Securities Research Services

Monday, June 25, 2007

Market Tops Don't Look Like This

Friday's weak day was a disappointing lack of follow through from Thursday's strong buy signal mentioned in our last report. Nevertheless, the weak, choppy trading seems to have had more to do with the restructuring of the Russell 2000 index than it had to do with supply and demand.

The bullish case is building in the near term. On Friday put buying spiked to 2:1 on the QQQQ and more than 7:1 on the SPY. Moreover, the news for the day focused on sub prime, which we have all gotten an earful about lately. Market tops just don't look like this. The market just doesn't work that way. Market tops occur when there is too much enthusiasm, which indicates that all the good news is already priced in and prices have no where else to go but down.

Market tops do not occur when dumb money has loaded the boat with puts and when commentators focus only on doom and gloom scenarios. The market is perverse. Remember that. Those who control the largest blocks of money need sellers to give them shares when they are buying and as such, the news that gets filtered down to the retail market is designed to create fear. In other words, it’s a game of hard ball.

On Friday major indices closed back at their uptrend support levels. If these support levels break this week, we may see a panic occur, but we submit that that panic will be an opportunity to get in and buy stocks hand over fist.

On the other hand, buying was taking place late Friday and with prices back at support, we may just see prices reverse higher again today. Whichever scenario unfolds, this is not the time to be panicky with your holdings.

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