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Sep 25, 2006 - Issue #025

Unhedged Funds!

Dow score card for the week ending 9/22/06.

DJ-30: 11508.10 -52.67 -0.46%.

UP: 14 (-10), Down: 5 (+11), NC 0 (-1).

Trends (weekly): This is the subjective part.

Rising 15 (-3):


Consolidating 12 (+3):

+*AXP, C, DD, GE, -*GM, -*HD, MMM, MRK, MSFT, PG, -*UTX, XOM.

Declining 3 (nc):

AA, BA, -*CAT.

* denotes change of category.

+/- denotes change of direction.

Wow, this past week, many investors who thought they were invested in "hedge funds" found out they weren't! See my page on Alternative Investments.

While the weekly charts indicate a slowing of upward momentum, the daily charts put in rising trend lines at which I believe to be an unsustainable angle. Usually, this indicates where one should exit positions. See Turning Points.

In my opinion, traders working off daily charts are seeing sell signals in many stocks, not just in Dow components, and moving to cash while those working off weekly charts are seeing pull backs looking for new support points, ideally forming higher lows, enabling adding to positions and raising stop-loss points.

Stock market indexes really are very misleading (see Inside the Dow) and one would be well advised to think in terms of a 'market of stocks' rather than 'the stock market'.

In an index, such as the S&P 500 for instance, except in extraordinary circumstances, not all the components are rising or declining in unison. Rather some are trending upward, some downward, and some laterally. Depending on how the index is calculated, some issues have more influence than others. All of which leads to general confusion.

I believe a sound approach in the selection of which stocks to take into position is a combination of relative strength and significant trend lines (see Market Timing/Trade Selection).

In the case of INTC and HD, these components, on a weekly time frame, have gone through a period of decline, followed by a period of consolidation, then an upward breakout and currently are pulling back. If they are truly in the process of forming a rising trend, a higher significant low point should come next.

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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