Dallas, TX
March 17, 2008, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Intelligence, Market Timing, And Trading Strategy For Traders and Investors

Where Is The Strength? A Look At Key ETFs.

What's Hot Today:
Global markets were mixed overnight, with oil prices drifting lower but remaining above $100 per barrel.

Today's Economic Calendar: 8:30a.m. Chicago Fed Natl Activity Index. Previous: -0.58. 10:00a.m. Feb Existing Home Sales. Expected: -0.8%. Previous: -0.4%. Sources: The Wall Street Journal and Marketwatch.com.

News For Thought

Sun Microsystems (Nasdaq: JAVA) has received a $45 million dollar Pentagon contract to study the possibility of replacing wires between microprocessor chips with laser beams. The goal of the technology is to speed communication between chips and make computers work faster.

Among China's major worries are water shortages Aside from the latest round of political unrest, in Tibet, China faces significant water shortages and the Olympics will put more stress on their already tight supplies.

According to The Wall Street Journal: "A review of various studies, conducted by the U.S. Department of Agriculture in 2003, said ground water resources in the North China Plain will be depleted by 2030. A 500 billion yuan ($69.4 billion) project will bring 400 million cubic meters of water from the south to Beijing per year when it's completed."


Where Is the Strength?
A Look At Key ETFs.

Last week's exodus from commodities begs the question: Where is the money going?

The answer, unfortunately isn't all that easy to find, as strength is difficult to find in the financial markets these days. Yet, we managed to get a few charts that are suggestive of what might develop in the near future, barring last week's moves being temporary.



Chart Courtesy of StockCharts.com

First, it's best to see where money is coming out of. And these days, it's fairly easy to figure that out, with agricultural commodities taking the brunt of the selling. A look at the DB Agricultural ETF (DBA, above) sets that record straight, leaving little to ponder.

The same can be said for gold, oil, and to some degree natural gas, all of which took significant hits last week.

Some money flowed into the U.S. Dollar. But, as of now, the only thing accomplished in the greenback has been to shake out traders that had tight stops in the foreign currencies. It's still too early to start buying the dollar aggressively.



Chart Courtesy of StockCharts.com

Now, let's see where money seems to be moving. Not surprisingly, bonds as in the Lehman 20-Year plus ETF (TLT, above) are getting a nice lift out of the current scenario. There are two major forces at work. One of course is the safety play. With global markets delivering big moves, up and down, on a regular basis, U.S. bonds are still seen as a safety net.

When you add the possibility that the U.S. economy is skirting a recession, bonds make sense.



Chart Courtesy of StockCharts.com

Which brings us to the stock market, as in the S & P 500 (SPX, above). As each day passes that SPX doesn't make a new low, you've got to consider the possibility that a bottom is in.

The problem, though, is that it's difficult at this point to find stocks, and sectors, that are showing signs of significant enough strength to lead a new bull run.

Yes, the financials are bouncing. But, that's it. They're bouncing, and doing so in a way that suggests that it's not sustainable, since they haven't had much of a chance to form bases.

That leaves us in a difficult position.

Conclusion

The old line, "follow the money" makes a lot of sense in this market.

And the trail leads from commodities to bonds and to some degree market indexes, but not individual stocks or sectors.

That means that for now, the sound strategy is to indeed, "follow the money," into bonds, indexes, and stocks that show any kind of relative strength.

The latter are scarce at this point, which makes our ETF strategies a good place to shop in the near term.

If this is the bottom, at some point, new leaders will emerge and we'll start moving into them. Until then, caution and attention to money flows are the best strategies.

Visit our individual sections throughout the day as new picks have been added throughout the site.

Technical Summary:

Bearish Sentiment Enough For A Rally Of Sorts

The AAII survey, which measures individual investor sentiment rose to a reading of 59% bears last week, with only 20% bulls. Market Vane which measures newsletter writer sentiment was at 43%. Both numbers are low enough to be considered bullish contrarian indicators.

The NYSE specialists were buyers of of stock in the latest reporting period, ending on the week of 2-29. This is a positive change from the data over the last few weeks.

The CBOE Put/Call ratio closed at 1.48 on 3-17. This isn't a bad number, but it seems as if it should be bigger given the bad news that hit the market. The CBOE P/C ratio for indexes checked in at 1.62 on 3-17. These are moderately bullish numbers at best.

The VIX and VXN had readings of 32.24 and 32.99. A fall near or below 20 on VIX and 30-40 on VXN is considered negative, a fact that is usually confirmed when the volatility indexes begin to rise. Readings above 40 and 50, respectively, are often signs that a bottom may be close to developing.





Chart Courtesy of StockCharts.com




Chart Courtesy of StockCharts.com



Market Moves

S & P 500 SPDRS (AMEX: SPY) Set For Major Trend Test

The S & P 500 SPDRS (AMEX: SPY) seem ready to test a key price area.



Chart Courtesy of StockCharts.com

Stocks seem to have bottomed, but are having some difficulty in developing leadership as money seems to be flowing into index instruments rather than individual areas of the market.

The net effect is that one sector is essentially moving as much as another, making it difficult to pick individual stocks.

At times like these, it makes sense to look at the market as a whole. And the S & P 500 SPDR ETF is a good place to look during markets such as the current one.

SPY has been bottoming out for several weeks, making its first bottom in late February, then forming a base before retesting its lows on March 17. The bottom held, and now the question is whether SPY can break above key resistance and start a bona fide rally.

A key resistance level is the 135 price area, just above the 50-day moving average. If SPY can clear this hurdle, we could see a move toward 145, where the 200-day moving average looms.

A lot can happen between now and such a potential test. But even if the rally, if it ever comes, dies at 145, a ten point move in SPY is a nice enough short term trade, making the vigil at 135 worthwhile.



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