A TALE OF TWO MARKETS... That's what Friday was.

As you know we have been looking for frst the SOX Index (or tradable ETF the SMH ) to be the precurser to the NASDAQ recovery.

As you can see, we got that move which has now been confirmed by a number of other indicators.

So how did that reflect itself in the NASDAQ Tech Index last week? Here is that chart and the reason we had the bifurcated markets on Friday:

So if it looks like the Semis and the Techs in general might finally be coming out of hibernation (although all we can say at this point is that the downtrend has been broken). Initially providing a floor of support for stocks, especially on the tech-heavy Nasdaq, was am optimistic earnings report from Dell Inc. (DELL 39.93 +2.72)... Dell guided Q2 revenues of $13.6-13.8 bln (consensus $13.6 bln) and said that demand picked up sharply in April, validating upbeat forecasts from fellow tech bellwethers (i.e. CSCO, MSFT and INTC) and further supporting the notion that March's soft patch was overblown... Why then did we see the opposite reaction on the broader market and the old line stocks?

The answer IMHO is that investors got what they wanted and don't know what to do with it.....OIL.

Crude Oil Futures have dropped in the last few weeks from a high of $58 to below $48 intraday on Friday. As I told you last month, I didn't see Oil going to $100 as Goldman Sachs predicted, but instead I saw a moderation of price as we approached maximum capacity in the Strategic Petroleum Rserves, which is exactly what has happened. Not having to fill the SPR anymore will add 500K barrels a day back into the markets without any increases in output production by the oil producing nations. So now, instead of investors worrying about inflation caused by higher oil prices, which was going to stifle productivity and earnings, we now hear talk of investors worried about deflation. I do believe that there will be another bump up in Oil, but it will only be transitory.

So why the selloff in the broad markets...Energy stocks took the hit. They have been providing the investment of choice for the last year and now Investors are worried about revenues dropping for that sector. Just proves to be careful what you wish for.

Bottom line, there always has to be something to worry about in the markets!!! and barring catastrophe, markets will claw higher against the popular trend (or drop accordingly when investors get too complacent).Right now, investors are at their most pessimistic in history as measured by the Put/Call options ratio. Insider selling has reached 60 to 1...(20-1 is the usual level of pessimism the calls for a turnaround bottom).

Next week we have another perfect storm brewing which promises to be a roller coaster.

We have another options expiration week (funny how they seem to roll around just about every month). As we have learned by now, the USUAL schedule seems to be Tuesday reversing Monday's direction and Wednesday reversing Tuesday's.

On top of that we have FOMC rate cut and guidance from Greenspan and crowd on Tuesday...always a crowd pleaser depending on which side of the trading pit you stand on.

Monday should be an up day. If we are right, we might see weakness in the first part of the day followed by a rally into the close. I don't think I would like to see a strong rally out of the gate and certainly not a gap up open which would beg for an immediated retracement. The rest of the week should play out as per the schedule above, except for the turmoil that usually follows the FOMC announcement with high volatility swings. We will go into that action scenario tomorrow.