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Monday, August 14, 2006

Interpreting the Major Averages

By Yaser Anwar, CSC of Equity Investment Advisors

The DIA has failed to make break through resistance on Fed rate hikes, a majority of rallies fail, exhibiting lack of relative strength & market breadth.

The transports have been in a downtrend for about 6 weeks now. Based on the TMFI (Twiggs Money Flow Indicator) there has been distribution due to the hiccups of UPS, followed by FDX. Transports is one of the main gauges of economic activity and has been going down.

The 50-day MA of the QQQQ was strong enough to prevent the bulls from pushing the index higher and it also remains a very influential factor in determining the short-term direction of prices. The Nasdaq 100 has remained below 0 on the TMFI (below 0 means bearish trend) exhibiting distribution due to lack of IT spending by corporate consumers.

The S&P 500 has failed to break through resistance at 1275. The lack of market breadth and relative strength has the bears tugging the market towards their side. We need to see a break-out above 1275 to be bullish, otherwise the S&P will meet support around the 1230 level.

Risks related to energy seem to be resolved for the time being due to peace, for the time being in MidEast, its anyones guess how long that will remain. Long-term yields push higher due to inflationary pressures.

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