The market celebrated the appointment of the new Federal Reserve chairman on Monday as the DJIA added over 169 points (+1.6%), its largest one day gain in six months. However, as the week progressed troubles in Washington and Detroit coupled with rising interest rates put a damper on the party. But a spirited 172 point rally on Friday saw the DJIA fight its way back over 10400 to end the week in the plus column. For the period, the DJIA posted a gain of 188 points (+1.84%) and closed at 10402.

On a percentage basis, the NASDAQ matched the Dow's performance on Monday but also sold off through Thursday. However, like the Dow, a 26 point rally on Friday pushed the index into the green for the week. For the period, the NASDAQ gained 8 points (+0.37%) and closed at 2089.

Year-to-date, the Dow is down 3.5% while the NASDAQ has lost 3.9% of its value. Trading the DJIA (DIA) using a buy/hold strategy has produced a loss of 380 points (-3.5%) while utilizing the Market Edge long/short approach would have generated a gain of 830 points (+7.7%).

Market Posture: The CTI, Momentum and Sentiment Indexes are bearish. Two of the three Strength Indexes are in negative ground. The Market Posture, bearish since the week ending 10/14/05 (DJIA – 10287.34) remains negative at this juncture.

Cyclical Trend Index (CTI): The CTI is bearish at -02 and is projected to remain in negative territory until late in the year.

Momentum Index: The Momentum Index remains very bearish at -8, unchanged from the previous week. The -8 reading reflects the across-the-board deterioration by the broader indexes on a percentage basis when compared to the DJIA. Breadth was negative as the NYSE Advance/Decline line lost 788 units while the number of NYSE stocks recording new 52-week lows outdid the new highs throughout the week. Breadth at the NASDAQ was also negative as the A/D line lost 864 units while the number of new lows exceeded the new highs on three of the five trading days.

The percentage of stocks above their 200-day moving average was down a tad at 43.7% from 43.9% while those above their 50-day rose to 26.1% from 24.5%. For the period ending 10/26/05, U.S. equity inflows matched the previous week at $1.4 billion.

Sentiment Index: The Sentiment Index remained bearish at -1 up slightly from last week's bearish -2 reading as the CBOE Put/Call Ratio rose to a bullish 1.81 from last week's neutral 1.58 reading. VIX continues to rise reflecting the increase in volatility but remains in bearish ground at 16.02. The percentage of Bullish Investment Advisors slipped to 44.8%, down from a neutral 45.3% the previous week. This is the lowest level since May 2005. Readings under 40% are regarded as bullish.

Strength Indexes: There was some minor improvement in the Strength Indexes as the NASDAQ (QQQQ) rose to a bullish 50.0% from 33.7% while the others remained in negative ground. The percentage of Dow (DIA) stocks under accumulation climbed to 36.7% from 26.7% while the S&P 100 (OEX) strengthened to 36.7% from 31.6%. Readings under 50% indicate that the majority of the stocks in the index are under distribution, a short-term bearish condition.

Trend line support for the DJIA is 10150 followed by 10000, which was the low recorded on 04/20/05 and our initial downside projection. Resistance remains at 10600, the 10/03/05 high. NASDAQ support is in the 2025 followed by 2000 while trend-line resistance is now at 2150.

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Summary: The CTI is bearish at -02 but is poised to slip further into negative ground over the next several weeks. The Momentum Index is bearish while the Sentiment Index has slipped into negative ground. Despite Monday's impressive rally the breadth of the market remained bearish. On Thursday, the NYSE A/D line got back to where it was in June 2005 and we are again seeing an expansion of the NYSE new lows which were in triple digits three times during the week. Also, the 10-year bond yield touched 4.6% last week for the first time since March 2005. Higher interest rates will obviously be a problem that stocks will have to digest. The market remains in poor technical condition at this juncture with the broader indexes experiencing more deterioration than the DJIA. The condition is reflected in the Momentum Index which is very bearish suggesting further declines over the intermediate term.

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