Sep 24, 2007 - Issue #077

Shock and Awe!

Shock and Awe, Indeed!

Score one for Larry Kudlow (CNBC's Kudlow and Company)! He called for it and the Fed delivered.

While the Dow was surging due to short covering, oil and gold exploded and the US Dollar declined. Why is this a good thing?

Even with the upward surge in the DJIA, note that only half of the Dow components, in my view, are in a rising trend.

What is most intriguing is Friday's price and volume activity. Specifically, note the huge volume compressed within a narrow price range.

Based on prior days price and volume activity leading up to Friday, one would think Friday's huge volume would have been enough to force the Dow through the roof!

What happened instead was the market's advance was halted in its tracks just short of registering a new record high.

Question: Are we witnessing a failing rally in progress?

For the market to hardly budge with all that volume, isn't it obvious a lot of "unloading" was taking place?

Some have said it was because of the "triple witch" options expiration. Really?

Ever since index options began settling at the opening while equity options expire at the close, no one bothers to stick around till the very end anymore. It doesn't pay.

As a result, traders unwind or roll their positions forward in the prior week.

In my opinion, what we may have witnessed is "industrial strength" liquidation taking place. Stock passing from strong hands into weak hands. And very expertly, I might add.

If this market is headed higher, we won't have to wait long to find out. If not, we won't have to wait long to find out about that either.

Dow score card for the week ending 9/21/07.

DJ-30: 13820.19 +377.67 +2.81%. The Real World DJ-30: 56.67 +1.55 +2.81%.

UP: 27, Down: 3.

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

Rising (Generally Higher Highs/Higher Lows) 15 (+5) 50%:

CAT, GE, GM, +*HON, +*HPQ, IBM, INTC, +*JNJ, KO, MCD, MMM, PG, +*T, UTX, +*VZ.

Consolidating (Generally Lower Highs/Higher Lows) 12 (-3) 40%:


Declining (Generally Lower Highs/Lower Lows) 3 (-2) 10%:


+/- denotes change of direction.

* denotes change of category.

Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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