A sharp move higher on Friday diluted the decline that had been experienced earlier in the week. The major equity indices finished the week mixed. The smaller market capitalization indices such as the Russell 2000 boosted by Friday's advance were able to finish the week higher.

The swings in the market have left market sentiment moving between bearish and bullish with no real commitment to either. In fact, it seems that sentiment remains a step behind the rapidly changing market environment. Traders are turning bullish just before the market declines and turning bearish before a market rally. The market itself remains in a sideways trend. This sideways action dates back to the middle of May.

The level of merger and acquisitions remained high this past week as numerous announcements were made. As I commented last week, many companies are holding large levels of cash and are putting some of that to work in trying to expand or improve their businesses. In some cases, it seems that companies are not being very efficient in their acquisitions as they appear willing to over pay just to make the purchase. One example of this is the recent announcement of the McAfee purchase by Intel. Intel paid such a large premium that even Intel's management is indicating that it will be at least six years (if ever) before the acquisition is accretive to earnings. The battle between Dell and Hewlett-Packard in trying to buy 3Par, Inc. is another example. The two companies have gotten into a bidding war pushing the market capitalization of 3Par from $600 million to over $2 billion and they have yet to come to a conclusion. The company only generates about $200 million in revenue now. Looking out to 2012, 3Par is expected to earn just 27 cents a share or just under $17 million.

The market is oversold as Friday's bounce indicated. This week will mark the end of August and what is traditionally called the end of summer in the financial markets. Next Monday, is the Labor Day holiday and even though the employment data is due out this Friday the trading volume for the week is expected to be even lighter than it has been in recent weeks.

Our market direction signals are all pointing lower. The bias is downwards, but the market could bounce as the month ends and before the holiday.

There will not be a Weekly Market Commentary next Monday due to the Labor Day holiday.

Stock Market Data:

Market Direction:
Short Term Direction (Days to Weeks) - Lower
Dow Jones Industrial Average - Lower as of 8/20/10, Prior signal was higher on 7/23/10
Russell 2000 - Lower as of 8/11/10, Prior signal was higher on 7/23/10
The Short Term direction is measured by the index being above (higher) or below (lower) the 50 day moving average of the respective index.

Mid-Term Direction (Weeks to Months) - Lower
Dow Jones Industrial Average - Lower as of 7/7/10, Prior signal was higher on 7/2/09
Russell 2000 - Lower as of 7/28/10, Prior signal was higher on 6/19/09
The Mid-Term direction is measured by the 50 day moving average of the index being above (higher) or below (lower) the 200 day moving average of the respective index.

Long Term Direction (Months to Years) - Lower
Dow Jones Industrial Average - Lower as of 1/2/09, Prior signal was higher on 7/7/04
Russell 2000 - Lower as of 10/24/08, Prior signal was higher on 5/5/04
The Long Term direction is measured by the 20 month moving average of the index being above (higher) or below (lower) the 30 month moving average of the respective index.

Of the three market direction signals the one that holds the most significance for us is the mid-term direction signal as it factors the time period which is most relevant for portfolio management. The other two signals are weighed into the portfolio management equation, but the short term direction signal can change signals frequently during minor moves and the long term direction signal is not frequent enough for proper portfolio management.

Moving Averages:
Dow Jones Industrial Average - 10150.65
50 day moving average - 10278.37 (down)*
200 day moving average - 10453.92 (up)
S&P 500 - 1064.59
50 day moving average - 1084.25 (down)*
200 day moving average - 1116.25 (down)*
Nasdaq Composite - 2153.63
50 day moving average - 2214.37 (down)*
200 day moving average - 2272.01 (up)
Russell 2000 - 616.76
50 day moving average - 630.65 (down)
200 day moving average - 643.97 (up)
Direction of the moving average is in parentheses. A change in direction is noted with an asterisk.

Number of New Lows on the New York Stock Exchange for the past 5 Trading Days:
68, 165, 143, 35 and 70
Most recent data listed last.
Number of New Lows Exposure Indicator - Negative - 8/16/10
One of our short term indicators that I have been updating in this report is the number of new lows on the New York Stock Exchange. Four consecutive days of 40 or more new lows is negative, while four consecutive days of 40 or less than 40 new lows would flip the indicator positive. New low data is from Investor's Business Daily.

Index Performance:
Dow Jones Industrial Average - 10150.65, down 62.97 or 0.62% for the week, down 2.66% for the year to date
S&P 500 - 1064.59, down 7.10 or 0.66% for the week, down 4.53% for the year to date
Nasdaq Composite - 2153.63, down 26.13 or 1.20% for the week, down 5.09% for the year to date
Russell 2000 - 616.76, up 5.98 or 0.98% for the week, down 1.38% for the year to date

Earnings due out this week for companies we hold in client's portfolios:
No reports this week.
The numbers following the stock symbol is the consensus quarterly earnings/revenue estimate. These estimates are from Thomson Financial Network.

Interest Rate and Economic Data:

The decline in stock prices early in the week sent fixed income prices soaring. The yield on the ten-year U.S. Treasury note hit a low of 2.419% before rising back to 2.66% to close the week. The 2.419% low was the lowest point that the ten-year yield has dropped to since January 2009. The weakening economic numbers are generating fear of a double dip recession and a period of deflation. After the current bounce in yields (drop in prices) it is likely that a further decline in yields (rally in prices) is likely to reach the next target level near 2.00%.

U.S. Treasury Interest Rates:
3 Month - 0.15%
1 Year - 0.27%
5 Year - 1.49%
10 Year - 2.66%
30 Year - 3.69%
Source: U.S. Treasury (8/27/10)

Mortgage Rates:
30 Year Fixed - 4.50%
15 Year Fixed - 3.93%
Jumbo 30 Year Fixed - 5.34%
Source: BankRate.com (8/27/10)

Economic Calendar (Time ET):
August 30 - Monday
Personal Income, July (8:30): 0.2% expected, 0.0% prior
Personal Spending, July (8:30): 0.3% expected, 0.1% prior
PCE Prices - Core, July (8:30): 0.1% expected, 0.0% prior

August 31 - Tuesday
Case-Shiller 20-city Home Price Survey, June (9:00): 3.5% expected, 4.61% prior
Chicago PMI, August (9:45): 57.5 expected, 62.3 prior
Consumer Confidence, August (10:00): 50.0 expected, 50.40 prior
Minutes of FOMC Meeting, 8/10 (2:00)

September 1 - Wednesday
ADP Employment Change, August (8:15): 13K expected, 42K prior
Construction Spending, July (10:00): -0.7% expected, 0.1% prior
ISM Index, August (10:00): 53.0 expected, 55.5 prior
Crude Inventories, 8/28 (10:30): 4.11M prior
Auto Sales, August (2:00): 3.9M expected, 3.8M prior
Truck Sales, August (2:00): 5.1M expected, 5.14M prior

September 2 - Thursday
Initial Jobless Claims, 8/28 (8:30): 475K expected, 473K prior
Continuing Claims, 8/21 (8:30): 4435K expected, 4456K prior
Productivity-Rev., Q2 (8:30): -1.6% expected, -0.9% prior
Unit Labor Costs, Q2 (8:30): 1.1% expected, 0.2% prior
Factory Orders, July (10:00): 0.3% expected, -1.2% prior
Pending Home Sales, July (10:00): 0.0% expected, -2.6% prior

September 3 - Friday
Nonfarm Payrolls, August (8:30): -118K expected, -131K prior
Nonfarm Payrolls - Private, August (8:30): 42K expected, 71K prior
Unemployment Rate, August (8:30): 9.6% expected, 9.5% prior
Hourly Earnings, August (8:30): 0.1% expected, 0.2% prior
Average Workweek, August (8:30): 34.2 expected, 34.2 prior
ISM Services, August (10:00): 53.2 expected, 54.3 prior

Commodities and Other Data:

Gold prices rallied further this week. After hitting a low at the end of July at $1155.60 an ounce, gold has been rallying for the past four weeks closing this week at $1236.60 an ounce. It is somewhat overbought and could pullback especially if the stock market rallies further this coming week. Resistance remains at the June high at $1266.50.

Oil prices, after suffering a sharp decline in recent weeks dropping from $82 a barrel down to the $70 a barrel area, rallied this week. The price of oil was strong closing the week at $75.57 a barrel.

Market Direction of Gold:
Short Term Direction (Days to Weeks) - Higher
World Gold Price - Higher as of 8/16/10, Prior signal was lower on 7/1/10
The Short Term direction is measured by the index being above (higher) or below (lower) the 50 day moving average of the respective index.

Mid-Term Direction (Weeks to Months) - Higher
World Gold Price - Higher as of 2/11/09, Prior signal was lower on 9/2/08
The Mid-Term direction is measured by the 50 day moving average of the index being above (higher) or below (lower) the 200 day moving average of the respective index.

Long Term Direction (Months to Years) - Higher
World Gold Price - Higher as of 7/1/02, Prior signal was lower on 2/25/97
The Long Term direction is measured by the 20 month moving average of the index being above (higher) or below (lower) the 30 month moving average of the respective index.

Of the three market direction signals the one that holds the most significance for us is the mid-term direction signal as it factors the time period which is most relevant for portfolio management. The other two signals are weighed into the portfolio management equation, but the short term direction signal can change signals frequently during minor moves and the long term direction signal is not frequent enough for proper portfolio management.

Moving Averages:
World Gold Price - $1236.60 an ounce
50 day moving average - 1211.16 (down)
200 day moving average - 1161.85 (up)
Direction of the moving average is in parentheses. A change in direction is noted with an asterisk.

Other Prices:
Oil (October Delivery) - $75.57 a barrel
Natural Gas (October Delivery) - $4.023 per million BTU
U.S Dollar - $82.89
Silver - $19.04 an ounce

Sources: bankrate.com, briefing.com, Dow Jones News, Financial Times, finviz.com, Investor's Business Daily, marketwatch.com, seekingalpha.com, Thomson Reuters/First Call, U.S. Dept of Treasury, yahoo.com and company web sites and releases.

Leonetti & Associates, LLC views and opinions are as of a certain date and subject to change without notice. The material contained herein has been obtained from sources and data we consider reliable, but we make no guarantee as to its accuracy or completeness. References to specific securities and industries/sectors should not be considered recommendations to buy or sell any security or investment product. Past performance is not a guarantee of future results.

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