Market Summary

Nasdaq Market Signal Switches to 'Enter'

Because the NASDAQ is more volatile than the DJI and S&P 500, our market model is very conservative about when to recommend re-entering the market. To avoid false signals and subsequent whip-lashing, the model requires that the index be above its 200-day moving average before declaring a follow through day. That hurdle was overcome this week and our model signaled an 'enter'. That resistance point now becomes a support level and it was tested on Friday following the release of the housing data, but recovered to close above the 200 dma.

We continue to be cautious about the rally because the signs are that the economy is continuing to weaken despite the bullish spin put on Friday's housing starts numbers. A more sanguine view was presented on Barry Ritholz's blog where he asked the question "Does this look like a bottom to you?". If you look at the chart he presents I think you'll agree that the housing crisis still has further to go and its effects will continue to be painful on main street. The mortgage banks and other Wall Street players are backstopped by the Fed, which continues to expand the money supply, so we repeat the view we expressed two weeks ago that the market's will continue rise. However, there are encouraging signs that there may be help on the way for delinquent homeowners. Nouriel Roubini favors the Frank-Dodd mortgage bailout plan and reports that a broad consensus is emerging among economists of the left and right that something along the lines of Dodd's plan should be enacted. Regardless of one's views on the merits of the plan, if it does come to pass, then the recession will be less deep than it otherwise might have been, which is also positive for equities.

The number of breakouts continues to increase with thirty-nine confirmed this week compared to the three month average of just 21.

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