We've updated the 5-year WATTS Performance Charts and released more info about the past trades. If you are interested in browsing the figures, please click on the link -- http://wealthanchor.com/page_001.html

Terminology

For those who are first time reading Trend Watch, please click here to understand the term definition and/or how to interpret it.

Part I - Market Comments

WATTS issued a new short-term BUY signal on Thursday after market close. As stated in the email alert, we were kind of surprised and totally unprepared for this trend reversal. The market did move a little higher last week but it's definitely not a significant move in terms of price and momentum. Such a move would be usually labeled as a normal week or even regarded as a somewhat boring market action. We thought so in our mind the whole week until WATTS spilled out the magic word -- BUY -- the Thursday night.

The leading indicator did turn up since mid to late August. However, we didn't pay too much attention to it before, because in the meantime, the market was going up and WATTS didn't gave us any early signs of a trend reversal. We treated the rising leading indicator as a normal upward correction in a downward trend. And it did appear that way even until now.

Below is the chart of the secondary leading indicator. Performing a technical analysis on the chart, we can reach both the bullish and bearish conclusions at the same time depending on how you want to read it. In this case, we remained the bearish point of view until the WATTS's BUY signal made us switch to the bullish point.

That explains why the technical analysis has its own blind points. If one holds a long position, what one will see on the charts would probably be the analyses and setups that reinforce one's bullish viewpoint, and vice versa. In retrospect, the technical analysis seems so accurate and useful. That's because we know which case is the correct one and which should be ruled out already. But in a real-time manner, both bullish and bearish analyses can exist at the same time and nobody knows which will be the winner at the end of the game.

Let's perform the bullish analysis first. Since the MACD on the chart has crossed over and thus generated a buy signal on the leading indicator itself, the chances are that the leading indicator will continue to go up statistically. And when the leading indicator continues to rally, the market will follow its lead and move higher too.

The above analysis sounds logic but if we analyze it further, we'll find out that there are some drawbacks in our analysis and that could be the bearish case. First, an obvious negative divergence can be clearly seen on the chart. The August's peak is much higher than the June's peak but the corresponding MACD appears a lower high, which is a bearish divergence.

Second, while the August's low is still much higher than the June's low, the both MACDs are almost on the same low level of readings. That means the relative strength of the leading indicator is weaker than it was in June. The negative divergence and relative weakness paint a darker picture for the future development of the indicator.

Along with the last WATTS SELL signal, we had been holding the bearish view with the leading indicator. Now, with the new BUY signal, we changed and are holding the bullish view. Are we fence-riders? No, the WATTS signal changes our view. Technical view can be changed in a second, but a trend reversal detected by WATTS is not that easy to get.

Usually, it takes some slow-down time then followed by a few significant up or down days to make WATTS detect the trend reversal and issue signals. That is not the case this time. The market is quite clam and not moving much last week but WATTS has already caught the inner change of the market and issue the signal. Looking at the Nasdaq Composite chart right now, the current minor upward move still looks just like a very typical upward correction in a major downtrend.

The internals of the market has been shifted to be in favor of the bull side in a way of that no one can see it from the price and volume on the chart, but WATTS did responds to it and in such a short time.

As a matter of fact, after we received the signal from WATTS, we did perform a thorough analysis of all the internal technical indicators. We finally thought that WATTS is right -- turning bullish makes more sense. We didn't see it before just because we were blinded by our prejuduce. In this regard, we are so glad that we have the help from a always-objective system.

Part II - Signal Update

WATTS Short-term Signal Status

Last Closed Short-term Signal

WATTS Intermediate-term Signal Status

Last Closed Intermediate-term Signal

WATTS Bottoming Zone Alert

Part III - Model Portfolio Update

Model Portfolio provides investor who doesn't know how to react to the WATTS's signal a simple guideline of how to manage his/her portfolio. If you are interested in following this guideline table, please Read This Important Note first.

Model Signal	Account Type	Equity Type	Most Aggressive Portfolio	Least Aggressive Portfolio
WATTS Short-term Signal	Stock Trading Account (Margin Account)	Stock & ETF	50% QQQQ long, 50% cash	50% SPY, 50% Cash
		Mutual Fund	None	None
	Stock Trading Account (Non Margin Account)Self-managed Retirement Accounts (IRAs, 403b...)	Stock & ETF	50% QQQQ long, 50% Cash	50% SPY, 50% Cash
		Mutual Fund	0% POTSX	None
	Company-managed Retirement Account (401k)	Stock & ETF	Not Available	Not Available
		Mutual Fund	0% POTSX, 50% High-growth Fund, 50% Money Market or Short-term Bond Fund	25% High-growth Fund, 25% Balanced Fund, 50% Money Market or Short-term Bond Fund
WATTS Intermediate-term Signal	Stock Trading Account (Margin Account)	Stock & ETF	0% QQQQ, 100% Cash	0% QQQQ, 0% SPY, 100% Cash
		Mutual Fund	None	None
	Stock Trading Account (Non Margin Account)Self-managed Retirement Accounts (IRAs, 403b...)	Stock & ETF	0% QQQQ, 100% Cash	0% QQQQ, 0% SPY, 100% Cash
		Mutual Fund	None	None
	Company-managed Retirement Account (401k)	Stock & ETF	Not Available	Not Available
		Mutual Fund	0% High-growth US Stock Fund, 100% Short-term Bond Fund or Money Market	0% High-growth US Stock Fund, 100% Short-term Bond Fund or Money Market

PART IV - Optional Reading Material

1. The best are bullish: http://www.marketwatch.com/news/story.asp?dist=ArchiveSplash&param=archive&siteid=mktw&guid=%7BC75E168D%2DED08%2D4989%2D9B85%2D8EC9B603FAB5%7D

It's so ironic that we were picking this article as its point of view was against our system view, but we changed and our system view is in line with the article's now. Anyway, it's a supporting stuff now.

2. Homebuilder insiders on selling spree: http://www.marketwatch.com/news/story.asp?dist=&param=archive&siteid=mktw&guid=%7B24A0E167%2D75D3%2D4B97%2D8623%2D96A6CFC6C5BF%7D&garden=&minisite=

Some of our subscribers may hold some builder stocks. This insider information can probably help you adjust your view and position.