Where’s the Beef....?

Bullish summer rally but where is the volume?

In early May we said that we expected the market to move higher and move higher it has. Other investment newsletters seem to be failing to address this issue, and their investment systems are not taking it into account.

In fact the market has moved up longer than we actually thought it would. Believe me, we are not complaining. After the last two summers being dreadfully slow, it is nice to see the market moving.

Now's a great time to be in stocks, as both the DOW and the NASDAQ made some strong upward strides last week. Despite high oil prices and the bombings in London, the indices have been able to shrug off the bad news and focus on more positive market news.

The DOW has been on fire of late, breaking resistance at 10,600 recently. The surge was even more impressive given the fact that the DOW broke below support at 10,200 on July 7. The rally drove the DOW back above the 20-day and 200-day MA of 10,440 and 10,455, respectively.

The index will continue to face selling pressure above 10,600, which it was unable to hold in 2004. A look at the charts shows a widening of the Bollinger Bands, suggesting some volatility in the upcoming sessions to the range of plus or minus 130 points. Our investment newsletters will give daily information on current market conditions. Pay attention when doing your own research that any investment advice is taking all of these factors into consideration.

Volatility is a nice change during the summer doldrums. Volatility is How we make the most money in our MainScale APS portfolios. So hold on because this summer should continue to be profitable and fun. Concurrently, the tech-laden NASDAQ broke key technical resistance at 2,100 on July 7 and touched 2,164.18 on July 14, its highest levels since January 3, within 30 points of its 52- week high.

Stronger breadth and technical indicators supported the rally in the NASDAQ. The near-term trend for the NASDAQ is positive, but, given the rally, the index is overbought, so we could see some near-term selling pressure. Failure to trend higher could see another downside move. This will give us a chance to judge the true health of the market. If selling pressure starts to increase along with volume than we may be in for more than just a pullback. It is also important to keep an eye on the advance/decline line which is currently in a solid uptrend, showing good broad participation.

Continue to watch the trading volume on both up and down days to gauge the market's sentiment. A rise in the market in conjunction with reduced trading volume is a bearish divergence. Trading volume was relatively low from February to June, suggesting caution on the part of investors. In a bullish market, you want to see rising volume on up days and declining volume on down days.

So I say to that...”Where’s the BEEF?”

For those of you who are playing the momentum in the NASDAQ, there are some concerns. First, be attentive to the lackluster trading volume, indicating some hesitancy on the buy side from the mass market. The five- day MA during the recent rally was a mere 1.66 billion shares, which, in my view, should raise some red flags regarding the sustainability.

We would be much more convince that this rally is for real if we could just see some serious volume increases on the up days. This has been lacking which means that institutions are not aggressively buying this rally? Without the participation of institutions the rally will soon run out of steam. Our investment advice is always "be informed on current market conditions."

Second, the CBOE NASDAQ Volatility Index or VXN--a barometer of near-term market volatility based on NASDAQ 100 index option prices and viewed as a contrarian indicator-- has been declining in the recent weeks, with the five-day MA at 13.90, below the 30-day MA of 14.19 as well as the 50-day and 200-day MA of 16.04 and 18.20, respectively. A low VXN indicates reduced apprehension and a possible market top. My investment advice for you is to stay alert for any signs of a reversal in market momentum.

It is just Common Sense to be ready for whatever the market has in store. If volume picks up and the index’s breakout of recent highs, we will then look to add some more long positions. If downside volume increases or the A/D line begins to lose momentum than it will be time to tighten stops and look for stocks to short. Our investment newsletters useing the mainscale portfolio are always up to date, and take these conditions into account.

The good news is the either way, you don’t have to worry about it because we will let you know what to do and how to do it. Using the Mainscale portfolio as an investment system you can take tis information and profit. Other investment newsletters will come and go, but the Mainscale Automated Profit System ™ investment newsletter will continue to serve your needs.

Enjoy the Rest of the Summer,

MARC BARHONOVICH