Market Needs Rest Before Tackling Double Top

Phew, what a week! After all that .. the inflation data, the Fed decision, OJ Simpson and some triple witching the bulls have emerged as the victor of the battle, but have they won the war? Not yet. As the major indices approach those July highs the threat of the dreaded double top looms. Before I can be convinced that another major rally is in the cards, the indices will need to take out those highs convincingly. I think before that can become a reality, there needs to be some kind of consolidation of the recent rally in order to coil the spring for a valiant go at a big breakout. I want to see some kind of retracement of the move off the bottom in August with declining volume which would offer an opportunity to get a bit more aggressive on the long side. With the euphoria of the Fed move wearing off and the initial surge of short covering largely depleted, the market may just get a good rest over the next week or two before we get into the bulk of earnings.

The chart of the Nasdaq below shows there is a bit of breathing room before it smacks into major resistance at those July highs. We’ll have to keep a close eye on those levels and see how the market reacts as it could be long term failure point. Given the action of this Fed, I don’t think that will happen but it’s something to keep an eye one. Note the steep upward trend over the past month which will provide an initial source of support.

The S&P is nearing that big resistance point as well but has a bit of room to run. Again, that is a steep upward trend over the past month and I think we need to at the very least retrest that trend line before heading higher so getting aggressive on the long side up at these levels is a bit too risky in my opinion.

The Dow is much closer to those July highs (which are all time highs) and we may just hit those sometime this week. The upward trend isn’t as steep in the Dow, but I believe also needs to at least retest that trend line before having a serious go at taking out those all time highs.

::: Model Portfolio Update :::

Every couple of months or so, there is what I would call a major shift in the portfolio from short to long or long to short. Considering I was treading lightly with just a few long AND short positions and evenly balanced on either side, I wouldn’t call last Tuesday a dramatic shift in the portfolio, but I certainly acted quickly and decisively by closing out my four small short positions immediately following the Fed decision. I don’t regret holding a few short positions ahead of the Fed and still believe that if they had cut by 25 basis points like everyone expected, the market would have ultimately sold off. I was caught leaning the wrong way, but that’s OK. The damage was minimized and the portfolio was still able to score a good 2% gain during the week, led by the almighty Google surging to new all time highs (a core holding in the portfolio) and helped by 3 new long positions in top IPO’s. After closing my 4 short positions in United Online (UNTD) for a 7% gain, Praxair (PX) for a 3% loss, Tenaris (TS) for a 5% loss and Ashland (ASH) for a 5% loss I’m left with 5 long positions and won’t get more aggressive on the long side until one of two things happens. This market digests recent gains quietly, pulling back a few percentage points OR the market breaks out above those July highs. The Self Investors Model Portfolio year to date performance increased to 10.9% and the allocation stands at 37% long, 0% short and a large 63% cash position.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Metal Fabrication: 9.85%
2. Silver: 9.60%
3. Nonmetallic Mineral Mining: 9.40%
4. Copper: 9.35%
5. Housewares & Accessories: 9.20%
6. Steel & Iron: 8.75%
7. Gold: 8.65%
8. General Entertainment: 8.00%
9. Industrials Metals & Minerals: 7.95%
10. Agriculutural Chemicals: 7.60%

– Top 10 Worst Performing Industries For the Week –

1. Sporting Goods: -5.00%
2. Long Distance Carriers: -4.80%
3. Toy & Hobby Stores: -4.25%
4. Manufactured Housing: -2.85%
5. Processing Systems & Products: -2.60%
6. Broadcasting – Radio: -2.45%
7. Trucking: -2.30%
8. Auto Dealerships: -2.05%
9. Medical Practitioners: -2.00%
10. Insurance Brokers: -1.80%

– Top 5 Best Performing ETFs For the Week –

1. Morgan Stanley China (CAF) 11.00%
2. PowerShares Golden Dragon (PGJ) 9.70%
3. Market Vectors Steel (SLX) 9.50%
4. Ishares Brazil (EWZ) 8.15%
5. Indonesia Fund (IF) 8.00%

– Worst 5 Performing ETF’s –

1. US Natural Gas (UNG) -1.80%
2. SPDR Homebuilders (XHB) -1.30%
3. SPDR Consumer Discretionary (XLY) .60%
4. Ishares Transports (IYT) .70%
5. Ishares Health Care (IHF) 1.00%

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

1. Duff & Phelps (DUF): provides financial advisory services to public and private corporations, investment firms, law firms, and public accounting firms. The company specializes in offering fairness opinions regarding financial reporting, tax valuations, real estate and other asset valuations, and dispute resolution. It also offers investment banking services to companies undergoing mergers and acquisitions, financial restructurings, private placements of shares, or other transactions. Trading set to begin on Friday.

::: Upcoming Economic Reports (9/24/07 – 9/28/07) :::

Monday:         None
Tuesday:       Existing Home Sales, Consumer Confidence
Wednesday: Durable Orders, Crude Inventories
Thursday:      Initial Claims, GDP (final), New Home Sales
Friday:            Personal Income/Spending, Core PCE Inflation, Chicago PMI, Construction Spending

::: Upcoming Notable Earnings Reports :::

Wednesday: Paychex (PAYX)

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

1. Breakout Stocks Review: Top Pick Simulations Plus (SLP)

2. Be Zen, Be Like Ben; Stock of Day: Yingli Green Energy (YGE)

3. Trade of Day – Amtech Systems (ASYS) Breaks Out of Cup With Handle

4. Secondary Offerings & Valuation Downgrades May Offer Opportunity