11/8/2006 9:22:28 AM

Last Wednesday...

Last Wednesday I published a mid-week report noting a rare double evening star pattern on the QQQQs. In addition, I had noted evening star patterns put in for the DIAmonds and the SPYders the previous Friday.

Since then, we have seen a rally for two days. If today's lower open was to end up moving lower through the day, it could result in a third evening star pattern on the QQQQs (something I don't recall having seen before) and double evening stars on both the DIAmonds and the SPYders.

I received a lot of emails, light in tone, poking fun at me for being such a worrier, and noting that no great sell-off has yet occurred. So we are clear, the large sell offs occurring after single and double stars were put in for major markets came didn't start until there was a rally back up toward the top of the evening star, within about a week of that pattern being put in. I explained that to some subscribers in email responses and thought it better to respond to all of you, who must be wondering why we would have a rally for the last two days.

This may be a buy the rumor, sell the news rally. It may be a continuation of the uptrend that we have seen somewhat uninterrupted for nearly four months.

I am going to watch the market today, but will be getting bearish if there is follow-through to the downside. I am watching specifically for a break in the uptrend lines. I will follow this alert with another if we get a definitive trade set-up. One thing to note (noted in the weekly Fundamental Trader) is if small caps are moving contrary to the large indexes. This was early warning that the market would move up over the last two days. If they sell off significantly, as well as the NASDAQ leading us down, it would be a shift away from risk.

We'll have to wait for trading to take place today to see where the market is going.

Please feel free to send emails with any questions you may have.

Regards and Good Trading,