Market Summary

Our analysis is a little shorter than usual as we are travelling inter-island this weekend.

Last week we said "Market conditions altered in favor of growth and technology stocks .. as interest rates fell and the cost of acquisition and investment declined accordingly." This continued to hold true this week and the NASDAQ Composite was the best performing major index with a gain of 1.13%. This compares to the S&P 500 being almost flat with a gain of 0.07% while the DJI gained 0.55%. The NASDAQ is now the best performing index year-to-date with a gain of 11.85%.

If interest rates continue to fall then this propitious climate for growth and technology stocks will likely continue. Bloomberg reports "Interest-rate futures show most traders expect quarter-point rate cuts at the Fed's next two monetary policy meetings on Oct. 31 and Dec. 11. They assign an 84 percent probability of a quarter-point reduction next month, and 62 percent odds of an additional quarter-point move in December.". While the interest futures traders have been wrong before, the economic slowdown is likely to worsen due to the housing market's impact on the economy so we are likely to see the Fed continue to lower rates to ward off a full-fledged recession. Some commentators are observing a marked change in Fed policy in that they are attempting to get out ahead of a recession whereas under Greenspan the Fed was more reactive than proactive.

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No new features this week.

Technical Strength more important than Fundamentals in the Current Market

Breakouts continued to comfortably exceed the performance of the major indices with an average gain by weeks end of 3.83%. Several made gains over 5% and these also made some impressive intraday highs. Note that they were all from a cup-with-handle base and none of them had our highest fundamental ranking (see CE Zone column) . Regular readers will know that we always emphasize technicals over fundamentals and this once again illustrates our point.

For a discussion of factors that affect breakout success and performance after breakout, see our newsletter of 1/13/07.

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