Looking to Go Higher . . .

Buy with stop loss. After more than six consecutive months trending lower, markets are finally ready for a more sustained upmove. Since our first sell of this year (on Jan 3), we have largely maintained a bearish position, as the NASDAQ has come down nearly 40% through today's low. While we have been able to keep investors on the sidelines for the majority of this time, even eeking out a slight gain through one of the three brief rallies the market has seen this year, last month's buy call broke down, proving to be a few weeks premature as the NASDAQ fell through support in the mid-1500s.

We have now arrived at an even stronger bullish position. The executable buy signals that we had warned in June were not as prevalent as we typically like to see them are now present in abundance. Our models are still giving us over a 15:1 bullish to bearish ratio, and our proprietary strength factor reached over 300 on Wednesday, which along with several other factors, was enough to give us a strong buy. We believe that the market will be trending up strongly from here over the next few months, and it is now time to take advantage of many of the inexpensive opportunities in the market. Some of the particularly hard hit areas which should show tremendous price appreciation in the near future include semiconductors, biotechs, and optical networking, but we expect all the sectors we follow to participate in this upside.

Movin' on Up . . .

Buy. The NASDAQ has dropped more than 10% since our May 15 sell call and, along with many of its sub-sectors, today reached its lows for the year. Since our intial major sell call on January 3 of this year, we have watched this index drop 500 points, or about 25%, erasing more than two-thirds of the gains picked up in the fourth quarter of last year. Accordingly, the sentiment in the market has been getting more and more bearish. The American Association of Individual Investors (AAII) bi-weekly market sentiment survey registers the percent of bullish and bearish investors at 28% and 40%, respectively. This is the most pessimistic view investors have given all year, and it is a sign that the fear which is usually necessary to form a bottom is beginning to take hold.

The market turned around today on moderate volume as it reached the support level it bounced off of earlier this month. As prices have come down, our models have become more and more bullish, and at this point we have bullish signals on three-fourths of the stocks in our database. Today alone, bullish signals registered on more than a third of the stocks we follow. The ratio of bullish to bearish signals is more than 30:1, and our proprietary strength factor stands at nearly 300 on the bullish side (a value of more than 150 bullish or bearish is indicative of a buy or a sell, respectively, if other criteria are met). This is the strongest bullish signal we have seen since our buy call of September 19.

We believe it will be difficult for the market to break below its current support in the near term and that prices have begun to rebound. Our one caution comes to us because we do not quite have the volume of executable signals that we like our models to give during a buy. This could mean that after rising 5-10%, the market will turn back down temporarily before beginning its full upswing. The strength of our proprietary index is overwhelming, however, and this buy is likely to hold.

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