The analogy I had been using over the past few months to describe the action in the market to my members is that of a majestic skyscraper, each story beautifully built, higher and higher to the heavens. Just one problem.. they skimped on the foundation.  So, as the glorious skyscraper neared the heavens, the foundation began to crack, piece by piece by piece with each passing day.   As dignitaries and VIPs arrived to celebrate the completion of this majestic masterpiece with a ribbon cutting in Ben’s Liquidity Lounge, it tilted ever so slightly.  It was barely noticeable, but those that did, chalked it up to thin air and one too many trips to the punch bowl.

The charts never lie.  As the rally continued to soar to epic heights, the charts began to reveal the warning signs well ahead of the crash.  Granted, this has been a historic, Fed fueled, artificial rally where minor topping patterns failed again and again as the market pushed higher and higher with considerably less conviction.  That began to change in January, when institutions began to unload positions which was revealed in the heavy volume on the sell side.  I have to admit, I thought there was a very good chance of topping in February following the January plunge, but was forced to abandon the plan to get aggressively short on March 4th.

I sent the following note to members:

Read Entire Post “Anatomy Of A Market Meltdown; Potential Head & Shoulders Pattern” Here

The nearly $900 billion (remember when $350 billion was expensive?) economic stimulus package, aka the Pork Package set forth by Democrats cleared the House and heads to the Senate with zero Republican support.  If signed into law it would push federal debt to levels not seen since WWII.  With support for many social programs, many have complained that much of it will do nothing to stimulate the economy with too much wasteful spending and not enough for tax cuts.  In an op ed piece the WSJ calls it a political wonder that manages to spend money on just about every pent-up Democratic proposal of the last 40 years.

For all the talk of alternative energy and the importance of reducing our need for foreign oil by the Obama administration, the Christian Science monitor points out that just $24 billion can be directly attributed to green investments – $16 billion in tax breaks and $8 billion in loans.  However, including renovations of federal buildings and public housing pushes that number higher and some see this as just a down payment with a separate energy bill to be announced later.

Some highlights of the package according to USA Today and WSJ:

Read Entire Post “Details of Economic Stimulus Package: Too Much Pork, Too Little Stimulus” Here

Within the carnage of the 2008 IPO market, we have an announcement of a new IPO filing here at the end of the year that will surely generate some interest (maybe curiosity is a better word) as we head into 2009. FriendFinder Networks, formerly Penthouse Media Group (before Penthouse bought the FriendFinder sites from Various for $500 million and changed its name) have filed a registration statement with the SEC for a $460 million IPO which will by offered by Renaissance Capital.

Read Entire Post “FriendFinder Networks (FFN) Files IPO In Desperation” Here

In any market, there will be differences of opinion but certainly at market tops and bottoms, the predictions become more bold.  I was reading a few articles over at Seeking Alpha and came across one guy (who manages money for a living by the  way) exclaiming that Thursday’s move was huge! He was  as bullish as could be just as many of the so called professionals on CNBC have been.  There is nothing wrong with having an opinion and the courage of your convictions, but where is the "money management"?  Where is the preservation of capital?  I don’t have the all answers but one thing I do have is a sense of when it’s time to ease up and err on the side of caution.  I realize there is incentive for Wall St to keep their clients invested, so you won’t hear the call to move to cash very often, but at the same time they fail to realize how just a little bit of integrity can go a long way. 

My approach is that the bulls are going to have to prove me wrong every time.  After all, down is the path of least resistance.  When the overall market takes out major long term trends lines in the first few months of the year, carves out a bear market rally and hits key resistance in the process, you damn well better believe I’m going to be cautious and recommend moving to cash or hedging your bets until the bulls can prove themselves.  It’s been the theme of late here at SelfInvestors and that didn’t change last week.

On Monday, I sent the following to members:
(you may receive my "almost" nightly market notes by registering at the top left)

Be in Cash or Be Hedged

"It had been relatively quiet in the financials ever since the Bear
Stearns debacle and the capitulation surrounding that certainly
created a bottoming process and paved the way for a run in the
indices which is where we sit now.  However, the magnitude of the
problems in housing and in skyrocketing oil prices don’t get sorted
out in a few months time.  Sure, you could argue that the economic
numbers haven’t been all that bad and the trend of weak, but better
than expected economic numbers certainly does continue.  Today the
ISM Manufacturing Index came in a bit weak and continued to indicate
some contraction, but came in better than expected and higher than
the previous month at 49.6.  BUT, how long can it last?  The US
economy is incredibly resilient as it proved after the tech bust and
Septemeber 11 attack but how much can it bend without breaking?  That
certainly remains to be seen and all predications are just
..predictions.  One thing is for certain though.  The indices are
indicating intermediate topping action following this healthy spring
rally.  As I mentioned in my weekend report, why not lock in some of
that hard earned profit and sit tight for a couple weeks and let the
economic data flow and the indices give us a better indication of
where it’s headed next?

On the technical side of things, the action in the indices could have
been far worse than where we closed.  Down 200 in the Dow at one
point, you got the feeling that maybe we’d get one of those big 300
- 400 point swoons.. something we haven’t seen in some time.
However, I was impressed by the way the market held it together and
staged a little rally at the end of the day.  Volume was not heavy
today and indicated fairly healthy profit taking following last week’s
advance.  The Nasdaq took out support of the 200 day moving average
again, but the S&P was able to hold above the 50 day moving average..
a somewhat remarkable feat considering the financial headlines today.

If you’re able to keep fairly close tabs on the market each day,
there are some good  trading opportunities out there on the long side
but I recommend hedging those with some short plays or simply buying
put options.  If you don’t have time to watch this market closely
right now, are an inexperienced trader and/or are accustomed to
longer hold times, I feel the best strategy is to sit on the
sidelines for a couple weeks to see how this pull back shakes out."

The following day, the selling was more severe and the following was sent to members:

Dow and S&P Have April Lows in Sight

"Today’s technical action was significantly more severe than
yesterday as sell volume came in above average indicating
institutional distribution.  It sets us up for further deterioration
in the coming days.  The S&P finally penetrated that 50 day moving
average which could be preparation for a move down to the April lows
at 1325.  The Nasdaq remains submerged below the 200 day moving
average and in all likelihood will test the 50 day moving average
around 2400.  The Dow is having the most difficulty and has taken out
both key support levels of the moving averages and will most likely
test the April lows in the 12200 range in the coming days."

Then we  got that out of blue move on Thursday, pushing the Nasdaq right to the brink of a potential breakout move.  There was some momentum behind it so I had to respect it to some degree, but still wary of a potential double top in the Nasdaq given the bearish signals of the previous days.  I sent the following to members Thursday night:

Nasdaq Within Striking Distance

"I have to admit, today’s move took me completely by surprise and the
action kind of reminded me of the irrational trading in the latter
half of 07 when it seemed the technicals didn’t matter much.
Earlier this week, we got significant distribution as the indices
slid further from important resistance areas.  The Dow looked down
right ugly.  Then bammo! A nearly 2% surge in the indices with a
little momentum behind it as the market seemed to ignore the
financial turmoil (a cut in ratings for Ambac & MBIA) that it had
sold off on just earlier in the week.  The trend of "better than
expected" economic numbers continued today with a decline in weekly
jobless claims and decent May retail numbers which some expect to be
strong again in June due to the stimulus of rebate checks.  Rather
than hurting the market today, a $5 surge in crude ignited the market
with energy leading the way with a more than 4% advance. 

So where does it leave us?  You know I’ve been mentioning that it’s
best to be cautious up here and I still think that is the best
strategy until proven otherwise.   While this one day of trading does
negate some of the bearishness in the technicals recently, it
doesn’t signal that the coast is clear.  It’s still just one day of
trading likely fueled in large part by short covering.  I said that
if I was wrong and the indices broke out to new all time highs, than
I’d simply adjust my strategy and get more aggressive long.  With
today’s surge, the Nasdaq is sitting right on the May high which is
a significant source of resistance.  The S&P reclaimed support of the
50 day moving average and it just may hold that level.  As for the
Dow, it’s got significant technical damage to repair and today’s move was
a good start towards that.  For me to get increasingly long, I want
to see the Nasdaq take out that May high and close above it, then
pull back in an orderly fashion.  When the Dow re-tested its May high
on May 19th , it quickly sold off 700 points in a couple weeks so we
have to be mindful of a double top in the Nasdaq as well. "

The Nasdaq wouldn’t come close to a breakout attempt on Friday as the unemployment rate spiked higher than expectations and crude soaring yet again to record highs with $150/barrel in sight.  The big surprise to me on Friday?  That the average work week came in at 33.7.. who the heck works less than 40 hrs anymore?  The action on Friday as downright ugly with institutions clearly dumping large positions.  Let’s take a look at the major indices below.

The Nasdaq is without a doubt leading the way and is actually in relatively decent shape up here, but I still think it needs to come back and test where the May lows and 50 day moving average converge around 2425.  It wouldn’t mind seeing it bounce around in this range for another month or two, setting it up for a breakout attempt above 2550.  Volume was not particularly intense on Friday which is encouraging.  Note the double top in the making at 2550.

It’s a much different story in the S&P, which took out the June and May lows (and the 50 dma yet again) with big time conviction.  We could certainly see a bit of a bounce to come back and test what is now resistance of the 50 dma before testing the next level of support around 1320, but I wouldn’t bet on it. 

It gets even uglier in the Dow which has been sliding for weeks now, following a double top of its own up around 13200.  It’s sitting on some minor support area right now but given the fact it was down 400 on Friday with absolutely no buy interest throughout the day, it is just a matter of time before it starts trading down around those March lows. 

::: Model Portfolio :::

** This section will now appear as a separate report about every other Wednesday. 

The Self Investors Model Portolio wrapped up 2007 with a 30.2% gain and features annualized returns of 24%.  Would you like to receive buy and sell alerts within minutes (NEW! now get them via instant messaging in near real time) of each transaction in the portfolio?  You can receive these along with ALL of the tracking tools and reports with the very popular Gold membership.  Don’t delay, get started today and join me for many more highly profitable months here at SelfInvestors.com.

::: Best/Worst Performers :::

- Top 10 Performing Industries For the Week -

1. Agricultural Chemicals: 6.05%
2. Music & Video Stores: 3.60%
3. Healthcare Info: 2.90%
4. Independent Oil & Gas: 2.75%
5. Regional Airlines: 2.40%
6. Electronics Wholesale: 2.10%
7. Long Distance Carriers:  1.80%
8. Oil & Gas Equipment & Services: 1.50%
9. Wholesale – Other: 1.45%
10. Printed Circuit Boards: 1.40%

- Top 10 Worst Performing Industries For the Week -

1. Meat Productss: -10.60%
2. Banks – SE: -10.50%
3. Surety & Title Insurance: -10.10%
4. Advertising Agencies: -9.40%
5. Aerospace/Defense: -9.10%
6. Residential Construction: -8.50%
7. Auto Parts Wholesale: -7.90%
8. Banks – MidAtlantic: -7.75%
9. Jewelry Stores: -7.30%
10. Foreign Regional Banks: -7.20%

- Top 5 Best Performing ETFs For the Week -

1. Greater China Fund (GCH) 5.70% 
2. Turkish Invest (TKF) 5.60%
3. HLDRS Internet Architecture (IAH) 5.40%
4. Japan Small Cap (JOF) 5.20%
5. HLDRS Broadband (BDH) 4.65%

- Worst 5 Performing ETF’s -

1. iShares Silver (SLV) -6.25%
2. Thai Fund (TTf) -6.15%
3. Asa Limited Gold (ASA) -4.60%
4. Market Vectors Gold Miners (GDX)  -4.50%
5. iShares Gold (IAU) -3.90%

::: Upcoming Economic Reports (6/9/2008- 6/13/2008) :::

Monday:        Pending Home Sales
Tuesday:       Trade Balance
Wednesday:  Fed Beige Book, Treasury Budget, Crude Inventories
Thursday:      Export/Import Prices, Initial Claims, Retail Sales, Business Inventories
Friday:           CPI

::: Earnings I’m Watching This Week :::

Monday:
Exide (XIDE)

Tuesday:
Quality Systems (QSII)

Thursday:
China Medical Technologies (CMED)

You could call Friday’s action an exclamation point to one of the wildest weeks of intraday reversals I’ve ever seen.  With about 30 minutes to go of trading, the market was dead in the water with volume picking up and the indices right on the verge of taking out the lows of the day.  We had already taken out support of those wedge formations I’ve been discussing which was critical to staying away from the possibility of testing the January lows.  The only way we were going to avoid serious technical damage today was some kind of end of day miracle rally.  I have to admit, given the trading of the past week it was in the back of my mind.  But nothing like this.  There he was, Charlie Gasparino of CNBC mentioning a rumor of an Ambac bailout plan that was imminent (Monday or Tuesday of next week). 

.. and here we go again.  It led to a 250 point reversal in 30 minutes.  Suddenly, the short positions I had put on earlier in the day didn’t look like such a good idea!  In 30 minutes, the market changed from one on the verge of another big break down to one in a state of uncertainty.  As has been the case for much of the past 8 months or so, good technical and fundamental analysis has given way to rumor, Fed speak and news driven rallies.  It remains an incredibly difficult environment to trade and one that I have to continue to recommend staying out of for now.  You’ve seen how difficult it has been for me to pull profits out this year and I eat and breathe this stuff while trading for a living. 

I liked what one member said in an email to me: "It feels like skill is being replaced by luck."  So true.  Of course there is luck involved to successful investing, but it seems much more so in recent weeks.  There will come a time when new leaders emerge and the rumors, Fed speak and big news headlines subside.  When the technicals matter and patterns become more predictable.  When that time comes, there will be extraordinary profit potential.  Take this time to watch and learn.  Maybe read that investing book you’ve always wanted to read, study the tutorial here and the nearly 4 years of Stock Watch report archives to get an idea of what  a great looking chart looks like.  Keep your watch lists up to date (the Hot Stocks screen here at Self Investors is a great place to start!).  Be patient but prepared.

On Friday, Don Worden of Telechart summed up the recent action so well in his notes:

"There is an old saying you seldom hear anymore: "The market knows." It is generally uttered in kind of a spooky, ghostly tone. But it would mean the same thing even if somebody like the late Judy Garland were belting out the ghostly lyrics. It means that the market is clairvoyant. It often behaves in a way that convinces traders it must have known all along what was going to happen. 

     It is something the market has repeated very often–over the years. And nobody has ever been able to explain it, although many think they know. However, if I know anything about ghosts, they are very "shut mouthed." They don’t give away many secrets.  I think it’s possible that I’ve never encountered a market that lacks intuitive insight to the degree this one does. It’s clear the market spends most of the time bewildered these days. This obviously means the ghosts themselves are confused. Maybe they went on strike with the writers and are refusing to come back.
     In the meantime, the rest of us mortals are forced to think for ourselves. All we can do is try not to lose money until the market or the ghosts lurking about make a mistake and inadvertently drop a clue.

     That was an impressive move during the last half hour today. The problem is that was an ominous move yesterday. And a bullish move the day before that. And so it’s been. Each day the market puts on a show for us, delivering a believable clue that soon falls apart–or more often is just forgotten. "

Let’s turn to the charts.  Perhaps they provide us with some clues (or not!)

Like all the indices, the Nasdaq too was left for dead heading into the last 30 minutes of trading on Friday.  It broke down below the wedge formation in convincing fashion before staging that massive late day  reversal.  Notice how it just got back to the point of resistance/support of that bottom short term trend.  Are we bearish or bullish here?  It’s just damn tough to tell at this point.  We do appear to be breaking down in the short term but with the bulls having an outside chance to still break out from the top of the wedge, given Friday’s high volume reversal.  It’s entirely possible that Friday’s lows just marks the bottom of a wider triangle formation, but at this point I have to give the nod to the bears.  It took a massive rally based on speculation of a deal getting done with Ambac and a whole helluva lot has to happen for that to work out.  With all of the deteriorating economic news and rising inflation, the bulls are pinning their hopes on a bail out of bond insurers.  The bulls have legs to stand on, but I’m darn certain it’s less than 4.

Notice that the S&P really took out that wedge on Friday with the massive rally just getting it back to resistance of the wedge.  It just looks like this market is going to need to see a massive follow through very early in the week next week for Friday’s move to mean anything.  Again, Friday’s lows could just mark the bottom of a much wider wedge formation, but regardless, we’re going to need to break out of the top of the formation to avoid a retest of the January lows.

The Dow looks better than the S&P and Nasdaq do and was able to get back inside that wedge but lets remember that the Dow isn’t the best representative of the overall market.

The bottom line is that this market remains a big uncertainty with no trend, little leadership (commodities) and a flurry of upcoming important economic events (PPI, GDP, housing numbers).  Not to mention a speech from Bernanke on Thursday to contend with.  This market is probably ready to explode very soon, but which way remains to be seen.  It’s best to stay out until a firm sense of direction is resolved.

::: Model Portfolio :::

** This section will now appear as a separate report to be published every other Wednesday. 

The Self Investors Model Portolio wrapped up 2007 with a 30.2% gain.  Would you like to receive buy and sell alerts within minutes (NEW! now get them via instant messaging in near real time) of each transaction in the portfolio?  You can receive these along with ALL of the tracking tools and reports with the very popular Gold membership.  Don’t delay, get started today and join me for many more highly profitable months here at SelfInvestors.com.

::: Best/Worst Performers :::

- Top 10 Performing Industries For the Week -

1. Internet Service Providers: 10.75%
2. Steel & Iron: 8.15%
3. Wholesale – Other: 7.80%
4. Aluminum: 7.60%
5. Copper: 7.25%
6. Gold: 7.15%
7. Technical Services:  6.05%
8. Meat Products: 6.05%
9. Heavy Construction: 5.95%
10. Diversified Computer Systems: 5.75%

- Top 10 Worst Performing Industries For the Week -

1. Toy & Hobby Stores: -7.65%
2. Sporting Activities: -6.70%
3. Consumer Services: -5.75%
4. Apparel Footwear: -4.95
6. Rental & Leasing Services: -4.65%
7. Manufactured Housing: -4.50%
8. Personal Computers: -4.25%
9. Drug Delivery: -4.20%
10. Security Software & Services: -4.20%

- Top 5 Best Performing ETFs For the Week -
 
1. Herzfeld Caribbean Basin (CUBA) 22.35%
2. Market Vectors Steel (SLX)  7.60%
3. Asa Gold (ASA) 7.40%
4. Ishares Brazil (EWZ) 7.30%
5. Market Vectors Gold Miners (GDX) 7.15%

- Worst 5 Performing ETF’s -

1. HOLDRS Telecom (TTF) -6.20%
2. Ishares Telecom (IYZ) -5.45%
3. iPath India (INP) -5.30%
4. SPDR Biotech (XBI) -4.80%
5. Powershares Clean Energy (PBW) -4.75%

:::  IPO’s Worth Watching for This Week :::

This section will now appear as a separate post on Mondays (if there are some interesting IPO’s coming to market).

While 2008 should be a much slower year for IPO’s considering the deterioration of the market, there will continue to be some good companies coming to market here and there.  I’ll be highlighting the best IPO’s every Monday.

::: Upcoming Economic Reports (2/25/2008- 2/29/2008) :::

Monday:         Existing Home Sales
Tuesday:       PPI, Consumer Confidence
Wednesday:  Durable Orders, New Home Sales, Crude Inventories
Thursday:      GDP, Initial Claims
Friday:            Personal Income/Spending, Core PCE Inflation, Chicago PMI

::: Earnings I’m Watching This Week :::

Monday:
Henry Schein (HSIC), Donaldson (DCI), Focus Media (FMCN), LDK Solar (LDK), Shanda Interactive (SNDA)

Tuesday:
China Fire & Security (CFSG), Foster Wheeler (FWLT), Home Depot (HD), Internet Gold (IGLD), Natus Medical (BABY)

Wednesday:
Amedisys (AMED), Toll Brothers (TOL), LifeCell (LIFC), Central European Distribution (CEDC), Ctrip.com (CTRP), Flowserve (FLS), Gmarket (GMKT)

Thursday:
Arena Resources (ARD), Chart Industries (GTLS), Flour (FLR), Rowan (RDC), American Intl (AIG), China Finance Online (JRJC), China Medical Tech (CMED), Comp Vale Do Rio (RIO), Deckers Outdoor (DECK), Grant Prideco (GRP), Hansen Natural (HANS), Heico (HEI), SW Energy (SWN)

::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::

1. Goldcorp (GG) Breaking Out After Blowing Out Estimates, Vasco Data (VDSI) Crushed Again

2. Axsys (AXYS) Breaks Out to All Time Highs, Suntech (STP) Blinds Solar

3. The Coal ETF, Gold / Agriculture Topping? Time to Play Financials / Homebuilders?

In perhaps one of the most volatile years of trading we have seen in a very long time, today’s action was nothing more than a microcosm.  It was a jeckyll and hyde kind of day with the market plummeting early on after a big loss from Merrill, a miss from Amazon and like clockwork.. another poor housing number.  Given the intensity of the selling volume early on, it looked as if we would end down big.. perhaps bigger than Friday.  Inexplicably, the bleeding stopped, support was found and buyers (and short covering) fueled an end of day buying frenzy that nearly wiped away all of the losses.  Perhaps the wild volatility is just another clue that major top is being put in, but in the shorter term today’s reversal indicates further strength ahead.  Remember: bull markets die hard.  I don’t think today’s reversal was strong enough to spring up to test the highs again but we could push back to Dow 14,000 and SP500 1550.  However, while short term strength is highly possible from here, I’m still highly recommending caution up here.  Do not hold stocks through earnings, do not initiate large positions and absolutely do not use margin.

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day October 24th 2007

Nasdaq: DOWN .88% today with volume 37% ABOVE average
Nasdaq ETF (QQQQ) DOWN .76%, volume 133% ABOVE average
Dow: DOWN .01%, with volume 20% ABOVE the average
Dow ETF (DIA): UP .06%, volume 62% ABOVE the average
S&P ETF (SPY): DOWN .18%, volume 83% ABOVE the average
Russell Small Cap ETF (IWM): DOWN .65%, volume 42% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks performed about in line with what the Nasdaq did, so weaker than the broad market today.

Summary:

* Decliners led Advancers 240 to 132
* Advancers were up an average of 1.54% today, with volume 21% ABOVE average
* Decliners were down an average of 2.08% with volume 23% ABOVE average
* The total SI Leading Stocks Index was DOWN .8% today with volume 22% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Gold, Internet Infrastructure, Gold Miners, Software, Agriculture
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Retail, Consumer Discretionary, Homebuilders, Semis

* Today’s Market Moving Industries/Sectors (UP):
Energy, Commodities, Utilities

* Today’s Market Moving Industries/Sectors (DOWN):
Internet, Semis, Broadband, Semis, Networking

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  Today’s stock is Intercontinentalexchange (ICE), a highly rated exchange stock (a group that is on the move once again)

ABOUT: 

IntercontinentalExchange, Inc. operates as an electronic global futures and over-the-counter (OTC) marketplace for trading an array of energy products. It also operates as a soft commodities exchange. IntercontinentalExchange offer an integrated electronic platform for side-by-side trading of energy products in both futures and OTC markets. Through its electronic trading platform, the Company’s marketplace brings together buyers and sellers of derivative and physical commodities contracts. IntercontinentalExchange also offers open-outcry trading in Board of Trade of the City of New York, Inc (NYBOT) regulated futures and options markets. The Company conducts its OTC business directly and its regulated energy futures business through its wholly owned subsidiary, ICE Futures. It operates in three segments: energy futures, OTC and market data. On January 12, 2007, it acquired NYBOT. In July 2007, the Company acquired ChemConnect, Inc.’s commodity trading business.

FUNDAMENTALS: 

IntercontinentalExchange (ICE) is a company that (with the exception of 2003) has posted exceptional growth in each of the past several years.  The company posted its first profitable year in 2001 and since that time has posted year over year earnings growth of 125%, -61%, 67%, 140% and 150%.  The company isn’t expected to continue that accelerating growth but is still expected to post growth in the 40 – 50% range both this year and next.  Not too shabby at all.  With net margins at 45% and return on equity at 25% (although has dipped in the past year), it’s clear that ICE continues to exhibit all the characteristics of what I would call a home run stock.

TECHNICAL:  

There is no better day than today to feature IntercontinentalExchange (ICE).  The stock broke out of a long double bottom base today to new all time highs with good volume behind it.  Considering this is a 2nd stage base, this is a stock that has considerable room to run.  How far will largely depend on its earnings report tomorrow morning, but I expect the company to once again report excellent results and the stock to continue moving higher even if it dips a bit after earnings.  If there is a negative (and you can usually find one!), it’s that the middle peak of the double bottom base is much too high in the formation, making it a bit more prone to failure.  To reduce the risk in these kinds of situations, I like to let the stock break out and see how it pulls back.  If it breaks out with strong volume, then pulls back with light selling volume, your entry is far less risky than buying at the initial breakout.  Sure you may miss it, but who cares.  There are plenty of other opportunities out there!  ICE is one of my favorites.  It’s near the top of my watch list and should certainly be at the top of yours!

SELFINVESTORS RATING: With a total score of 51/60 (27/30 for fundamentals, 24/30 for technical), IntercontinentalExchange (ICE) is a top SelfInvestors breakout candidate.

Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation.  Please do your own research and make a personal decision based on your own tolerance for risk.  I currently do not own a position in ICE but will consider one after it posts earnings tomorrow.

Today was yesterday, it was Ground Hog’s Day.  Nothing changed and everything is the same except for one thing which I’ll get to in a minute.  Just like yesterday, decent economic data wasn’t enough to overcome the credit concerns.  A fairly tame reading on CPI and healthy regional manufacturing (even news of Buffet buying some BAC) weren’t enough to offset the daily dose of downgrades and credit concern comments.   Today was Ground Hog’s Day but with a change in strategy.  It’s time to begin paring back short positions and keeping the eyeballs peeled for opportunity on the long side.  Not long term opportunity, but bounce opportunity in the short term on the long side.  Let’s go to the charts:

The Dow has hit major support here at the 200 day moving average and the upward trend line around 12800 but as we’ve seen with major support levels in both the Nasdaq and S&P, the momentum to the downside puts this major support level at risk.  However, I think we are getting closer and closer to a significant bounce in the market.  What I’ll be doing at some point tomorrow is paring back short positions and begin looking for the best long opportunities to dabble in.  I continue to believe that the best place for most investors right now is cash.

The Nasdaq took out very important support around 2500, setting it up for a test of the next level of significant support around 2350 at some point, which is the neckline of a large head and shoulders topping formation.  Before that happens though we should get a sizable bounce to test resistance at the area around the top of the shoulder and 200 day moving average (~2525).

The S&P is much closer to the next key level of support around the neckline of a big head and shoulders formation.  I still think we’ll test resistance before it hits that level but I certainly wouldn’t be making large bets that that will happen.  As I mentioned above I’m paring back short positions and "looking" for good bounce plays on the long side.

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day August 15th 2007

Nasdaq: DOWN 1.6% today with volume 2% BELOW  average
Nasdaq ETF (QQQQ) DOWN 1.9%, volume 46% ABOVE average
Dow: DOWN 1.29%, with volume 4% ABOVE the average
Dow ETF (DIA): DOWN 1.26%, volume 47% ABOVE the average
S&P ETF (SPY): DOWN 1.38%, volume 54% ABOVE the average
Russell Small Cap ETF (IWM): DOWN 1.45%, volume 27% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks were hit hard again today as small to mid caps bear the brunt of the selling, but the selling wasn’t particularly intense again today.

Summary:

* Decliners led Advancers 303 to 39
* Advancers were up an average of 1.41% today, with volume 6% ABOVE average
* Decliners were down an average of 3.17% with volume 4% ABOVE average
* The total SI Leading Stocks Index was DOWN 2.65% today with volume 4% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Just Bonds!
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Broker/Dealers, Financial, Utilities, Materials, Semis

* Today’s Market Moving Industries/Sectors (UP):
None

* Today’s Market Moving Industries/Sectors (DOWN):
Homebuilders, Gold Miners, Transports, Materials, Water Resources

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  Today’s stock is LKQ Corp (LKQX), which broke out of an ascending base and quickly shot up 20% before retracing the entire move during recent market weakness.

ABOUT:  LKQ Corporation is a provider of recycled light vehicle original equipment manufacturer (OEM) products and related services. The Company is also a provider of aftermarket collision replacement products and refurbished wheels. LKQ Corporation operates over 100 facilities offering its customers a range of replacement systems, components and parts to repair light vehicles. It participates in the market for recycled OEM products, as well as the market for collision repair aftermarket products. LKQ Corporation obtains aftermarket products and salvage vehicles from a variety of sources.
FUNDAMENTALS: KNXA is a very small company (just over 100 million in sales last year) but one that is experiencing a big growth spurt since first becoming profitable in 2005 when the company posted earnings of .40/share (compared to a loss of .22/share a year earlier).  The company continued the earnings momentum  last year by posting earning growth of 140%.  This kind of growth isn’t expected to continue but estimates do call for growth of around 30% over the next couple years.  Net margins are solid at around 13%, but ROE isn’t impressive at 8% and has been declining in the past couple years.  All in all, this is a very good company but not what I would consider elite.

FUNDAMENTALS:  LKQX is a company with a long history of growth.  In fact, since turning profitable in ’01, it has posted impressive growth of 155%, 43%, 15%, 37% and 27% over the past 5 years and is expected to continue to post growth of 25 – 30%.  This is organic growth behind strong sales.  On the margin front, the company is just OK with net margin just above the industry average at 6%.  Return on equity is solid at 12% and continues to rise year after year indicating strong management. 

TECHNICAL:  LKQX gapped up out of a cup with handle base on July 17th with record volume to new all time highs, paused in a short flat base then surged again another 20%.  During this market correction, the stock has digested all of that 20% move and could go a bit lower from here, offering an ideal entry point.  Sell volume still remains above average, so until sellers are showing signs of abating I’d avoid the stock.  However, when that time comes I believe it will offer an outstanding entry, perhaps near the 50 day moving average around 27.

SELFINVESTORS RATING: With a total score of 50/60 (26/30 for fundamentals, 24/30 for technical), LKQ Corp (LKQX) is a very good breakout play.

Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation.  Please do your own research and make a personal decision based on your own tolerance for risk.  I currently own a small position in LKQX and will be looking to add a little more when this pullback is complete.

You won’t ever hear that the LBO boom is over or that the depreciation in housing is reaching levels not seen since the Great Depression from the Fed or any government official for that matter.  The truth might be seen as irresponsible, sending markets tumbling across the world.  So, the Fed has been carefully spoon feeding us the truth by transitioning from telling us that the subprime / housing issue was contained to finally acknowledging that the subprime and housing issue has deteriorated and is worse than expected.  So Bernanke told us last week.  Today, the sugar coating was removed as PIMCO’s Bill Gross and Countrywide Financial CEO Angelo Mozilo told us how they really feel. 

From Bill Gross:

" Both borrowers and lenders may have bitten off more than they can chew, and even those that swallow their hot dogs whole – Nathan’s Famous Coney Island style – are having a serious bout of indigestion.’

‘That growing lack of confidence – more so than the defaults of two Bear Stearns hedge funds and the threat of more to come – has frozen future lending and backed up the market for high yield new issues such that it resembles a constipated owl: absolutely nothing is moving.’

‘The tide appears to be going out for levered equity financiers and in for the passive owl money managers of the debt market."

"No longer therefore will stocks be supported so effortlessly by the double-barreled impact of LBOs and company buybacks. The U.S. economy in turn will not benefit from this tidal shift and increasing cost of financing. The Fed tightens credit by raising short-term rates but rarely, if ever, have they raised yields by 150 basis points in a month and a half’s time as has occurred in the high yield market."

Bill Gross’ entire August outlook is a  good read, check it out.

.. and from Mr. Doom, Countrywide CEO

"During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result. Due to these adverse conditions, the Company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home equity loans."

Perhaps we can no longer call this just a subprime issue!

"We are experiencing home price depreciation almost like never before, with the exception of the Great Depression"

Did he say the Great Depression?  Perhaps a poor choice of words that may have spooked the markets a bit more than need be, but you get the idea… the housing market isn’t recovering anytime soon.

Today’s remarks certainly instilled some fear in the minds of traders, but it really isn’t anything all that new.  It’s just that after shrugging off bad news after bad news (which is what happens in a bull run), the bulls finally relinquished and today, for whatever reason, the news mattered.  The selling was significant enough to create a change of character in this market, possibly creating a market of opportunity sellers rather than a market of dip buyers as we’ve seen over the past several months.  That remains to be seen.  It’s important to realize that while technically this market has some problems, all indices retain key The S&P took out the 50 day moving average and dropped a hair below its upward trend line and the Russell 2000 is already fast approaching its 200 day moving average.   Both the Dow and Nasdaq have a bit further to go before testing key support levels.  The area around Nasdaq 2620 and Dow 13600 will certainly be watched closely

After the bell, Amazon reported another blow out quarter and was up 20% after hours at one point, but it may not be enough to stem the red tide tomorrow.  All in all, if you weren’t playing conservatively before today, you certainly should be now.  Preserve that capital!

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day July 24thth 2007

Nasdaq: DOWN 1.89% today with volume 24% ABOVE average
Nasdaq ETF (QQQQ) DOWN 1.48%, volume 47% ABOVE average
Dow: DOWN 1.62%, with volume 24% ABOVE the average
Dow ETF (DIA): DOWN 1.39%, volume 45% ABOVE the average
S&P ETF (SPY): DOWN 1.73%, volume 78% ABOVe the average
Russell Small Cap ETF (IWM): DOWN 2.39%, volume 96% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Small caps were hit the hardest today, so it’s no surprise that Leading Stocks were hammered as well.  The AVERAGE percentage decline in leading stocks was over 3% today!  I don’t recall ever seeing that since I started tracking this information.

Summary:

* Decliners led Advancers 365 to 31
* Advancers were up an average of 1.57% today, with volume 68% ABOVE average
* Decliners were down an average of 3.08% with volume 34% ABOVE average
* The total SI Leading Stocks Index was DOWN 2.71% today with volume 37% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days): 
Basic Materials, Clean Energy, Networking, Technology, Gold Miners, Software
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Broker Dealers, Home Construction, Financial, Banks, Homebuilders

* Today’s Market Moving Industries/Sectors (UP with volume):
Agriculture

* Today’s Market Moving Industries/Sectors (DOWN with volume):
Homebuilders, Global Equity Dividend, Nanotech, Utilities

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation. 

Sorry, no stock of the day today.