Weekend Analysis for Fri August 1st 2008

We're cash. Why? It's quite simple. If you study the daily charts you can see how things are moving laterally. However, at the end of the day today the financial's made a nice move after holding the 50 day and the market may want to try and rally next week off that hold and bid. Sometimes you get subtle little messages from a particular sector about the markets near term intentions. No guarantee on this of course but I have to say it was interesting to watch the financial's get a late bid on a Friday ahead of the weekend. Not the normal behavior we're used to or have seen over the past many months for sure so it's something to keep an eye on for next week. Also when it's the sector with the most troubles you would think less folks would want to own them going in to the weekend yet we got exactly the opposite response. Again, you don't want to read too much in to that but you have to say it's worth noting. Aside from that each and every major index chart remains in a triangle with the action taking them almost right in to the middle of their ranges. Talk about no where land overall. It makes for very difficult trading and thus your exposure should reflect that reality.

If you want to get more bullish you have to see not only the Nas clear the 50 day but you want to see the Sp clear as well because lets face it, the biggest headaches are in the Sp thus only when there's enough buyers in that area can we get more excited about things. Yes, it would be great if the Nas took out 2341 but you really want confirmation from the Sp before we can say things are much healthier from an overall market perspective. The Nas did fail this week three separate times. It cleared and failed all three times. The last time it cleared by eleven points and really looked ready to run only to see it reverse suddenly and quite sharply as well. The Nas also has lost leadership making the journey through 2341 more of a task. Stocks like Aapl and Goog just aren't getting the job done and they will need to reverse their action before the Nas can make the move. It's very unlikely that the Nas can get a sustainable bid without those two heavily weighted leaders. The Sp will need the financial's to continue bidding for it to sustain a move higher. Late today was a good sign as we discussed but one day does not make a trend. The other problem with the Sp is the loss of leadership in the commodity world. They are in down trends and a bounce there would also help that sector make the 50 day move. It will not be easy. Just getting up to it now will require a good bid.

1240 is very good support on the Sp with 1299 the 50 day resistance while on the Nas 2290 is the rising wedge bottom and 2352 the resistance zone. 11,750 is a wall of resistance on the Dow while 11,000/10,900 is solid support. Anything in between these levels is really just noise as it decides which way to break. Use these levels for your trading. The only problem is make sure these levels break down or up on a closing basis. Loads of head fakes both ways these days. You also want to see a close more than 1/2% away from the break levels because just getting through isn't really the idea. You want to see a break and run. Too many breaks, churn and reversals these days to trust just a point or two break intra day or even on a closing basis. This market is showing resilience these days at critical levels so careful please.

Out of bear markets come new leaders and we are keeping track of the small cap stocks that are getting good bids on strong earnings reports that will part of a longer term portfolio when the time comes hopefully within a few months. Bear markets tend to shed many of the old leaders. it doesn't mean they won't do well in a new bull but it does means they won't be as good as they were previously. New stocks will take over and make names for themselves. We'll learn to recognize those stocks. It won't take long. By keeping score we'll know what to send out. You may not recognize all the names and it'll be fun to play in a new park. The old park gets stale after a few years. Always good to bring in new players. Shake it up a bit. It'll be exciting when the time comes but clearly that time is not upon us quite yet. Patience. It'll come soon enough.

For now we have to take the stance that has kept us out of trouble since the bear began eleven months ago. It's about being cash or mostly cash when things just aren't clear. We may play a few stocks or etf's but nothing heavy for sure. With the financial's bidding well late today as I discussed earlier in this letter we may get some up side overall next week. Nothing aggressive for sure. We have to play safety first because that is the message of the market whether we like it or not.

Peace

Jack