Market Update 08/24/2006

Last week’s rally turned out to be a short sprint that completely lacked any endurance. The sporadic market movements are just more of the same activity that we have seen since mid-May, reflecting completely insincere attempts to move higher. That situation ultimately leave optimistic investors holding the bag. A case in point is Nasdaq, which staged its best week since 2002, only to do an about face and end up languishing in the red.

There’s plenty of resistance to the upside due to negative sentiments regarding inflation, interest rates and housing. While selling has not been heavy, it has been consistent, indicating an underlying weakness in the market’s ability to digest the bad news and to move forward in a positive direction. The S&P 500 continues to show resistance at about the 1300 level. Ongoing weakness could see it trend back down to about 1210. I have drawn a line in the sand for that market at 1310. If the S&P 500 can break through that level, we may have some upside potential. However, I continue to remain vigilant to the downside potential and I recommend tight stop losses for anyone investing at these levels.