8.08.08

8.08.08

            It was another interesting week with the bulls taking control. Friday was an important day when, after a 200+ down day on Thursday it was able to come back and put a 300+ day on the close. All the major indices end the week to the up side. The NDX and the Russell 2000 both broke thru their 200 day moving average to the upside. All five of the indices we follow are now above their 50 day moving averages. This is important because all the “market technicians use these in their studies.” This will bring more money into the market from the sidelines. We are moving into a BUY SIGNAL from CASH for a 50% exposure. We do expect a lower opening on Monday, but we use Rydex funds so our first day into the market will be Tuesday. This is a Trend change and has not yet proven itself, therefore the 50% exposure. Remember though we are still in a bear market. This is one of those old fashioned “summer rallies” that happen in the market frequently.  

            The American Association of Individual Investors showed only 35.6% to be bullish, while 42.4% are still bearish. Investor sentiment is often a useful guide as to where we might be within a rally or correction. For instance, the AAII poll reached an extreme 55% bullish at both the October peak last year, and the June peak this year. It reached an extreme 55% bearish at both the March low this year, and the recent July low. And, with few exceptions this has been a very reliable indicator. We expect the bullishness will exceed 50% before the rally ends. This is not a given, but needs to be used in conjunction with other indicators. At this point in time, it is a relief rally sparked by the big drop in oil prices and the strength in the Dollar verses the Euro.  We still are faced with the bad housing situation among other things. But for now, it looks like some money can be made in here by being long. The strongest part of the market appears to be the NDX so in our conservative account we are moving 25% into it and 25% into the DOW. We are doing the same in our aggressive account.

Till next time

The MTA Staff