Securities Research Services

Friday, September 29, 2006

Sentiment Readings Near Dangerous Levels

Today is the last trading day of the quarter and it serves the interests of fund managers for this day to close near current levels for the purpose of their reporting to investors. Of course it's irrational to use benchmarks, such as new all time highs for the Dow, to measure real investment performance. Nevertheless, headlines attract investment dollars into the market and keep the investors happy. Interestingly enough, scans show very little that would attract us into buying this market. Most of the movement in the indices over the past few weeks has been accomplished by large companies, such as Microsoft and Oracle, doing most of the heavy lifting. In fact, it is into the large float blue chip stocks that most money has been flowing. If institutions are worried about a breakdown in the trend, the safest place they can put their money to work – and remember, they must put their money to work by quarter end as the requirements of most funds are that the managers be fully invested as the quarter expires – is into stocks that offer enough volume to allow them a quick and relatively painless retreat once things start to slide. Yesterday the market held its highs in what we would consider a consolidation pattern. Major indices – in particular the Dow and S&P – seem to be gearing up for a spike higher. It is our opinion that the spike higher will attract sellers, but today at least there is a better than even chance the blue chips will close out the quarter on a high note. Several sentiment readings put traders at over 90% bullish levels, the highest they have been since right before the 2001 market collapse. While the market may look good after today's session, unless you are daytrading this is certainly not the time to be going long the market.

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