August 29st 2004

Written by Matthew Frailey - matt@breakpointtrades.net

Table of Contents:

(click on the numbered sections below and you will be taken to that corresponding section)

1. Administrative:

2. Market Comments:

3. Market Indicators

4. Major Indices: Nasdaq, DOW, S&P:

5. Market Sector Breakdown:

6. Insiders Buying / Technical Supported - Stock Picks:

7. Gold, US Dollar, Precious Metals Stocks:

1. Administrative Comments:

Tons of new insider picks, also many picks in the newsletter itself:

This newsletter if very long, make sure to take some time to read it fully:

2. Market Comments and Miscellaneous:

Last week, the market contined to rally, which originally began two weeks ago. I predicted this rally here at Breakpointtrades by a number of factors:

1. Positive divergence in 60 min index charts ie Nasdaq, DOW, S&P 500

2. Positive divergence in Bullish Percent Indexes, such as BPCOMPQ, and  BPSPX

3. NASI buy signal via crossing MACD and 5 day MA, and last week stochastics crossed 20

4. VIX broke a short term uptrend line

As you can see, I used a variety of tools at my disposal to make my prediction. This is what I try to do at BPTs, I try to base my decisions on multiple variables coming together.

So what do I see for this coming week:

First off, the Market has been rallying off light volume, which is typical for this time of year. Next weekend is labor day and I expect volume to to be extremely light. The Republican National Convention is also next week, though I don't think it will affect the Market.

The Nasdaq for example has rallied over 100 points during the last two weeks. However, resistance is now directly overhead but instead of positive divergence, negative divergence is now prevalent in the MACD on the Nasdaq as well as other major indices which is readilly apparent on the their respective 60 min charts.

Therefore, I think there is a possibility of a pullback early this week, possible starting on Monday. However, with the light volume anything can happen. Remember the old saying, never short a dull market, this applies here.

I would not be shorting the market at this time, even though I see negative divergence and a possible pullback, I don't think it will be the start of a new downtrend. Based on the technical ndicators of the NASI and the BPCOMPQ, I think a pullback will be minor and the markets will rally once again, possibly late next week just before the holiday, or after the holiday. I would not be short at this time, except for day trades.

As you can seen, negative divergence prevalent in this chart on the MACD. This is also the case for the DOW and S&P. However, I think a pullback will be temporary. The Nasdaq for example, now has support at 1825-1830, so a pullback might end there.

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I know that some subscribers disagree with me (that's okay) with my stance that long term bonds will soon fall and rates will rise. However, I'm simply going off what the charts are telling me and this chat of the 30 year yield says that it's soon going to reverse it's trend and go higher: Long term yield has fallen to a 68% Fibonacci support and is near an uptrend line.

I am looking to short the 30 year yield futures, ZB is the symbol.

Here's another reason to believe long term rates are going up is the next chart below: This chart is the ratio between the 30 year long term yield and 3 month yield.

My favorite indicator, positive divergence, indicates this indicator will soon turn up. For this to occur, long term rates have to rise since they are the numerator.

What do you think Angel? (one of the members of BPT)

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The story stock ATSI is beginning to look much better now, especially once the downtrend line is broken.

However, my favorite story stocks, which is not an official story stock yet at BPT, but may become on in the future is NFLD, Northfield laboratories.

I love the story here: NFLD is has develped a blood substitute called Polyheme, which looks very promising. It is currently undergoing phase 3 human trials at trauma centers in hospitals and the results thus far look great.

I'm sure I don't have to emphasize what a huge deal a blood substitute would be. If this gets FDA approval one day, you will likely see this stock in the 3 digits and gap up $50 or more overnight.

However, before you get too excited, I don't expect an FDA decision until late next year or even 2006, so there is no hurry on this one. However, it is one to keep an eye on.

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Foreign Markets:

The Nikkei market is extremely bullish and I am giving a buy signal here. The Nikkei has a bullish inverted head and shoulder pattern with the first target of about 15000, especially if 12500 is taken out.

Profunds UltraJapan (UJPIX) is a mutual fund that moves 150% with the Nikkei. I am going to buy this fund next week. My price target is about $75, and my time frame for this to occur is 9 months to 1.5 years, so it's a long term hold, but represents a great return for your money.

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Last week I stated oil prices had gone parabolic and would likely pullback, which occurred last week.

OIL has support at 42.5 and the uptrend line. A resurgence in oil prices could occur at one of these support areas.

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3. Market Indicators:

First, let's see what the market indicators are telling us:

The NASI has done a very good job thus far at predicting market tops and bottoms.

Really, there are three signals that work together to either give buy or sell signals on the NASI chart. Ideally you want to see all three signals confirm one another, however I think having at least two concurrent buy or sell signals is good enough:

There are three indicators than can buy or sell signals on this the NASI:

#1. Whenever the 5 day MA crosses the NASI line, it produces a buy/sell signal.

#2. Whenever the MACD crosses, produces a buy or sell signal.

#3. When ever the Stochastics cross 20 or below 80.

Currently the NASI has given another has given a triple buy confirmation:

Positive Divergence via the BPCOMPQ hints that the market will rally much further, and we all know how well positive divergence can work: The BPCOMPQ could easily rally to the low in May in the low 40's. This would result in a nice fall rally.

This indicator hints that a presidential election rally will occur this fall.

The Bullish Percent index for the S&P also hints the same thing, a rally this fall:

The percent of stocks above the 200 MA is increasing and positive divergence also exists in the chart. Resistance at the downtrend line, but this indicator looks like it will rise, and for it to rise, the market logically has to rise.

However, we need to see the semiconductors strengthen relative to the Nasdaq, current resistance zones market by the horizontal line and downtrend line.

However, note the positive divergence in the MACD: Therefore I'd say the Semiconductors will soon rally and thus ignite a larger market rally.

Small caps usually lead when the market does well, and that is obviously not the case. The indicator below is a ratio of the Small Caps to Large Caps. The direction of this indicator is what's important, when the trend is up, the market is doing well and can support a rally (thus indicating that small caps are leading. However, when the indicator is down, it indicates the market is weak and declines will likely continue.

The trend is now positive:

NYAD makes new high, signaling more upside for the Market:

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4. Major Indices, Nasdaq, DOW, S&P:

Nasdaq:

The DOW Jones:

Daily:

As stated above, negative divergence in the DOW 60 min, a minor pullback is likely here, but probably not the start of a new big downtrend. Rather, I think a pullback will be a buying opportunity:

The Daily chart and important support and resistance zones: Resistance at the downtrend line, chart resembles a large bullish flag.

Long term view: Is this a bullish flag pattern?

The S&P 500:

Daily:

Negative Divergence, minor pullback likely:

Daily chart:

Here's a list of steel stocks that look good:

Gas Utilities Look Great:

Here's a list of stocks for this sector:

Electric Utilities look great:

Here's a list of stocks for this sector that look good:

Basic Materials look good:

Here's a list of stocks that look good for this sector:

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6. Insider Buying / Technical Supported - Stock Picks:

The Insider Longs section continues to get larger each week. In my opinion, this list is a preferred list of long candidates for those of you who work, travel, and thus don't have the time to trade all day.

Comments: This list is doing so well, I hope some of you are playing these, very rewarding. TIE did especially well last week. This list keeps getting larger by the week!

Date Added	Symbol	BP Price	Comments
8/29	SIPX	see chart	One of the beneficial owners bought 147,000 shares on 8/24/04 for an average price of $4.88. Buy if the downtrend line is broken to the upside
8/29	STSI	5.25	Two company insiders bought a total of 300,000 shares on 8/24/04 for an average price of $5 Buy if resistance at $5.25 is taken out.
8/29	AN	see chart	One of the beneficial owners purchased 500,000 shares for an average price of $16.05 on 8/20/04. AN looks like a buy if the downtrend line is broken to the upside and the price target is $19
8/29	HTV	see chart	One of the beneficial owners bought 117,950 shares between 8/20 and 8/24/04 for an average price of $24.42. HTV is a buy if the uptrend line is broken on good volume. Long term price target is the high at $29
8/29	AGL	see chart	One of the beneficial owners bought 54,000 shares between 8/19 and 8/24/04 for an average price of $23.42. Buy near the uptrend line and place stops just below it.
8/29	MNCP	see chart	One of the beneficial owners bought 500,000 shares on 8/24/04 for an average price of $9.75. The volume can be light on this one, but is a buy if the downtrend line is broken to the upside. place stops under the uptrend line.
8/21	POS	$21.30	Insider buying of 150,000 shares on 8/16 for an average price of 20.08
8/21	EQY	$19.75	Triggered long on 8/27 on strong volume. Reset stops to buy in price and let it run. LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY..... Insider buying on 8/18, at 19.08 Resistance at 19.75 and support at uptrend line
8/21	TIE	$21.70	Triggered long on 8/27 on huge volume. TIE split shares 5:1 last week. Sell 1/2 shares and reset stops to original buy in price which will insure a nice profit. LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY..... Insider buying of about 1/2 million dollars by one of the benefical owners on 8/13 for an average price of 19.95. Resistance = 21.70, support at uptrend line
8/21	PSA	$50	Triggered long on 8/22, took out resistance on good volume. Reset stops to buy in price. LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY..... Director buys 14519 shares on 8/18 for an average price of 47.66. Resistance at 50
8/21	GDP	$11	Insider buying of 62,000 shares on 8/17 for an average price of 9.31. Resistance at 11, support at 9
8/21	STMP	see chart	3 directors bought about 2 million worth of stock between 8/13 and 8/18 for an average price of 11.08. Nice pick up in volume, but I would wait for a pullback before buying STMP.
8/21	IAAC	see chart	Insider bought 150000 shares on 8/20 for an average price of 8.25. Resistance at downtrend line, targets 10 and 12
8/10	PRCS	$2.70	One of the board of directors bought 776,475 shares for an average price of $2.45 on 8/3. Looks like a good buy if $2.70 resistance taken out.
8/8	BOFL	$14.35	Triggered long on 8/16, took out resistance. Reset stops original buy in price and sell 1/2 to insure a profit. LET THE REST RIDE AND MOVE STOPS UP ACCORDINGLY..... nsider buying on 7/30 for an average price of $12.50 Resistance at $14.35, and first target at $15.70
8/8	CHK	See Chart	2 company insiders bought about $10 million worth of stock on 8/2 for an average price of $14.75. Support at the uptrend line, and a low risk place to buy
8/8	EPD	See Chart	Triggered long on 8/16, took out short term resistance 5 corporate insiders bought over 35 million worth of stock between 8/4 and 8/5 for an average price of $20.20 No pattern here and the chart doesn't look that good, however with the insider buying, might want to keep this one on the radar. Support is at $20
8/1	MWY	See Chart	8/16 Triggered long, by breaking symmetrical triangle to the upside. - new insiders keep buying each week Tons of insiders have been buying MWY shares over the past 8 months. The most recent insider purchased shares in late July for an average price of $11.21 Strong uptrend line, nice symmetrical triangle
8/1	CLGY	See Chart	5 beneficial owners bought about $5.5 million worth of stock on 7/23 for an average price of $3.54. Represents a buy if the downtrend line is broken.
7/25	FLA	See Chart	Triggered long by breaking flag on 8/16. Nice run so far, sell 1/2 shares and reset stop to original buy in price to insure a profit. LET THE REST RIDE AND MOVE STOPS ACCORDINGLY.... Very large insider buying: Beneficial owner buys a total of $173 million worth of stock for an average price of $33.33 on 7/16/04!!! Could be bought if the downtrend line is broken to the downside.
7/17	PRTR	See Chart	Finally Triggered long on 8/28, let's see where it takes us. Stops in just under $10 16 company insiders recently purchased shares for an average price of $10. 1st price target = $10.75, 2nd price target = $12.50 Huge pick up in volume, as well as positive divergence to boot.

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7. Gold, US Dollar, Precious Metals Stocks:

Gold metal pulled back last week due to the strengthening US Dollar which may breakout at anytime. Eventually gold will move up regardless of what the Dollar does, but probably not at this time. Gold chart still looks bullish, but if the Dollar rallies strongly, then this minor pullback could get ugly.

Longer term view:

The Big Picture of gold metal shows that gold broke a 20 plus year downtrend line in 2003 (which ended a secular bear market) and is now in a secular bull market.

The horizontal gold region is important resistance, that once broken, will set off a huge run up in gold, the 1st target would be $500 which is the high of 1988!

When discussing gold, the US Dollar is paramount and holds nearly all the power over the direction of gold. Eventually, the gold will move up regardless of what the Dollar does, but at this point in time, the two are still linked closely together.

The Dollar broke out of the bullish wedge 4 weeks ago, but ran into resistance at 90.45 and subsequently has been falling ever since. The Dollar could still do anything at this point, it could enter another major decline if support is broken, or it could enter a major rally if it recovers and takes out resistance. The fate of gold rests on what the Dollar decide to do at this point.

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