NASDAQ & S&P Market Update 3.6.2007

Corrections and bear markets do have one redeeming quality, they usually stay around no longer than a disloyal friend.  And that is a good thing for it reveals how many investor friends your stocks actually possess.  Friends you say, 'my stocks are outright lepers in this environment'.  But there is good news...

The market has sold off so quickly and with such fear that our sentiment models now throttle near bullish, after reading negative for weeks.  In addition, our initial support objectives in the SPX and the NASDAQ were met this Monday, 3.6.2007, on the close of trade.

From a fundamental perspective, the yield curve has greatly improved during the speedy sell-off and this will have a mitigating effect on lower stock prices.  At the very least, our WatlooSoft© models are currently flashing a trading bottom, which is positive when bundled with the sentiment figures.

The mortgage meltdown from the housing market gluttony of the past few years stands as the primary fundamental negative.  Not to worry though, the feds will certainly smash rates soon to soothe frayed nerves and avoid an outright $600 billion dollar mortgage market collapse, just like they did with Long Term Capital.  But, as we noted earlier in our bond report, the fed is a bit behind the curve here; nevertheless,  they will catch up, and make Alexander Hamilton proud. 

Some of the equities that contain attractive enterprise business models and reveal lower risk entry points are as follows:  LVLT, (for those that missed our first report)  ELOS, CRXL, and MR.  Our report portfolio, which has been 75% short the market over the past months, will crawl towards a 50% equity exposure relatively soon at the current rate of decline.

Technical False Breakout

It is obvious now why the technical false breakout alert we detailed here over the past few weeks caused such concern.  The market 'water-falled' in just a few days, (as expected, if 16% odds are ever expected), wiping out months of gains.  As we noted in our most recent report, we do not foresee a severe bear market measured by a 30% decline or more in the major indexes.  In fact, the S&P and the NASDAQ might trade another 4% lower in the next few weeks, but that would be the extent of the damage near term, particularly since the public is selling the current move rather than buying.

Conclusion:  Risk remains in the indexes, but favorable winds are beginning to develop for select buying opportunities.  We'll update these opportunities when the research avails.  As it stands right now, there is not a more fortunate house on or off the Street than ours, but since the doghouse is not far from the penthouse...we'll keep it humble.

We make market order out of market chaos.©

Earlier Sell Signal Report

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