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Date:  July 6, 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: 

WE ARE IN A BEAR MARKET!

Right now you should be converting to CASH as the best way to protect yourself if we head further south.  If you are not in CASH, monitor your stocks closely for price and volume movement.

When the markets slump over 20% from their 52 week highs this qualifies as a BEAR MARKET. The NASDAQ sits 21.5% off of its high, the S&P 500 is 19.9% down, and the DOW Jones has sunk 20.5%.  The BEARS have taken over.

In the 4th of July shortened week the Nasdaq finished 3% lower, the S&P 500 was 1.2% down, and the DOW Jones finished the week on a positive note but was still down .5% for the week.

The Headlines

Oil still rules the headlines and is the major catalyst driving the market lower.  Crude Oil continues to hit new highs.  This past week we hit as high as $146 a barrel and finished the week with August Crude Oil at $145.29. 

Financial stocks continued to get hammered because of credit crunch worries.  Just when you think they cannot fall any further they do. 

Last week, even the strongest industries and sectors began to follow the markets south.  Energy, steel, coal, and Gas exploration all began to take the dive down with the market.  Many leading stocks are starting to falter below their 50 day moving averages on bigger volume.  Support lines are no longer holding. The only SAFE HARBOR is in CASH right now, and that is where you should be. 

Healthy Investors learn to make money in UP and DOWN markets, but unless you understand how to sell stocks short or have gotten into some of the ETF's that short the indexes but you buy like a stock, it is best to remain on the sidelines. 

Follow your sell rules with great discipline.  When a stock hits a stop loss it is time to get out.  DO NOT hesitate, second guess, or doubt your decision.  You set forth a RULE, now you must stick with it, NO QUESTIONS ASKED.  Selling a stock is probably the hardest healthy investment habit you will have to learn.  DO NOT go through the EMOTIONS of "the price will come back tomorrow" or "I'll buy more because the stock is getting so undervalued" or "But this is such a great stock it will rise again" or my favorite, "I'll buy some more on this dip and dollar cost average my way down", this type of thinking is setting you up for FAILURE.  You became a healthy investor by creating a solid game plan for your investing that was the easy part, now you must follow your plan taking all of your emotions out of the equation.  This is the hard part, but JUST DO IT!

Now is a great time to review your investment plans, study your investment journals and hone your investment skills.  Analyze the trades that went well for you and the ones that did not work out so well, this is what HEALTHY INVESTORS do.

This week we are going to take a look at the longer term charts of the Indexes. 

3 Year Chart with Weekly Price Bars, 10 week and 40 week moving averages.

NASDAQ

The NASDAQ has dropped 5 weeks straight on solid volume.  At the end of April and through most of May the Nasdaq consolidated at about 2570 as it digested its gains and tried to power above its 10 and 40 week averages.  Resistance held and we began to sell off.  Now the Nasdaq approaches its 2180 support level and we will need to see if the Nasdaq can hold this level of support.  If not we most likely will head to the 2000 level.  Most likely we will see a little bounce in the Nasdaq before we break through these levels.

S&P 500

The S&P is resting right on a major support level of 1250.  The S&P has come down to test this support level three times now without breaking through.  The question is can the S&P hold this level of support again?  The good news is the more times price hits a support level the stronger it becomes, the bad news is if prices can break through this strong support level look out, this could spell more trouble for the markets and create a new lower low sending us into a longer term down trend.  The important thing in the S&P is to watch this 1275 level to see if it can hold the support in the next couple of weeks.  If it does not 1200 will be our next test of support.

The Dow Jones

The DOW busted through its 11,500 level of support and is likely heading to 11,000.  its actual next low is in the 10,600 level.  It is clear to see on the DOW chart we have started a series of lower highs and lower lows suggesting a longer term down trend is beginning to develop.  In the next couple of weeks we will probably see a retest of the new resistance level just under 12,000 before heading further south to the 10,600 level.

Top 10 Industries:

  1. Oil and Gas US Explor. and Prod.
  2. Energy - Other
  3. Oil and Gas Drilling
  4. Retail-Disc. and Variety
  5. Oil and Gas - Field Services
  6. Steel Producers
  7. Oil and Gas US Royalty
  8. Oil and Gas Cadn. explor. Pro.
  9. Chemicals and Fertilizers
  10. Oil and Gas Machinery/Eq

Important Message:

Please remember as you build your portfolio, you are trying to find the best player for each position.  Another words find the best stock in a leading industry.  DO NOT buy two leading stocks in one industry.  We are trying to build the dream team.  One stock, one industry, then fill another position depending on your portfolio size and money management guidelines.  When we list our F.I.T. Stocks selections, please make sure as you enter in your trades that you have not already filled that position or industry.

F.I.T. Stock Break Outs 

Symbol Newsletter Breakout Base Buy Current % Exit Exit Profit/
  Date Date Pattern Point Price Change Date Price Loss
   
MA 3/23/2008 4/1/2008 C/H 222.43 292.46 31% 5/23/2008 $273.22 70.03
RRC 3/30/2008 4/2/2008 FB 65.73 72.3 10% 5/22/2008 $72.30 6.57
RIG 3/23/2008 4/4/2008 C/H 145.13 159.64 10% 5/21/2008 $159.64 14.51
SID 4/6/2008 4/8/2008 FB 40.23 51.9 29% 5/19/2008 $51.90 11.67
MON 4/6/2008 4/16/2008 DB 123.93 114.89 -7% 5/1/2008 $114.89 -9.04
BCPC 3/23/2008 4/16/2008 U 24.33 22.66 -7% 5/1/2008 $22.66 -1.67
VMI 4/13/2008 4/16/2008 U 99.23 117 18% 5/19/2008 $117.00 17.77
GMXR 4/6/2008 4/17/2008 U 40.23 37.42 -7% 4/29/2008 $37.42 -2.81
DRS 4/6/2008 4/16/2008 C/H 59.43 78.56 32% 5/8/2008 $73.84 19.13
ARD 4/20/2008 4/21/2008 U 44.83 53.79 20% 5/21/2008 $53.79 8.96
FAST 4/27/2008 5/2/2008 C/H 51.43 47.83 -7% 5/21/2008 $47.83 -3.6
CPO 5/4/2008 5/6/2008 C/H 47.33 46.07 -3% 5/23/2008 $46.07 -1.26
SNHY 5/4/2008 5/6/2008 C/H 32.33 39.1 21% 5/22/2008 $39.10 6.77
SBS 5/4/2008 5/5/2008 U 54.63 50.81 -7% 6/3/2008 $50.81 -3.82
WGOV 5/11/2008 5/15/2008 C/H 37.19 34.9 -6% -2.29
ABB 5/4/2008 5/14/2008 U 32.43 30 -7% 6/11/2008 $30.00 -2.43
GNA 4/20/2008 5/5/2008 C/H 16.58 19.3 16% 6/30/2008 $19.30 2.72
FLIR 5/11/2008 5/19/2008 C/H 35.73 42.9 20% 7/1/2008 $42.90 7.17
MUR 5/18/2008 5/19/2008 U 93.64 94.76 1% 1.12
TITN 5/18/2008 5/19/2008 U 24.65 32.29 31% 6/25/2007 $32 7.64
MPWR 6/1/2008 6/5/2008 C/H 26.03 24.21 -7% 6/23/2008 $24.21 -1.82
SDS ETF 6/8/2008 6/9/2008 U 60.1 67 11% 6/27/2008 $67.00 6.9
QID ETF 6/22/2008 6/25/2008 U 42.33 46.22 9% 3.89
SKF ETF 6/8/2008 6/9/2008 U 121.23 160.4 32% 7/3/2008 $160.40 39.17
TOTAL x 100 Shares: 15611
     

** MONITOR THE FOLLOWING F.I.T. STOCKS HIGHLIGHTED IN YELLOW CLOSELY FOR PRICE AND VOLUME MOVEMENT! Look for light volume on down days and heavy volume on up days.  Remember if we head into another big correction, it is best to start turning to cash now.  You should be out of all other F.I.T. Stocks at this time as we have either hit our profit targets or the stop loss.

F.I.T. STOCK EDUCATION

It is important during this bear market to go back and review your investment journals and past stock charts to see what characteristics were present with your winning stocks and those that were present with your losing stocks.  Make notes of what you learn and tweak your investment plan if need be.

This week let us go over the characteristics of the Cup with Handle Pattern.

CUP WITH HANDLE

 

 

Cup Characteristics:

  1. Strong uptrend on left side of base
  2. Correction between 20-40%
  3. Bottom of base rounds out as sellers (red volume) dries up
  4. Right side of base shows signs of support with light selling days and heavy volume buying days
  5. Duration of CUP base 8-60 weeks depending on market conditions

Handle Characteristics:

  1. Handle forms in upper half of the Cup on right side of base
  2. Develops between 3-12% below the old highs of the left side of base
  3. Price pattern should drift sideways or preferably downward on light volume and correct no more than 12%
  4. Duration of HANDLE should be 1-5 Weeks

Pivot Characteristics:

  1. Buy Point is when price crosses the high of the Handle
  2. Look for strong buying volume as stock price shoots above handle resistance

Now see if you can review some of the F.I.T. Stocks trades listed with the C/H from the excel spreadsheet above.  Use your charting software and determine the Cup with Handle pattern, check volume on the days of the breakout, see if you can determine the buy points from the high of the handle.  Did you follow your investment plan?  Did you capture your profits when you should have or did you let them turn into a loss?  Make any notes of information that will help you in your future investing.

ETF UPDATE

Let's take a look at how are ETF's have down since the markets have gone into a tail spin.

QID Ultra Short

Buy Point: $42.33              Current Price: $46.22

Running Profit: +9%           Nasdaq: -7.5%

QID looks like it can head up to $50 before running into some resistance.  If it breaks through that $58 will be the next stop.  If the market bounces next week expect a brief pull back before heading higher.

SDS Ultra Short

Buy Point: $60.10            Current Price: $67.00

Running Profit: +11%       S&P 500: -7.7%

SDS did hit our $70 level and pulled back.  We should expect a little pull back this week.  If the S&P breaks below its support level, we would expect SDS to break its next resistance at $73.  Who knows how high it may go from there if the markets continue to head south.

SKF Financials Ultra Short

Buy Point: $121.23          Current Price: $160.40

Running Profit: 32%        XLF Financials: -17%

SKF broke above $121 and never looked back as credit crunch worries continued to hit the stock market.  Currently, SKF has broken out to new highs and past its old resistance level of $150.  SKF is quite extended from its 50 day moving average so it may be wise to take profits and get back in later as the ETF pulls back.

Please remember to stick with your Investment business plan, be disciplined, monitor price and volume daily and make money.

Happy and Healthy Investing,

Steve Martin

Founder

www.fitstocks.com

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