Date:  May 26, 2008

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Fundamental Data provided by Investors Business Daily  

F.I.T. STOCKS

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Market Update

MARKET HEALTH:  Market in CORRECTION

WOW!  What a difference a week makes.  It appears as though this rally is OVER.  Volume picked up to the down side across the board on all of the major indexes.  Last week we were watching to see if the indexes could break above their 200 day moving averages and hold above these points, but instead the markets decided to reverse on heavier volume contributing to several distribution days.  Several distribution days within a 2-3 week period can spell trouble for the markets, and this is exactly what happened.  Remember a distribution day is a day when the market sells off on heavier volume than the previous day's volume.  These distribution day's give us a hint that institutional investors are selling off their stocks.  This big hint came on Tuesday and Wednesday when the markets sold off on heavier volume than the previous days volume.  It is a great warning to us to follow the BIG MONEY and do the same.  For the week the DOW was down 3.9%, the S&P lost 3.5%, and the NASDAQ declined 3.3%.

What may be causing this correction?  Unsold homes, crude oil, and high gas prices could be the culprit.  The National Association of Realtors reported a 23 year peak in the supply of unsold homes.  The demand for energy prices on a global level has sky rocketed the prices of crude oil and gasoline, causing gas pumps here in the USA to hit a record high on Friday.  Logically it all makes sense.  People have lost the value in their homes.  Many homes have depreciated below the points of which people bought them and many of those people are just walking away from them and going into foreclosure leaving a huge supply on the market.  On the other hand, because of the huge global demand for oil and gas in emerging countries, we have seen strong demand for these commodities, thus the laws of supply and demand exist, and when demand is strong prices for these products increase.  It is this demand that we look for in growth stock investing.  When a company has a product that people need or desire, the demand rises, this means more profits for the company, which increases earnings and sales, which make the stock price rise.  This is a very simple form of growth stock investing, but if you take a look at the industries and F.I.T. Stocks that have performed very well, many are related to the Oil, Gas, and Energy business.  These Oil and Gas companies have consistently met the F.I.T. Stock system criteria for healthy stock market investing and generated to your earnings as a healthy investor.

That being said, on Thursday F.I.T. Stocks sent out an updated email suggesting this market is beginning to correct. When the markets takes this type of action, we as healthy investors, should take their lead and begin moving to CASH.  Since the NEW rally began March 20, we have had 5 stocks that have hit are 20% profit targets, 3 stocks that have hit our 10% profit targets, and 3 stocks that have hit the 7% stop loss.  Currently, we have 6 stocks that are in the green, and 1 stock in the red.  Watch these ones carefully, and if it means capturing a small profit as opposed to a loss, it would be wise to do so.  Remember your capital is your lifeline to healthy investing and any profit is a great profit. 

Congratulations to you if you were monitoring the daily price and volume of the stock market and picked up on the number of days showing distribution.  This type of daily activity will always keep you prepared in any type of market and ready to react in all conditions.  Being prepared is the sing of a Healthy Investor.

Let us now take a look at a long term and short term time frame of the NASDAQ and S&P 500.

NASDAQ

Long Term  Chart is 3 year time frame with weekly price bars.  

On this 3 year chart of the NASDAQ we see that prices met a clear resistance point at roughly 2560.  We can also note that last week created a third point of which to draw a downwards sloping trend line.  This point coincides with the previous support level of 2560 (remember old support becomes new resistance), and the 40 week moving average. 

SHORT TERM 6 month chart with daily price bars. 

This chart gives us a closer glimpse of the NASDAQ.  Notice how prices hit the ceiling of 2560 and headed lower.  This also coincided with a short term upwards sloping trend line and the 200 day moving average.  Last week we were watching to see if the NASDAQ could penetrate and hold above its 200 day moving average.  Instead, the NASDAQ headed lower on high volume.  Next week it will be interesting to see if the NASDAQ bounces back up within this upwards channel or if it breaks through.  Next week it will be very important to see if the NASDAQ can hold above the 50 day moving average and above the 2400 level of support. If it does not we could be in for a rough summer.  If the NASDAQ can hold it may continue to trade along this nice upwards channel which can become a very predictable pattern for trading.  We shall see?

S&P 500

LONG TERM   

The S&P looks very similar to the NASDAQ.  Both have created a ceiling of resistance at the 200 day or 40 week moving average, that neither were able to penetrate through with any conviction.  The blue line of the moving average also corresponded to a long tern downwards sloping trend line and a horizontal resistance level of 1435. 

SHORT TERM 

The S&P also has formed a short term upwards channel.  However, it already looks like the S&P has started to penetrate through the bottom trend line.  Currently it rest right on its 50 day moving average.  This week we will want to watch and see if the S&P will break through the 50 day moving average.  If this occurs it would be a bad sign for the markets.  Watch this closely next week.