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MONTHLY RESEARCH:   Monthly Research for the September edition of Market Profile Theorems was run over the weekend of August 28th, 2010, based on the data close out of Friday, August 27th. Your specific data were pushed to you on Sunday, August 29th.  The WEB site data (Workbook section) was available on Sunday, and the refreshed data applied to the Probability Plots, Screening features, and download files in the monthly File DownLoad section. The Strategy notebook should arrive on Thursday, September 2nd. If you have not received your files, or the notebook by the dates indicated, please contact us. Call 239-948-0101 if you wish to schedule a conference call in September.

WEEKLY RESEARCH:  Weekly Insider Data and Commentary files were updated on Saturday, August 28th with data from the Friday, August 27th, SEC closeout. The Insider portion of the Workbook section of the WebSite was populated with the new weekly data, and both e-mail versions were availablle on Saturday and Sunday. (Data for all companies, and Commentary)  The Insider Commentary file of the past weekend included a sense of the change, including longer-term implications for price direction of the broad market, for Industries and Economic Sectors, as well as specific Company Buy and Sell ideas.

GENERAL COMMENTARY:  Style closed August, much like July, in a very modest Growth mode. The Capitalization component was again modestly tilted toward Large Cap. MPT Model performance was poor to average in August. While general improvement in the performance of the Earnings model was seen in early August, the positive alpha did not persist for the entire month. We continue to expect it will rebound as we move forward from here through the end of 2010. In another dissapointing outcome, the key MPT construct, (Summary Model), yielded a very modest negative performance spread over the August period, with Summary Best under-performing Summary Worst. Strong Technical and Insider Scores was the best performing screen. The Technical model itself scored well. The combination of Good Earnings and Insider Probability Plot scores held its own - finishing in the middle of the pack amongst the major indices/averages.

The top-down, monthly Earnings model data continue to suggest that the cyclical bottom (cycle mean = 50 months) has passed, and that the Economy, as measured by earnings momentum, probably bottomed in November of '08. The Top Line Earnings Growth trend needed to improve, and, after reviewing Q1 (2010) and Q2 (2010) reports, it appears to remain on solid footing. Bottom Line Expectations have exceeded projections as well. We had noted at the end of June that, "upcoming earnings reports would again be critical to the Market's view of risk going forward." Indeed, through August 27th, the Q2 numbers appeared quite good, but with some headwind in the larger dose of weaker guidance guidance going forward. 

We see the Market Cycle, in terms of MPT's "Market Clock," at the 7 o'clock position. From here, with interim pauses for improvement, the Insider model will gradually become less useful, and the Earnings model more important. The past 3-months have been a case in point relative to the Insider model. However for now, Earnings combined with Insider screens should still work - just not as dynamically as they did in 2009.  While it has not done so as of yet, Market leadership will narrow from this point in the larger cycle, with Price and Earnings Momentum driving performance. We therefore suggest that the Technical and Earnings Models should do best in terms of producing positive alpha. There has been, as expected, a significant correction from the highs in May. While broken, DJIA 9900 has provided good support at lows before rallying nicely to the 10,550 level in the latter part of July. The January peak was exceeded as the Markets ran to a top around DJIA 11,240 in the third week of April, from February lows.  The second correction has taken place as suggested by MPT in the commentary of the third week of April, and the call was based on the weakened condition of: Our Style model; Long-term Insider model (with a near-record high Brooks Ratio); And the Short-term Technical model.  During the correction, the Advance/Decline Line continued to perform well. Both the MPT Insider and Sentiment models provided a Buy signal, and, more recently, Q2 reported earnings numbers, are clearly supportive of higher prices. These elements suggests that further gains, above DJIA 11,240 in the Equity Markets, lie ahead. At present, we view the U.S. Markets as in the the late"Mark-up" phase of an Equity cycle.

As a final note, we are of the opinion that we have moved into a period, following broad-market earnings expectations and surprise improvement, where the equity selection process needs to change focus - from acceleration, (in the MPT Earnings model) - to Market-relative scores, with an emphasis on the extreme tails, (deciles 10 and 1). Outcomes at these levels should be combined with companies showing good Market and Self-relative Insider Model scores. At this juncture, review of Self-relative Insider scores (using the Probability Plots) will be particularly important when making selections from more "Growthy" Sectors/Industries such as Technology.

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