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Hello Everyone,

As you know we have been expecting the market to roll over and yet it continues to set new highs. Has the Market reached critical mass? We think so.

Our corporate portfolio has been double short the Q's since December 1st, 2006 and we have in mind our place where we either add to our position or cover and bet the other way.

There is a trend line going back years that the QQQQ has only touched a couple times. Each time it touched that line was followed by a considerable pullback. We are now trading at that point and this is crunch time for the market.

Let's look at the bull and bear cases for what's driving this market...

Bull case: Worldwide growth, mergers and acquisitions, stock buy backs, private equity buy-outs and earnings beating expectations.

Bear case: bad economy, deb t and de ficits, consumer tapped out, outsourcing and illegal's taking high and low paying jobs from Americans, inflation, sub-prime... you get the idea.

Let's look at the chart of the QQQQ going back 3 years.

The blue trend line is the one we have our eyes on now. As you can see we issued a buy signal at the green arrow. We issued a sell signal at the red arrow and the market rattled around sideways since.

Now it appears to be pushing to new highs and as you can see with the blue arrows the market is overbought on the fast and full stochastic.

The RSI (above the chart) still has a little room to the upside and that could be enough to let us burst through the resistance set at the blue trend line. Only time will tell.

Our strategy is to let the market continue higher until we see a definitive break of the trend and a strong weekly close above that line.

At that time we'll likely cover our short position and take the small loss and look for the markets to move higher. If resistance becomes support this could be a great sign for the bulls.

If the trend line holds and the market heads lower, we'll likely add to our short position and look out below.

Now... On To The Markets...

Let's look at the market internals and see what trends we can identify.

Even here the market is ambiguous... I do not see a clear pattern which suggests a changing market condition.

The DOW set yet another "record high" at least nominally today and we see in the table below with the exception of last week advancers have been outpacing the decliners.

Today's Internals show...

The NYSE, NASDAQ and AMEX had very strong internals with advancing shares and issues beating out the decliners. All The major exchanges posted more new highs than lows. Another good sign.

The OTC BB exchange had declining issues and shares out pacing the gainers, but still managed more new highs than new lows.

This is a tricky market and we could be near the top. We are still waiting for the expected roll over but are poised to change positions should the trend line not hold up.

We should keep an eye on this over-bought condition and always use properly set stop losses on short term trades.

If you would like to learn to trade on technical analysis. Check out this software. The newest version has just been released and you can become a better short-term trader with precision trading signals.

Until Next Time...

Best wishes and Good Investing,
Doug Newberry & Bill McKinley 
The Investing Systems Network