NOT ALL IS BAD AS MAJOR INDEXES FIND SUPPORT, OIL DRIFTS LOWER

May 30, 2008

The Dow, Nas and S&P all closed higher today on volume greater than yesterday although it was still well below the 50 dma. While I would have liked to see some more volume today, the Dow and S&P are finding support at their respective 50 dma and the Nas is hugging the 200dma. If it can break through this barrier there is a good chance this market will begin to rally and all those fund managers that have been holding onto their cash will begin to put it to work. The 200 dma is psychologically and technically important as the Nas has already failed there. It we can break to the upside people will feel it is safe to be long and we should continue to go higher. If we fail here again then the shorts will return and try to drive the market down even further.

There are some bullish signs that have me feeling this market could take off at any time. Oil is finally coming down from it’s highs and the dollar is rallying. GDP was revised up to 0.9%. The NYSE short interest ratio is 14.26 so it will take over 14 days for all the shorts to cover at the average daily volume. REgardless, this is not a market to be real bullish or real bearish. Until there is heavy volume accompanying the up days and low volume on the down days I will not get super bullish on this market. It pays to be cautious and hold a lot of cash so when the good times come again you will have a lot of it on hand to put it to good use.

I took a small position in CRY. While the major indexes were selling off on heavy volume last week there was almost no selling going on here. Relative strength continues to go higher and there is nice accumulation going on. The stock is bouncing nicely off the 50 dma on heavy volume.