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Market Trends - 8/1/2007

Generally, I believe it is best to begin with the big picture in mind and then work our way down to weekly and then daily views of the charts. You will notice that the chart and the value of the indicators change as we move from a monthly to a weekly and then a daily chart. This is a normal part of the technical analysis.

Let's start with the long term view of the S&P 500. The Relative Strength Index (RSI) seems to be a good indicator of the cyclical bull and bear markets. In addition, the 65 weekly Exponential Moving Average (EMA) acts as support. We remain in a bull market though we tested the all time high of the S&P 500 at the 1553 area and pulled back. I expect the market to pull back toward support to consolidate the gains it has made before trying to push through this key resistance level.

The weekly S&P 500 below was in a bullish rising channel that broke up. Support is now at the prior high in the 1461 area, the 50 week moving average, the rising trend line. RSI below 50 indicates a down trend.

So far it looks like the first test of the all time high at the 1553 area caused a pull back to consolidate gains before the market moves up again. This being August, one of the weakest months for the market, we should continue to see further consolidation and a test of support levels. The MACD is showing negative divergence a sign the move down or further consolidation is likely.

The daily S&P 500 chart below shows break of the ascending triangle break at the 1461 area and the move up to test the 1553 all time high. RSI has fallen below 50, a sign we are in a down trend. Negative divergence is showing itself on the MACD and the MACD histogram, also a sign a pull back. Look for support the prior high of 1461. Any pull back should be bought. Also keep in mind this is August and it is one of the weakest months of the year. A good time to be conservative with one's capital.

Given this perspective, we are still in an up trend that is consolidating prior gains and could pull back to support levels before trying again for the 1553 all time high. I am looking for good companies that are trading lower, especially those that have offer good value and growth opportunities. I also am looking for stocks that are trading near their key support levels. This pull back will present us with some very good buying opportunities.

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