Lakeville, CT 06039 - tel. (860) 499-8063 tim@tradersfocus.com

In yesterday's note, we mentioned that the intraday March S&P 500 Futures pattern called for a test of the (SPH 1197-1194) range. In the noon conference call, we stated that a test of (SPH 1192) could not be ruled out, and that intraday patterns should be assumed as negative. The weekly COT data also emphasized the notion that Institutional traders had stayed in a negative posture. After slipping decisively below the (SPX 1197) stop/pivot following 12:00, the stock market remained under pressure into the closing bell.

Most of the time a decisive break on increasing volume occurs, as was the case yesterday and also once last week, we will see further reaction lows over the course of the next few sessions. The S&P 500 Cash Index (SPX -17.42 1184.16) could rebound toward the (SPX 1188-1192) range over the short-term, but there now is an increased probability for a test of the January 28-31 open gap below the market in the (SPX 1174-1171) range. This could very easily evolve into a test of the late-January lows, perhaps into the March 1-7 time frame.

The NASDAQ 100 (NDX -21.33 1494.07) already is involved in a test of the January lows as called for the in the past few weeks. We expect the NDX to move to new daily lows in the (NDX 1465-1445) range mentioned yesterday.

Over the course of the past few weeks, we have mentioned several deteriorating data points as the high probability rebound into February expiration has passed.

1. COT (commitments of traders) data remains weighted to the sell-side from the standpoint of institutional or commercial traders.
2. The notable negative divergence of the NDX.
3. The fact that the January-February rebound began from relatively poor data points and proved to be a choppy and difficult opportunity. We had discussed several times during this rally that upside into this period could represent a final/climactic move or be subject to failure.
4. European markets had moved into a toppy posture with the German Benchmark (-36.57 4286.94) drawing a bearish weekly candle in the week before last. There is an important downside pivot below the market at the (DAX 4245) mark.
5. In yesterday's retail conference call, we discussed the (RLX 432.50) mark as an important downside pivot, which, if broken, could contribute to the overall toppy complexion of the stock market. The S&P Retail Index closed yesterday at (RLX 429.30)
6. In addition, yesterday's put/call ratio complex declined across-the-board during the sharp stock market decline, indicating little fear or concern on the part of option participants. I would speculate that this will change as the NASDAQ 100 takes out its January lows, perhaps creating the possibility for a better short-term low in the previously mentioned March 1-7 time frame. Yesterday's CBOE Equity put/call ratio finished close to market topping levels at (.53).

In sum, while modest rebounding is possible today, further daily reaction lows are likely into the end of the week with the NASDAQ 100 breaking January levels.

I will discuss the intraday Futures patterns and the Dollar/Gold picture on this morning's conference call at 8:45 EST.