MARKET NOTES

MARKET NOTES January 24, 2007

Stocks opened strong and finished strong yesterday. The Nasdaq 100 (QQQQ) led the way higher with a 1.65% gain and Russell 2000 (IWM) came in second with a 1.10% gain. NYSE and Nasdaq volume was above average and a number of key indices and ETF’s recorded all time highs, Not 52-week highs, Not 6-month highs, All time highs. The NYSE Composite, the Dow, the S&P MidCap Index, the S&P 500 Equal Weight Index, the Finance SPDR (XLF) and the Materials SPDR (XLB) all recorded new all time highs. The market may be overbought and ripe for a pullback, but there are still plenty of buyers out there and the trends are undeniably up.

SECTOR WATCH

Finance Sector Hits New High, eight of the nine sectors were higher with Technology, Materials and Finance leading the charge. The Industrials SPDR (XLI) was the only SPDR to loose ground as weakness in railroad stocks weighed. The Finance SPDR (XLF) broke flag resistance yesterday and RSI broke above its trend line extending down from 16-Jan. This is a classic bull signal (flag and RSI breakout). Finance is the biggest sector in the market and the break to new highs simply reinforces underlying strength in the S&P 500 and NYSE Composite. The flag low becomes key support and a break below 36.7 would throw cold water on the bullish case.

COACH’S CORNER

Each week I will apply the fundamentals of Technical Analysis to highlight a stock or ETF. I will use the same Annotate tool at www.stockcharts.com that I use in our coaching sessions at Prosper Learning. I find that by marking my charts with trend lines, channels and highlighted cross-over’s, etc., almost like a football coach with the X & O’s, I visually create a game plan for each stock on my watch list. Since the Materials Sector (XLB) is leading the market, it only makes sense to look at one of its components. This week I’m looking at Reliant Steel (RS).

As you can see, the indicators that I’m using are the RSI, Slow Stochastic, MACD and ADX. I’m also using as chart overlays the Bollinger Bands and Exponential Moving Average’s (EMA) 5 &10 day. Using the annotate tool I like to draw trend lines on my RSI(the red & green lines). When the RSI breaks the trendline (green circle below) it alerts me to a possible reversal in the direction of the stock. I use the same tool on the Slo Sto. You can see that it also just broke its trendline (green circle below). Look at the current Flag pattern marked in purple; a breakout above 41 is a Bull signal. I look to my indicators for a confirmation. Both the MACD and ADX are confirming with fresh crossovers and my RSI & Slo Sto are both telling me that the stock is over-sold which tells me that RS has room to move to the upside.

I find that I have a higher success rate in my trades when I draw-out my game plan. Give it a try, I think it will help you in your trading. If you do not know how to use the annotate tool ask your coach, or call the Resource line.

*Trading involves risk. This content is for educational purposes only and should not be viewed as advice to buy or sell any security mentioned