Date:  April 27, 2008

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Fundamental Data provided by Investors Business Daily  

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Market Update

MARKET HEALTH:  Market in Confirmed Rally, but invest with Caution:  Yellow Light is trying hard to turn GREEN!

The Yellow Warning Light is still UP!  Remember Volume is king and still since this new rally began on March 20, we have yet to see much conviction jump in behind this start of an up trend.  The NASDAQ gained a slight .8% for the week, the S&P 500 .5%, and the DOW Jones .3%.

The Yellow light remains, as there are still some WARNING signals out there in the markets.  First, on Tuesday we marked our second distribution day over the past couple of weeks.  A distribution day is considered when the markets move lower on higher volume than the previous day's volume.  Second, although the markets showed some resilience the rest of the week, Thursday's action had the markets move up, but some leading stocks were hammered.  When the markets go up and leading growth stocks get hammered there is a divergence somewhere, and a caution flag should be sent up.  Third, from a technical analysis stand point the three major indexes are just now bumping up against major down trend resistance.  If this new rally is to continue the major indexes must break through their corresponding long term resistance levels on strong volume.

What do we look for to make this Yellow Warning Light turn to GREEN? First we want to see leading stocks continue to break out on strong volume.  This indicates that Big Institutions are beginning to accumulate equities for their portfolios.  Second, we would like to see strong buy side volume on up days and weak volume on down days in the three major indexes.  Third, the three major indexes must break through their downward sloping trend lines, which are acting as resistance, on very strong volume. If these three conditions can come together, it could confirm a new bull market run. 

Please remember let the markets lead us, let price and volume tell you the true story and character of the indexes and your stocks.  We must always remember as Healthy Investors, the market is always right and we must follow its lead.  In addition to following the markets lead we must also always adhere to our investment rules.  Follow your profit targets and your stop loss rules at all times. DO EXACTLY AS YOUR INVESTMENT RULES STATE, NO QUESTIONS ASKED!  You probably get tired of us saying this, but it is TRULY the HEALTHIEST and MOST IMPORTANT ADVICE one can receive. 

Let us take a look at the 6 month charts of the Major Indexes:

NASDAQ

S&P 500

The NASDAQ and S&P 500 charts look identical.  You can clearly see the long term downwards resistance line that is in place.  If this new rally is to get some legs, it is imperative that these resistance lines get broken on heavy trading volume.  We have indicated a white arrow in the volume bars, which shows the distribution day that took place on Tuesday.  One aspect that seems positive in these charts, is that since the confirmed rally day of March 20, if you look back on the volume, a high percentage of the upside days were on stronger volume than the down side days.  This indicates that there is more conviction to the buying than the selling of equities.

In the coming weeks it is imperative that prices pierce through these downwards sloping resistance levels on strong volume.  We do have the FED meeting coming up this week and maybe this might be the catalyst to cause such a break of resistance.  However it could also be the catalyst to send the market tumbling.  Which ever may be the case follow your set of investment rules with no emotion attached.  If you can accomplish this you are well on your way to being a healthy and a wealthy investor.

Stock: Drill Quip Inc. 

Symbol: DRQ

 Fundamentals:  9.7 out of 10

Industry:  Oil and Gas Canadian Exploration                                    Industry Strength: 22 

Technical Pattern: Cup with Handle                                                  Avg. Volume: 767,100

Pivot or Buy Point: $62.63

Stop Loss: $58.25 or 7%

Profit 1: $68.89 or 10%

Profit 2: $75.15 or 20%

DRQ manufactures highly engineered offshore drilling and production equipment for use in deepwater and harsh environments.  Its annual earnings per a share growth rate are estimated at 105%.  The best part of this stock is its Cup with Handle pattern.  This pattern tends to be the most powerful of all patterns.  It has been forming the cup of the pattern since last November.  At the bottom of the Cup you will notice heavy selling volume for 3 straight weeks.  However, if you look closely you will notice that prices were able to find support at around the $43 level, and from there started to build upside momentum.  Two weeks ago upside volume really picked up.  Last week the handle portion of the pattern began to develop.  When a handle moves lower in price, but in very light volume it creates an ideal situation for a buy point.  When DRQ crosses the high of this handle on heavy volume, look to purchase DRQ at $62.63.

Stock:   Fastenal Co. 

Woodward Governor manufactures energy control systems and components for aircraft and industrial engines and turbines.  Last week the stock shot up 26% on its strongest volume in over a year.  Some big institution likes what they see in WGOV.  Currently WGOV rest just below its previous high registered in late November of 2007.  WGOV will either start to build a handle or burst right through the previous high and we want to be waiting to join the ride.  Let's look to buy WGOV at $36.33 and look for the strong volume surge to continue.

Please remember that 70% of stocks follow the market direction, so first lets make sure this new rally has some legs.  It's OK to get your feet wet but ease into this market right now until it PROVES it's ready to RUN.