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Morning Matters:

Playbook Update
by Geoff Garbacz

This is the mid week review on Monday instead of Wednesday. There has been weakness since our last update. As issues evolve each week, then audibles may need to be called with either additions or deletions to our portfolio. Cash is at 33% as we sold several names recently. The portfolio is almost back above 400%. We will review the portfolio tomorrow.

1.Continue to watch the impact of bankruptcies and mergers on the market. Acquisitions are happening every week and there have been no bankruptcies of note in 2010. The IPO and Secondary market is firming up as there continue to be deals on almost a daily basis.

2.Unemployment numbers are due each Thursday and continue to slow bit by bit but the private sector has yet to create any jobs of note. Pay attention to Jobless Claims each Thursday. They remain weaker than expected. Updated.

3.Data shows that the economy is bottoming albeit at a moderate pace, in an inventory rebuild. The $64,000 question is whether the recovery is played out or companies believe that a real recovery is at hand. Updated.

4.Energy prices are range bound which a plus for stocks as taking less money out of the consumers pocket. The impact of the BP Oil Spill now needs to be factored into energy prices. Gold has rallied beyond $1200 and the next level is $1300. Updated.

5.The Dow Jones is now back above 10000. The S&P 500 is now below 1100 while the NASDAQ Composite moves back above 2200. Major new support levels established in the past two weeks. Updated.

6. The big question in 2009 was, "Can the S&P 500 take out its January high of 943.85?" Then we asked can the 38% retracement from the October 2007 high to the March 2009 low, 1014.14 be take out. Currently, both these levels has been successfully conquered. The next level to watch is 1121.44 which is the 50% retracement from the same levels already discussed. This level recently failed and is now weighing on the market. The 50% retracement level on the Dow Jones Industrial Average is 10360. Updated.

7.Erlanger's EBB moved above 0 on a daily basis. Weekly and monthly EBBs are mixed with the weekly below the zero line and monthly above. For daily readings we suggest you go to www.erlangerchartroom.com for hourly or daily updates. Updated.

8. In 2010, January was a loser for the month. February turned into a winning month. March and April were higher as well. May was the worst May return since 1940. Year to date the S&P 500 is down -2.11%. Updated.

10. Also as transports go, so goes the market according to Dow Theory. Transports remain strong. IYT is holding above $75. Can we rthe IYT move above $80? Updated.

11.We are adding a new measure. How small cap names are doing against large cap. Small cap buy signal has moved back to neutral in the last week from avoid. Updated.

12.We have added a new indicator the Simon Economics "Greed & Fear" Index. Currently, it is in the fear stage which means we are in the bottoming process. Get those shopping lists out.

In a nutshell, we are oversold on a daily basis but the weekly is now poor while the monthly trends are positive. Pullbacks have popped up in June/July,October/November and January/February. The May pullback was right on time and now the pattern if it is intact calls for a strong June and July. Many will find this hard to believe but the trend is pretty obvious.

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