Friday's Action:   A sharp drop in oil prices helped the Dow turn around in late trading Friday, while the Nasdaq extended its gains on encouraging economic data. The US trade gap narrowed 9% in July, the sharpest decline since December 2001, and crude oil slipped below $43 a barrel. Major world markets posted mostly higher results on Friday. London's FTSE closed up 0.15%; Frankfurt's DAX finished higher by 0.90% and Paris' CAC 40 closed up 0.70%. Japan's Nikkei closed down 0.79%, Hong Kong's Hang Seng closed up 0.48%, and Sydney's All Ordinaries finished higher by 0.11%. In economic news, the PPI for August fell 0.1%, with the core rate also down 0.1%; the Trade Balance for July showed a deficit of $50.1 bil after a revised $55.2 bil gap in June. Volume came in at 1.26 billion shares traded on the NYSE and 1.61 billion shares traded on the Nasdaq. Market breadth was positive, with NYSE advancing issues over declining issues by 1.55, and up volume over down volume by 2.02; Nasdaq advancing issues over declining issues by 1.73, and up volume over down volume by 5.13. Leading sectors were Semiconductors, +3.40%, Airlines, +2.95% and Disk Drives, +2.63%. Laggards were Oil Services, -1.12% and Commodities, -1.06%. December became the front month for index futures on Friday. Dec Nasdaq 100 futures closed 22.50 pts higher to settle at 1418, while the Dec S&P's settled up 5.80 pts at 1123.90.

Weekly Recap:   Stocks notched their fifth consecutive weekly gain in a holiday shortened trading week, led higher by the technology sector, and specifically, the beaten-down semiconductor stocks. The SOX rallied on a round of cautious-sounding quarterly guidance from the likes of Texas Instruments and National Semiconductor. Chip stocks in particular, and tech stocks in general were in demand, as evidenced by the nearly 3.0% weekly gain in the Nasdaq. Cell phone maker Nokia also played a part with an upward revision to its Q3 sales and EPS outlook.

Easing energy prices, Fed Chairman Greenspan's statement before the House Budget Committee that the economy is "gaining traction", an inflation friendly PPI report, and a drop in long-term interest rates all helped to keep selling in check and contributed to the bullish bias. Oil prices plummeted late Friday amid reports that speculators were unwinding positions. OPEC is scheduled to meet next week in Vienna to discuss output and prices. The Dow Jones Transportation Average, which is often seen as a leading economic indicator, broke out to a new 52-wk high, helped no doubt by the drop in the oil price.

For the week, the Dow gained +0.5%, the S&P 500 finished +0.9% higher, and the Nasdaq rose +2.7%. The small cap Russell 2000 was up +2.5%. Next week, volume should start picking back up as traders return full time. The economic calendar has a full slate and Friday is quadruple witching expiration for options, futures and options on futures.

The Ominous Trade Deficit:   One of the big headline stories Friday was the decline in the trade gap. The Commerce Department reported a decline of nearly 9 percent, the biggest monthly drop in 2-1/2 years. Analysts had expected the deficit to narrow, but not so sharply. Thus, it was hailed as a sign that "things are getting better".

But a look at the chart below shows that it has been such an ugly number for years now that a one-month bump almost doesn't seem to matter. The current trade gap still ranks as the second highest on record and is on track to become the worst year ever. The Current Account numbers for Q2 will be released next week and will almost certainly show no real improvement. The real question is how much longer can we expect foreigners to support our lavish, debt laden economy.

Update on the POI Strategy:   With September options expiring officially on Saturday, Sep 18th, an update on the Peak Open Interest (POI) strategy is in order. The POI is simply a chart showing the strike price where the maximum OEX call and put option open interest resides in the last week before expiration. The current POI resides at the OEX 540 strike. With just 6 days to go until expiration, the probability that the POI will change is diminishing.

You can learn more about how we use this information to execute profitable trades at our Website. We use this strategy to trade OEX option credit spreads and started trading with the February expiration. We have made seven profitable trades so far this year. Here are the results:

While we only have seven trades under our belt, so far the results have been pretty impressive. The average percent profit for the seven trades (not including commissions) has been 23%, and we have only been "exposed" to the market for less than one week each month. The POI system has a number of advantages over buying call or put options. Most options traders end up losing money due to the inherent difficulty of consistently being on the right side of the trade and the fact that options are "wasting assets". The POI strategy overcomes most of these disadvantages by:

• Defining the range where the OEX will close at expiration.
• Limiting "market exposure" to one week or less per month.
• Consistently returning 15% to 25% on investment per month.
• Controlling downside risk by the use of "market if touched" stop orders.

If you would like to receive timely updates on this strategy, just send an email to info@peakinvesting.com and ask to be put on our distribution list. There is no cost or obligation.

Both Commercial Hedgers and Small Traders were better sellers in the S&P's last week. For the short term, their action is seen as neutral, but for the intermediate term, their opposing net positions should still be considered a bearish sign.

Sentiment Surveys:   The latest Investors Intelligence survey showed that the percentage of bullish newsletter writers came in at 45.9%, while the percentage of bears registered 26.5%. The bullish ratio (bulls/bulls +bears) remains high at 63.4%.

The latest AAII survey showed an increase to 51% bulls, and a decrease to 24% bears. The bullish ratio came in at 68%, while the 4-week moving registered 60%. One thing to note about the AAII survey is that, while membership in this organization is quite large as investor groups go, the number of members that actually participate in the survey is very small. Thus, large fluctuations in survey results from week to week are not uncommon.

The latest Market Vane survey came in at 63%, indicating that the majority of commodity trading advisors (CTA's) remain bullish on the future direction of the S&P's.

The Short Term Outlook; 1-5 Days:   Friday's price action favors making higher highs on Monday. There were a couple of short-term bearish signs on Friday. The NYSE TICK hit a high of +1264. Readings over +1200 coming at a weekly high often mark an interim top. The Nasdaq TRIN also registered an extreme reading of 0.34. Readings in the 0.3-0.4 range are frequently a sign that buying pressure is being exhausted. The Semi's have been the strongest sector over the last two days, gaining close to 9%. While the run-up was impressive, those kinds of back-to-back gains are usually unsustainable. The chart below shows that the SOX is approaching short-term overbought levels and is likely to experience a pullback soon. And since the SOX led the Nasdaq higher, it will most likely lead it lower.

Our Stock Picks scan continues to languish, with virtually no new buy signals for the last three days. That's often a sign that the market is topping out. Also potentially negative was the action of the VXN and QQV, which dropped 5.3% and 8.7% respectively and fired one-day sell signals. While the VXN failed to close below its lower bollinger band, nonetheless, it's in deep oversold territory, and that's potentially bearish for the stock market. We suspect the market will top out early next week and then head lower.

SMT's Pivot Point Forecast; 1-2 Weeks:   Our Pivot Point RS indicator generated a BUY signal on Sep 8th. Our next Pivot Point is forecast to occur on or near Sep 22th.

The 60-mn NDX chart below shows that the StochRSI indicator is in the SELL zone. For Monday, resistance for the S&P's comes in at 1127 and then 1133. Support lies at 1117 and then 1109. For the Naz, resistance comes in at 1427 and then 1436. Support lies at 1400 and then 1380.

The Intermediate Term Outlook; 2-6 Weeks:   The 70-day exponential moving average of the NDX:Dow Risk Aversion Ratio has been a good predictor of the intermediate stock market trend for the past two years now. The EMA turned down at the end of January as the Nasdaq made its high for the year. It then went flat for a period of months, confirming the tight trading range we've experienced for most of this year. The EMA turned down again at the end of June, suggesting there was more downside ahead. That scenario would fit with the historical market weakness often seen going into the Sep-Oct time frame.

Market Trend Indicator:   Our Market Trend Indicator (MTI) generated a BUY signal on Aug 16th and trended slightly higher on Friday. Traders who bought the Rydex Velocity fund the day after the signal was posted are up a healthy 11.4%

Good Trading!

Charts and data appearing in today's column are courtesy of:
Economagic.com
StockCharts.com

Have you traded any of our recommended plays along the way? We'd love to hear from you and how you did. Please send your stories to comments@talkingpoints.com.

By Jeff Neal
Optionetics.com

The trend among small-business people in America is to go it alone versus hiring a large staff to conduct operations. A recent survey revealed that more than 83 percent of self-employed Americans do not have employees. There are several reasons for this new shift but technology appears to be the number one driving force.

With technological devices such as cellphones, personal computers, fax machines and of course the Internet, entrepreneurs can run their businesses out of their homes and be quite productive without the need of additional employees.

Where in the past many professionals who have gone solo would have needed at least an office assistant, the new technology eliminates this need. In fact, productivity experts assert that today, thanks to technology, one person can be just as productive as four people 20 years ago. Technology has contributed a great deal to the small-business person to be able to go it alone. Whether it is email, website presence, faxes, voice mail, word processing or any other hi-tech application, the capabilities are at every entrepreneur’s fingertips just waiting to be implemented.

In addition to technology, other factors allow small business people to remain solo, such as the use of temporary help. Many sole proprietors contract temp agencies to meet any human resources needs. This gives them the ability to only add staff when they actually do need the extra help, which lets them keep their costs down. Oftentimes a small-business person will have a network of other self-employed personnel to draw upon to address any their labor requirements.

Not having to provide benefits is another key reason entrepreneur’s prefer to use temporary help. This is because health costs for employees is staggering and for many cost prohibitive. According to a study performed by the Kaiser Family Foundation, costs for companies with three to nine workers rose 16.6 percent versus 13.9 percent overall last year. The average health benefits for just one employee are now over $600 per month. These excessive health insurance premiums make it very difficult to take on new permanent workers.

Some economists assert that it is has been the weak employment picture that has led to the large surge in the self-employed that are going solo. They also indicate many of these newly self-employed people have virtually no start-up skills that require them to go it alone since their businesses never achieve enough profit that would afford them the opportunity to expand with additional employees.

But even with the lack of business experience, the use of temporary help and the excessive costs of health benefits, the number one reason for this large increase in entrepreneurs going solo is technology. As it continues to evolve and get more prevalent, look for the overall productivity in our economy continue to benefit. This is why you will see even more self-employed people going solo in the coming years.

Happy Trading.