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Jan 14, 2008 - Issue #093

Falling Knives!

When the various guest analysts and portfolio managers appearing on CNBC are asked to tell us what we should be buying now, you should be thinking, 'Why should I be the first one in?'

Why not wait until there is evidence that the 'smart' money is buying before entering the market?

How do we know when the 'smart' money is buying? Simple. Watch the volume. 'Smart' money tends to be 'big' money. 'Big' money shows up in the volume.

When the volume is huge compared to what is considered normal, that is evidence that 'big' money is making it's move. Is the 'big' money buying or selling? Simple. If the price is higher, they were buying. If the price is lower, they were selling. Simple.

Have we seen any such evidence of 'big' money buying this market? Not that I can see. In fact, the explosive down move of the week just witnessed is an indication that further downward movements of large magnitude are not out of the question.

Case in point: KO volume back in the week ending 10/24/2006 signaled the beginning of a major upward move. Volume is once again making its presence felt. What is it signaling now? Further upward movement or, what Jesse Livermore labled, the 'final mark-up'?

Dow score card for the week ending 1/11/08.

DJ-30: 12606.30 -193.88 -1.51%. The Real World DJ-30: 51.69 -0.80 -1.52%.

UP: 9, Down: 21.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 5 (+5) 17%:

+*DD, +*KO, +*MO, +*MRK, +*PFE.

Consolidating (Generally Lower Highs/Higher Lows) 5 (-4) 17%:

AIG, +*C, +*JNJ, +*WMT, XOM.

Declining (Generally Lower Highs/Lower Lows) 20 (-1) 67%:

-*AA, AXP, -*BA, CAT, DIS, GE, GM, HD, -*HON, HPQ, IBM, INTC, JPM, MCD, MMM, -*MSFT, PG, -*T, -*UTX, VZ.

+/- denotes change of direction.

* denotes change of category.