Our Stomach's are rumbling.

The market is flying like a bat out of hell! The non-manufacturing ISM number came in better than expected for August at 65 and is helping to create the rally excuse. Large Caps are leading along with transports. Small Caps and Semiconductors are participating but without much vigor. As usual, traders shoot first and ask questions later. What's always amazing is how the stock market action will surprise even the people who are expecting it to occur.

While we moved our position from a Bearish to Neutral posture last week, this euphoria is even greater than we had expected. Our targets on the Nasdaq 100 (NDX) at 1600 are close to being filled however, we are still 1% to 1.5% away from our overall NASDAQ target of 2190. Some pep in the Small Caps may get us there and would also likely signal the end of this short-term rally. Of course, you know that most traders will have been sucked in by that time.

We are watching to see if the NDX closes above prior resistance of 1585. A close above this level would signal an all clear buy sign for many technical traders. They will likely attempt to throw arguments at us celebrating the markets incredible resiliency in the face of bad news. The fact that news flows in waves, i.e. Katrina not as bad as expected, Katrina is the nightmare we feared, Katrina restoration underway…, is worrisome as we approach a tipping point in the market and next reiteration of Katrina. The inevitable "perceived bad news shoe" to drop will be coming at a critical time for market participants.

We're still involved approximately 50%; but as the market reaches, so do we for our Pepto Bismol®.

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