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Monthly Market Trends - 6/1/2007

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. 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 are going to test the all time high of the S&P 500 at the 1553 area. the market may experience a pull back as it nears this level 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 at or above 50 indicates the up trend is still intact. I expect the first test of the all time high to cause a brief pull back to consolidate gains before the market moves up again. The MACD is showing positive divergence a sign the move up is still working.

The daily S&P 500 chart below shows break of the ascending triangle break at the 1461 area and the move up to the 1553 all time high. RSI had remains above 50. Negative divergence is showing itself on the MACD and the MACD histogram, a sign a pull back is near. Look for support at the 50 day moving average, and the prior high of 1461. Any pull back should be bought.

Given this perspective, we are still in an up trend that may pull back as it tries to test the all time high in the 1553 area. 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.

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