Date:  June1, 2008

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F.I.T. STOCKS

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Market Update

MARKET HEALTH:  Market in CORRECTION, but trying to rally again. Be Cautious!

In last weeks newsletter we stated that the market was beginning a correction after several distribution days in the major indexes.  However, the markets fought back hard and they are already trying to stage a comeback, and the start of a new rally.  This is why it is so important to monitor the daily price action of the major indexes and the volume or accumulation and distribution behind that price action.  This information will give us the true pulse of what the Big Money is doing.  According to William O'Neil's book "How to Make Money in Stocks", the markets will begin to correct after several distribution days within a couple of weeks.  This started to happen 2 weeks back in all of the major indexes and led us to change the market health to a CORRECTION.  However, one week into this correction and the markets already decided to try and start a new rally.  The first day of this new rally began on Tuesday, May 27.  Following a first attempt at a new rally, we then look for a heavy accumulation day 4-11 days later, with days 4-7 being the strongest days for a potential new rally.  Friday, May 30 marked day 4, so beginning on Monday June 2, we want to look for a heavy accumulation day on 1.7% higher volume than the previous day's volume.  If this happens next week we should be able to break above the 200 day moving averages of the major indexes, which so far has been acting as a resistance point for the market.

Last week the NASDAQ was able to recapture most of its losses from the previous week with a 3.2% gain.  In addition, volume seemed to pick up each day from the previous days volume.  The S&P 500 notched a 1.8% gain and the DOW 1.3% for the week.  Much of the strength in the market last week can most likely be attributed to the pull back in oil prices.  We will have to watch and see if Crude Oil will continue to be the catalyst that drives the indexes direction.

Right now, monitor your F.I.T. Stocks closely for their daily price and volume action.  We want to see light volume pull backs and heavy volume rallies.  Last week MasterCard was a perfect example of a stock showing healthy signs during tricky market conditions (See F.I.T. Stocks Flexing some Muscle below for more details).  If you raised cash by selling off some of your stocks as the market started to show weakness, great job.  Remember any profit is a great profit and any small loss, although hard to take, keeps you in the investment business.  As we have stated so often following your investment plan rules requires great discipline, patience, and perseverance.  There will be times when we capture the profit on a stock only to watch it go higher.  We will also have times we get hit on our stop loss of 7% only to watch a F.I.T. Stock reverse and move higher.  If you go back and visit our F.I.T. Stock recommendations for MON, BCPC, and GMXR which we listed as 7% losses, all have come back to have very nice gains.  You must let this go and move on.  Just like a great athlete, a great and healthy investor must not live in the past.  We must have short term memories, learn from our mistakes, and move forward.  If you can learn to do this, you are well on your way to becoming the Tiger Woods of Healthy Investment Habits.

Let's take a look at the Charts from last week.

NASDAQ

6 Month Chart with Daily Price Bars.

2 WEEKS Ago 

LAST WEEK

The NASDAQ seems to be holding up the best of the three major indexes.  Last week we discussed how the NASDAQ was forming a nice upwards channel.  This channel held up perfectly last week.  Notice on the chart above this one how prices were right at the support line.  Last week, prices held up nicely at this support line and started to bounce up from this level.  Also of significance is that the NASDAQ was able to close on Friday above its 200 day moving average.  Again we would like to see the NASDAQ hold above this level, and for the 50 day moving average to pierce through the 200 day moving average.  One other important note is the volume that picked up each day from the previous days volume as the index rose.  This suggests that accumulation was taking place. 

This week let us look for a follow through day in one of the major indexes as discussed in the market health section above.  Continue to monitor the daily price and volume action of the Markets and of any F.I.T. Stocks you may own.  Keeping a daily fitness routine of stock market health will always keep you in great investment shape.