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Contributors: Douglas McIntyre Jon C. Ogg

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Monday, August 28, 2006

Stock Screen Alert: Spyders and Diamonds

Normally we run many stock searches looking for potential break-outs. After a post-weekend market search and not really knowing until yesterday where the most likely path of Hurricane Ernesto would hit, there was an interesting data piece that set off an "approaching the highs" search for potential break-out stocks.

This is one we run from time to time for individual stocks that may not be on a radar screen yet, but the funny thing is that the screening gave an alert for the Spyders (SPY) and Diamonds (DIA) as they started rallying this morning on relief that the oil and gas wells in the Gulf of Mexico would be spared by Ernesto. As most of you know, these are the S&P 500 Index Depository Receipts and the Depository Receipts for the DJIA. It probably goes without saying that this didn't seem nor did it feel like the case by the way the tape has been trading.

The Spyders (SPY) are trading up 0.6% at $130.62, which is now only 1.65% under the $132.80 high this year. The Diamonds (DIA) are also up 0.6% at $113.56, which is only
2.7% under the $116.80 high this year. We ran the NASDAQ 100 Trust, the Q's, (QQQQ) and they are way off the highs at $38.62, which is about 10.8% under the $43.31 highs this year.

The various index searches often follow each other when you consider the fact so many components and sectors are intermingled among all 3 index readings. It needs to be said that these levels will be important to watch because this week will likely be the thinnest trading volume all year. Many traders also brace every year for a September through early October downward trend (if you believe in calendar-based trading models). so if these markets rally too much from here on thin volume while the A-Team traders are in the Hamptons and elsewhere, then there may be some built-in expected profit taking levels.

We do not subscribe to any purist calendar-based trading models as much as fundamental/technical approach most of the time, but it would be reckless to at least not notice this and to not acknowledge it. We'll have to see when the A-Team players get back next week just how much conviction they are willing to give to the "Fed's successfully engineered soft landing" theme that the market seems to pricing in.

Jon C. Ogg
August 28, 2006
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