Vicki Mannarino | Willoughby Hills, OH

Here is a snap shot of a portion of my “talk” at a recent Raymond James Financial Services conference.

Following the markets “bottoming process” in 2002 and after the DJIA had violated a major up trend line in late 2001, I continually discussed that the major market indices had entered a period of “Normalcy.” I defined this as a multi-year period of lateral (sideways) price action. During this “structurally fair” period in which both the “Bull” and “Bear” will have the opportunity to profit, in order to improve portfolio performance a change in "tactics” was necessary. What this entailed was a much more pro-active mindset, versus a “buy-hold and forget about it” approach. I discussed this opinion in my reports, conference calls, and client seminars until late 2004.

While this observation bothered some of the people I shared this seemingly “Off the wall – ARGH – You’re an idiot” opinion with, my intention wasn’t to offend them. My intention was to explain that a multi-year, decade long (secular) period of sideways action by the major market indices was completely consist with the history of the stock market.

As one Wall Street veteran (Art Cashin) labeled it: “16 18 Year Cycle Phenomenon: “Fat Cycle” = Throw a Dart… “Thin Cycle” = Indices Volatile, a Lot of Action, but No Progress.

* This was not “The” Peak (Sept. 1929) but it was “A” peak after a 24% top side rally

In attempting to put the 1966 to 1982 “Thin” cycle shown above, into perspective, there were six separate cyclical bull trends with an average gain of approximately 41%. During the same period, the average cyclical bear trend recorded a decline of approximately 25%. Clearly, both the “Bull” and “Bear” had the opportunity to prosper.

I still believe we are in the midst of such an environment, evident by the current chart of the S&P 500 (SPX).

However, in certain segments of the market there has been “stealth bull moves,” evident by the chart shown below of the S&P Small Cap 600 Index.

Consistent with a “structurally fair market” and in order to service clients, during which a more pro-active “tactical” asset allocation approach will add value, based on relative strength analysis, following are some suggestions. Relative strength measures the price performance of a stock or index versus a market average or universe of stocks. A stock’s or indices relative strength can improve if it rises more than the market average or universe of stocks in an uptrend, or goes down less than the market average or a universe of stocks, in a downtrend

If your business is dominated by mutual funds, until I see a change in the relative strength trends of the indices that represent these style sizes, I would lean first towards the Small Cap universe, closely followed by the Mid Cap universe!

“Growth” is sitting in the “cat bird seat,” across all style sizes. Yet a blend of Growth and Value, in the Small Cap arena wouldn’t hurt.

(My daily report or the Sector Spotlight report can be used for a more “micro” perspective)

Intriguing (improving): Industrials (transportation), Consumer Discretionary

Side Note: While the long-term relative strength trend of the Energy sector is still above a long-term uptrend line, a short-term relative strength trend line has been violated. This, combined with a tremendous amount of overhanging selling pressure, which is pretty much the case with the entire commodity complex, implies that the Energy (and commodity) complex has a tremendous amount of short to intermediate term “chart, repair work” ahead!

I would have a smaller “slice” of International exposure and increase my “slice” of U.S. (domestic) exposure.

In light of a multi-year down trend that had been in force and consequently numerous levels of selling pressure, sharp moves down (and up) by the U.S. Dollar Index should be expected. However, following a multi-month basing period, “good things” are developing for the U.S. Dollar Index. Whether it is through the mutual fund universe or exchange traded fund universe or stock market, I would have some exposure that benefits from an improving technical condition surrounding the U.S. Dollar Index.

Side Note: 1) a rising U.S. Dollar could continue to pressure the commodities market.

In my opinion, many (not all) Financial charts, over the next 3, 5, and 10 years, will look like the following...

Please separate the stock (chart pattern) from the company (Wall Street’s fundamental opinion).

Thursday Morning 08/28

Following Tuesday’s very short-term bullish one-day upside reversal by Crude Oil, that occurred right around initial support between $111.15 and $110 (200-DMA and a string of short-term lows), Crude Oil followed through to the upside yesterday morning. Initial resistance for Crude Oil ($118.15) exists at $122.04. However, a move towards $129.30 is very realistic as it represents a 50% retracement of the recent five week decline. Consistent with this, the Oil Service Index (OSX/303.36) could revisit its declining 50-DMA and/or bearish resistance line (derived from a Point & Figure chart) of between 316 and 324.

That being said, the rally in energy prices pressured the futures market. Consequently, the DJIA fell 31 points right out of the gate. However, market participants decided to focus on the positive Durable Goods report. After the early decline, the “senior index” caught a bid and was up 142 points shortly after noon. Very strong intraday advance – decline readings implied that the gains would hold and for the most part, they did. The DJIA gained 90 points or 0.80% and the NASDAQ rallied 20.50 points or 0.90%. Mid and smallcap stocks continued the trend that has been in place for the past eight months and outperformed their big-cap brethren. On the NYSE, volume contracted again to 817 million shares. There were 1684 net advancing issues (traditional figures found in the WSJ). My common-stock-only A-D readings were also strong.

I had recommended a number of trucking stocks recently, many of which, after a “small to decent” rally sold off and triggered stop loss points. A recent fundamental downgrade and higher energy prices (see potential upside levels for Crude in paragraph one) have pressured the trucking group further. This caused the following Dorsey-Wright sector index, see following chart, to break down:

Conclusion:

In light of a number of cross-currents (trend line breaks, no leaderships, negative MACD cross over, holiday trading, month of September, etc.), I am going to use the resistance and support levels shown on the following chart, as short-term inflection points.

Company Name

Ticker

Priced as of

08/28/08

RJ&A Rating

(if Applicable)

Cisco Systems

CSCO

$24.66

Market Perform

General Electric Company

$28.83

Intel Corporation

INTC

$23.59

Strong Buy

Pfizer Inc.

PFE

$19.27

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Weekly Technical Commentary by Art Huprich

Friday Morning 08/29

Thursday Morning 08/28

Conclusion: