Date:  August 24, 2008

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Fundamental Data provided by Investors Business Daily  

F.I.T. STOCKS

Finding High Quality Growth Stocks to Build Healthy Investment Habits.  

Market Update

MARKET HEALTH: 

MARKET is TESTING US!   The Tide is Churning and undecided!

This is one TRICKY market.  IT is of the UTMOST IMPORTANCE THAT YOU FOLLOW YOUR SELL RULES.  We have had several F.I.T. Stocks break out on strong volume only to hit our 7% stop loss on stronger volume a few days later.  This can be tough to take, but as long as you stay DISCIPLINED with your Investment Rules you will be OK. One of the hardest lessons you will learn as a healthy investor is to cut your losses quickly.  Remember your hard earned money is your lifeline to staying in the investment game.  The rules state to buy F.I.T. Stocks as they break out of sound technical chart patterns on strong volume.  Even the highest quality stocks will sometimes fail, and as a healthy investor you must take all of the emotions out of your investing.  We do this by creating an Investment Plan with buy and sell rules to help manage our money, then we must have the discipline to follow them with no questions asked.

Real Life Scenario: There is a friend of mine that does not heed the healthy investor advice.  He has become married to a stock that he began investing in at $32.  The stock has since crumbled to $14.  Consistently I have asked what his plan is for selling the stock, and he has none.  Mistake #1: No Sell Rule or Exit strategy.  Worse yet, he has bought more shares as the stock has tumbled down at about $3 intervals, believing he is dollar cost averaging and praying the stock will recover and he will make his money back.  Mistake #2: buying more of a stock that is already showing weakness.  My friend has now lost over 3 quarters of his account and had to finally bail out because his emotions were too involved with the stock.  Worse yet this is the second time this has occurred.  If you are going to WIN and become a healthy investor, YOU MUST HAVE A PLAN.  More importantly, once you have the plan, you MUST STICK TO IT! Enough soap box speaking, let's get on with the markets. 

The Major indexes seem to be a bit unsettled at this time.  Although we had a follow through confirmation on July 29, since then the markets seem to not want to give us a clear signal or powerful signal to show the true direction they want to take.  Right now it appears as though the Big Money Investors can not make up their minds as to where this market may be heading in the future so they are unwilling to commit to big purchases in the equities market.  Volume in the indexes has been very light during this month of August and this is because most of the market is on vacation.  Hopefully when Wall Street returns we will get a convincing push in one direction or the other as to which way this market will move.  If you have a smaller account size it would be wise to stay on the sidelines until we get a clear sign from the markets.  Larger account sizes should only be entering partial buys in one or two stocks.  

Oil, Financials, and the economy are still the big three headlines driving the major indexes, although the correlation seems to be weakening.  The Dollar seems to be driving the Oil markets.  When the dollar gains strength, Oil weakens and the indexes rise.  When the dollar weakens, Oil gains strength and the indexes fall. 

Financials have still been strong in the news with Freddie Mac and Fannie Mae still at the forefront with their inability to raise capital causing fears that the government will eventually have to bail them out. Further fears took to the brokerage industry earlier in the week when several analysts forecasted more write downs for Lehman Bros.  However, positive news surfaced when a Korean Development Bank stated that Lehman could be a possible acquisition target.

Economical news was helped by the FED when they stated that inflation may be cooling with the falling of commodity prices and a strengthening dollar.  These statements all suggested that the FED may keep interest rates steady for a while.  For the week the Nasdaq ended up down 1.5%, the S&P slipped .5%, and the DOW lost a smidge at .3%.

INDEX CHARTS

NASDAQ: 3 Year, weekly time frame.

In this long term chart we remain in an up trend.  However, in December 2007 the 10 week moving average pierced through the 40 week moving average and has remained in a down trend for 2008.  We began our first rally in March that lasted 2 months and tested the 40 week moving average.  Prices were unable to hold above the 10 and 40 week averages and we spent the next 2 months correcting.  In July we began to rally again with 5 straight weeks up in price and once again the Nasdaq was unable to hold above the 40 week moving average.  At this point we have created a series of lower highs and lower lows and prices are beginning to converge upon each other.  Usually this type of action will cause prices to break away with some conviction one way or another and define which way the market will be heading next.  The healthiest sign would be for the Nasdaq to break above its 40 week moving average and hold above it.  The next positive sign would be for the 10 week moving average to break through the 40 week moving average and officially label the Nasdaq with a new up trend as this is what technical analysis followers look for.

NASDAQ: 6 month chart with daily time frame.

A closer look at the Nasdaq shows the rally we have been in for the past 5 weeks.  It looks like a break above the 200 day moving average and then past the 2550 mark would buck us past this 2008 down turn and change the tides a bit.  August tends to be a low volume month for the indexes as Wall Street tends to go on vacation.  If the Nasdaq can continue to hold this many up trend it has developed over the past month and a half, it may be just the push we need upwards when all of the Wall Street investors come back from vacation in the Hamptons.  As always continue to keep a close eye on the progress of the 3 major indexes.

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Top 10 Industries:

1. Medical-Genetics
2. Retail-Discount & Variety NEW
3. Electrical Military syst. NEW
4. Leisure-Tys/Gms/Hbby NEW
5. Medical-Biomed/Bth NEW
6. Commercial Srvcs.-Schools NEW
7. Mach.-Genl. Industrial NEW
8. Building Maint.  NEW
9. Food Dairy Prod. NEW
10. Pollution Contrl. Srvcs. NEW

** OIL HAS LEFT THE TOP 10!  Notice the take over from NEW leading Industries.  We have 9 NEW industries that have made the top 10.   When a new rally confirms it is nice to see NEW leadership develop.**

Important Message: