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Jun 11, 2007 - Issue #062

Breach!

DJ-30: 13424.39 -243.72 -1.78%. In the Real World: 55.06 -1.00 -1.78%.

UP: 5, Down: 25.

Trends (weekly): This is the subjective part.

Rising 13 (-6) 43%:

AXP, GE, HON, HPQ, IBM, JPM, KO, MMM, PFE, UTX, VZ, +*WMT, XOM.

Consolidating 15 (+6) 50%:

-*AA, AIG, -*BA, -*CAT, -*DD, -*DIS, GM, HD, INTC, MCD, -*MO, MRK, -*MSFT, +*PG, T.

Declining 2 (n/c) 7%:

-*C, JNJ.

+/- denotes change of direction.

* denotes change of category.

Breach!

Notice that the number of Dow components in the rising trend category, in the space of only one week, has slipped from 19 (63%) to 13 (43%). From over 50% to less than 50%. Historically, this does not, as the analysts are want to say, "bode well". See Inside the Dow, for more clarification.

A review of the daily charts over the past couple of weeks indicates a high probability, in my judgement, that many market participants who were using trailing stop orders were "stopped" out of their positions.

Aggressive traders that took advantage of the low volatility present, while it was still available in the options markets, to buy puts should be enjoying a healthy increase in their trading accounts.

Never forget that the best market analyst is the market itself. The market shows us what it's doing and it's intentions, if only we will observe. Barring something cataclysmic, it gives plenty of warning. The signs are there.

The problem for most investors is that they simply refuse to see things as they are and the "expert" guests appearing on CNBC are just as guilty in that respect.

Once turned negative, assume it will stay negative until it indicates otherwise.

If this is true, I'd expect to see an increase in the number of Dow components in the declining trend category.

Have you noticed the big "race" among the exchanges to merge? We are witnessing the "creation" of one exchange where everything is traded: Stocks, bonds, futures, options, currencies, everything. This will empower the individual investor even further.