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Still haven't gotten our signal yet telling us the markets are ready to make another new leg up, but things are looking pretty good as I type. However, since the ^NDX did close above the 3X3 DMA yesterday (blue line) in this chart daily I've included here, if it closes below the 3X3 any day this week before making a new 52 week high, that's not going to be good for the bullish argument. We suggest you be prepared should the markets want to move lower. The good news is we've still got a few days for the major indexes to confirm they want to grind higher, so it's still a wait and see scenario for those who aren't interested in guessing. We need a convincing break of last week's high before we're going to really start getting excited.

If you believe in charts, confirmation is critical, and right now, the major indexes are literally at a critical point. We've said for days now if this market decides to make another new leg up, the move is likely going to be very impressive, as there are a lot of short positions out there banking on the markets moving lower. The possibility of a nice short squeeze exists, it's just yet to be confirmed.

I do find it quite entertaining that there's a lot of noise in the media right now with interview after interview suggesting and providing fundamental reasons that the markets deserve to go higher or lower, but the reality is we're absolutely focused on the charts. That's going to be the best and quickest clue of things to come in the near-term, so rather than continuing to reiterate the same message and ponder the Fed's anticipated speech on Friday, we're going to have a look at some open trading ideas we've suggested recently and how those ideas are panning out right now.

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Good Monday to you. First, we want to extend our hopes and prayers for the safety of those potentially affected by the anticipated arrival of Hurricane Isaac. Although we had a series of earthquakes here in Southern California yesterday, with the largest registering a 5.5 magnitude on the Richter scale, the damage typically associated with earthquakes here is a far cry from the destruction our good neighbors to the east are usually accustomed to when a large hurricane decides to rear its ugly head. Let's just hope it winds down for the safety of everyone.

The markets continue to show a bit of strength on the heels of Friday's rally to the upside. We mentioned in Friday's edition the possibility of an early developing reversal signal that if confirmed, could suggest the major indexes initiating a new leg up and a very tradable move to the upside. We discussed when stocks or indexes start thrusting and decide to take a short breather, they usually resume their uptrend within two to three days of breaking below their 3X3 DMA's. However, we'll still need to see a move back above the displaced moving average in question and a new break above last Tuesday's high. A move above the 3X3 DMA is currently taking place as I type with the NASDAQ 100, the S&P 500 and the NASDAQ Composite, but we'll still need to see those indexes close above the referenced DMA's. Then, we're going to need to see a follow through move with a nice break above last Tuesday's high.

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Yesterday, the major indexes were jubilating early on as they finally extended their gains enough to briefly test their April highs before reversing course and closing out the session much lower. Not a good short-term sign for the bulls as volume showed an unwinding of long positions immediately following the brief test and break. Once again it proved our commentary correct as buyers got exhausted while approaching the year's high. No surprise, however, reality is it's much too soon to assume we're just going to simply start moving lower from here.

Let's just remember a nice healthy pull back before trying to stage a new leg up would be a far more technically positive sign for the markets than anything else. What happens on the heels of the pull back is what is going to tell us a lot. We mentioned yesterday a sharp move lower met with a fierce reversal would be absolutely perfect and strongly suggest we'd be on our way to new highs. We also mentioned the possibility of a range bound market going into the elections.

With the NASDAQ Composite and the Russell 2000 both yet to test their highs, it does lead us to believe there exists a strong possibility of a range bound market going forward.

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There we go. Finally, the S&P, the DOW and the NDX are all testing their April highs today, however, the NASDAQ Composite is still lagging shortly behind. At least the COMP has made up some ground on the other indexes in recent days. One or two more good days for the COMP and it will have followed suit.

If you've been following along, we have been anticipating this test of the highs after the NDX and COMP managed to break above their key resistance levels from early July. It has taken a little time, but we're finally there. I've included a chart overlay here of the NDX (green), DOW (blue) and the S&P (red) showing you all three indexes have moved in tandem and are now either testing their highs or have just slightly broken above them. Although the NASDAQ Composite, the Russell 2000 and the rest of the small cap world still haven't taken charge of the recent rally, there's no arguing the strength displayed by large caps ever since the major indexes hit bottom in early June.

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Hey all... Happy Friday! Hope all of you have something interesting lined up for the weekend. We've still got a little trading business to take care of before the trading week is officially over. So...