::: Today’s Market Action :::

During times of market corrections or break outs it’s critical to trust what the charts are telling us and not get wrapped up in emotion.  Based on a few emails from members and some of the commentary on CNBC, it seems many saw the bounce over the few days as a sign that the worst was over and may have had a feeling of "missing out" as the market marched higher, albeit with little conviction or confidence.  Volume levels told a different story and it was just a matter of time before the selling resumed as institutions continue to unwind large positions.  It’s never easy to be sitting on short positions or in cash when a market moves higher several days in a row, but practicing patience and trusting the charts ALWAYS pays off eventually.

On February 27th, the market revealed to us that the bull run was over for the time being and that any bounce up was temporary (often referred to as a "dead cat bounce").  That kind of selling changes the psychology of traders where focusing on bad news becomes the norm.      I mentioned previously that any weak bounce offered opportunity.. an opportunity to raise more cash and/or initiate additional short positions before the next leg down.  The next leg down arrived today with another sizable sell off and all indications point to further selling in the coming days and weeks.  Next stop:  the 200 day moving averages.  Nasdaq ~ 2300, S&P ~ 1350 and Dow ~ 11800.  These levels aren’t too far away.. hold on to your hats!

::: 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 March 13th 2007

Nasdaq: DOWN 2.15% today with volume 8% ABOVE  average
Nasdaq ETF (QQQQ) DOWN 1.94%, volume 33% ABOVE average
Dow: DOWN 1.97%, volume 22% ABOVE the average
Dow ETF (DIA): DOWN 1.73%, volume 50% ABOVE the average
S&P ETF (SPY): DOWN 1.94%, volume 135% ABOVE the average
Russell Small Cap ETF (IWM): DOWN 2.56%, volume 78% 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.  Surprisingly, leading stocks actually didn’t fare too poorly today.  While off, more than 2% volume levels indicated that there wasn’t much intensity behind the selling.

Summary:

* Decliners led Advancers 394 to 39.
* Advancers were up an average of 1.54% today, with volume 52% ABOVE average
* Decliners were down an average of 2.46% with volume 10% BELOW average
* The total SI Leading Stocks Index was DOWN 2.10% today with volume 4% BELOW  the 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 guaging 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/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days): 
Only safehavens utilities and bonds
                                              
* Current Lagging Sectors/Industries (over last 30 trading days): 
Biotech, Banks, Homebuilders, Gold Miners

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

* Today’s Market Moving Industries/Sectors (DOWN):
Broker/Dealers, Gold Miners, Construction, Clean Energy, Home Builders, Regional Banks

::: 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.  Despite all the selling today, there was a bright spot .. in Smith & Wesson (SWHC), a stock that broke out from a cup and handle base today after reporting outstanding earnings and sales growth.

ABOUT:  Smith & Wesson Holding Corporation is a manufacturer and exporter of handguns. The Company manufactures revolvers, pistols, and related products and accessories for sale primarily to gun enthusiasts, collectors, hunters, sportsmen, protection focused individuals, public safety agencies and officers, and military agencies in the United States and throughout the world. It also markets tactical rifles. The Company has manufacturing facilities in Springfield, Massachusetts and Houlton, Maine, both of which are primarily used to manufacture its products. In addition, the Company pursues opportunities to license its name and trademarks to third parties for use in association with their products and services. In January 2007, the Company completed the acquisition of Thompson/Center Arms, Inc., a designer, manufacturer and marketer of hunting firearms.

FUNDAMENTALS:  Smith & Wesson is a company with a fairly erratic history of growth but one that has found some consistency and fantastic growth over the past 5 quarters.  Quarter over quarter earnings have at least doubled in each of the last 5 quarters with quarter over quarter sales growth of around 40%.  Margins aren’t outstanding in a comparison of all companies, but when compared to other companies in its industry, it’s well above the average at around 6%.  Return on Equity is a whopping 28%, indicating strong management.  Earnings growth is expected to be outstanding through 2007 (75%) and 2008 (94%).

TECHNICAL:  Looking at the overall cup and handle base, it’s not a thing of beauty but it may work out.  The shape isn’t bad, but the sell volume in the left side and the fairly weak buy volume in the right side is a bit of a concern, but the high volume gap up break out today is a big plus.  Given current market conditions, I won’t be jumping into this one right now, but it should be near the top ‘o the watch lists for when the market gets back on its feet.

SELFINVESTORS RATING: With a total score of 50/60 (26/30 for fundamentals, 24/30 for technical), SWHC is a high quality break out  stock.

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 Smith & Wesson (SWHC)