Friday's Action:   Stocks finished in the red after a sales warning from Intel spooked investors. The decline was tempered, however, by an August employment report that mostly met expectations. Major world markets reported mixed results on Friday. London's FTSE closed up 0.64%; Frankfurt's DAX finished higher by 0.98%, and Paris' CAC 40 closed up 0.95%. Japan's Nikkei closed down 1.17%, Hong Kong's Hang Seng closed down 0.39%, and Sydney's All Ordinaries finished lower by 0.29%. In economic news, Nonfarm Payrolls in August rose by 144,000 jobs and the July number was revised to 73,000 from 32,000 jobs; the Unemployment Rate dipped to 5.4%, its lowest since Sep of 2001; Hourly Earnings showed a gain of 0.3%. The ISM Services index in Aug slipped to 58.2 from 64.8, lower than expected. Volume came in at 0.92 billion shares traded on the NYSE and 1.25 billion shares traded on the Nasdaq. Market breadth was negative, with NYSE declining issues over advancing issues by 1.42, and down volume over up volume by 1.41; Nasdaq declining issues over advancing issues by 1.61, and down volume over up volume by 6.39. Leading sectors were Oil services, +1.59%, REITs, +0.59% and Insurance, +0.20%. Laggards were Semiconductors, -5.23%, Comp Tech, -2.44% and Networkers, -2.31%. Nasdaq 100 futures closed 23 pts lower to settle at 1375, while the S&P's settled down 5.20 pts at 1114.40.

Weekly Recap:   Stocks finished mixed in a week marked by extremely low volume and low volatility, ending with every major index having changed less than 1%. Of the weeks major events, Intel's disappointing guidance on Thursday sent most tech stocks lower.

In economic news, the monthly jobs report showed good progress on all fronts and was a modest, but positive report on the economy. Terrorism was a non-event, at least in the US. Chechen terrorists took over a school in Russia and more than 100 persons have been killed. However, the event did not seem to create a rising fear of terrorism in the US. The Republican National Convention ended without incident, although hundreds of protesters were arrested. Hurricane Francis appears likely to cause massive damage in Florida over the weekend.

The oil price ended its precipitous decline to finish the week higher by 2.4%, but its rebound had little effect on investors. With the Yukos situation apparently back in play and an Iraqi pipeline explosion in Northern Iraq however, the bullish oil bias is likely to continue next week and could start effecting stocks once again.

For the week, the Dow gained +0.6%, the S&P 500 finished +0.5% higher, while the Nasdaq gave back -0.9%. The small cap Russell 2000 rose +0.8%. Next week will be a shortened trading week with the markets closed Monday for Labor Day. The economic calendar is sparse, with jobless claims on Thursday and the Producer Price Index and Trade Balance on Friday.

The Dollar and the Dow:   Over the past 18 months or so, we have seen a strong inverse correlation between the US Dollar and the US stock market, i.e., when the Dollar declines, the market rises and vice versa. The chart below clearly shows that the recovery of the Dow Industrials off its May low was accompanied by weakness in the Dollar, while the preceding decline in the Dow was accompanied by a strengthening dollar. So if the Dollar has just bottomed and is about to rally again, as the chart would indicate, then any rebound by the stock market will most likely be short lived. While there could be a bit more downside to the dollar over the short term, this week's action clearly demonstrates that the inter-market relationship that has been in play over the past year and a half is still valid. A resumption of the Dollar's post-February recovery could pose a real problem for the US stock market going forward.

Improving the MTI:   This is an update of a report we issued in July.

In our continuing efforts to improve the quality of our market timing services for our members, we recently made some enhancements to our Market Trend Indicator (MTI). The MTI is an intermediate term trend indicator for the general US stock market. Based on the trends of more than 8,000 underlying stocks, it generates buy and sell signals for the major market averages. We've been tracking the results of the enhanced indicator in real time since mid-May. Since the MTI is an end-of-day indicator, index fund traders must wait until the next trading day to enter and exit their trades. The table below shows the results trading the two beta Rydex Velocity and Venture funds the day after the MTI signal is generated.

While the test period is rather short, it does indicate that trading the next day has little effect on performance. The indicator is updated daily and is available to subscribers of our Basic Service. To learn more about the MTI and the other market timing indicators available to our subscribers, click HERE.

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

Sentiment Surveys:   The latest Investors Intelligence survey showed that the percentage of bullish newsletter writers came in at 42.6%, while the percentage of bears registered 27.7%. The bullish ratio (bulls/bulls +bears) remains high at 61.2%.

The latest AAII survey showed a decrease to 42% bulls, and an increase to 28% bears. The bullish ratio came in at 60%, while the 4-week moving registered 56%. 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 61%, 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 lower lows on Tuesday. The big loser Friday was the Semiconductor Index, which dropped over 5% on the Intel sell-off. INTC, of course, gapped lower at the open Friday and finished down 7.3% on heavy volume. Both INTC and the SOX ended up being deeply oversold, which is just the place we would expect to see bargain hunters emerge. The last time INTC gapped down back in July, it traded lower for two more days before finding a footing, so we may see a little more selling this time also.

The Nasdaq 100 tracking stock (QQQ) also sold off, losing over 1.8%, but on average volume. That is to say, we didn't see any panic selling in the Q's on Friday. The QQQ has a degree of support around the 34 level and we suspect it will tend to hold back further selling next week.

SMT's Pivot Point Forecast; 1-2 Weeks:   Our Pivot Point RS indicator generated a SELL signal on Aug 20th. Our next Pivot Point is forecast to occur on or near Sep 8th.

The 60-mn NDX chart below shows that the StochRSI indicator is in the BUY zone. For Tuesday, resistance for the S&P's comes in at 1122 and then 1128. Support lies at 1108 and then 1102. For the Naz, resistance comes in at 1399 and then 1403. Support lies at 1361 and then 1354.

The Intermediate Term Outlook; 2-6 Weeks:   The chart below shows a 10-day simple moving average of the daily Nasdaq New Highs minus New Lows. The significant thing to notice about the chart is that the indicator has been making a series of lower highs and lower lows off the January top. Until the NHNL indicator breaks out and establishes a higher high, the Nasdaq is likely to continue to bump and grind its way lower.

Market Trend Indicator:   Our Market Trend Indicator (MTI) generated a BUY signal on Aug 16th and trended slightly higher on Friday.

Good Trading!

Charts and data appearing in today's column are courtesy of:
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

Productivity and costs reductions have been enhanced by technology in virtually every industry in the United States. However, the health care industry still applies antiquated technologies, with a large segment still operating on paper. A regular visit to the physician’s office requires the patient to fill out numerous forms, and communication between other offices is very poor. This has led to excessive costs and poor patient care in general.

Technical experts agree: if the health care industry were revamped and properly applied the latest technologies, that cost could be reduced by as much as 30 percent, with a significant improvement in patient care as well. These studies have prompted Mr. Bush and the White House to set a goal of having no more patient paper trails within the next 10 years and that every American would instead have an electronic medical record. As a result there are several bills now being considered which tout the implementation of some major technology projects within the health care industry.

Even with strong backing from the federal government the technical retooling of this industry still remains a daunting task. The difficulty resides in the fact that the health care sector is extremely large and very fragmented. There are more than 710,00 doctors and 5,800 hospitals that store and organize data using their own methods and standards. It is this lack of conformity and no common standards that poses the greatest challenge. In addition, you have the economic factor of upgrading to new hardware and software that has to be shouldered by hospitals and doctors. Even with the reduction of errors and improved efficiency, there is definitely an initial period of time where productivity will suffer when converting to the new work procedures.

However, regardless of the obstacles, it is clear that something has to be done. Consider that a recent survey showed more than 90 percent of the 31 billion health care transactions completed yearly happen via the phone, fax or paper. Technology leaders as well as political officials in Washington clearly recognize the need for this industry to upgrade. Government officials say the nation could save over $140 billion a year by upgrading the technology used in the health care sector.

And the actual patient care would improve dramatically. According to a study done by the Institute of Medicine, medical errors were responsible for more than 50,000 deaths in U.S. hospitals. By adopting up-to-date computer systems, this number could be reduced by preventing a patient being prescribed a drug that might react badly with another drug. The new technology would greatly improve the quality of patient care.

For some hospitals that have already upgraded their technology the results have been impressive. The recent implementation at El Camino hospital in California claims that now 97 percent of all orders by more than 200 doctors are done electronically; as a result, medical errors have been reduced to 4 per 1,000 patient days, which is down from the previous 13 per 1,000 patient days.

These types of stories are prompting government and health care leaders to accelerate technology upgrade projects across the country. If done properly, the reward will be extremely high—not only in pure monetary terms, but also by saving lives.

Happy Trading.

The week past did nothing to motivate us toward loading up on our buy candidates. Instead, INTC's after-hours bombshell (surprisingly not met with more negativity by The Street) has led us to maintain our short recommendation on the QQQ's for the week ahead. We are looking forward to an end to the current downtrend in the Nasdaq, but it looks like the time is not yet upon us. Err on the side of caution.