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Special Alert: NASDAQ COMP Severely Oversold

(January 9, 2008)

Dear Subscribers and Readers,

I hope all of you got my signal to cover our 50% short position in our DJIA Timing System and to concurrently go 50% long during this morning's session.  I am writing again to bring attention to you to the following chart which in essence, is somewhat related to the SPX chart that I had showed you in last night's commentary:

Daily High-Low Differential Ratio of the Nasdaq vs. the Nasdaq (January 2001 to January 9, 2008)

The above chart shows the NASDAQ Composite Daily High-Low Differential Ratio from January 1, 2001 to January 9, 2008.  This is calculated by taking the daily difference between the number of 52-week highs and number of 52-week lows on the NASDAQ Composite and dividing it by the total number of all NASDAQ Composite issues outstanding.  This ratio just spiked down to a reading negative 18.26% - which represents the most oversold reading since October 8, 1998, when it reached negative 24.27% (not shown on this chart).  Curiously, even during the bursting of the NASDAQ bubble from 2000 to 2002, we had never gotten a reading as oversold as this.  The closest we came was on September 21, 2001, when this ratio touched a low of negative 17.45% in the aftermath of the September 11th attacks.

More importantly in a space of only five months we have already seen three such spike downs.  Based on the 30 years worth of high-low data I have on the NASDAQ Composite, this is truly unprecedented.

As I mentioned in last night's commentary, either we crash at this level, or we bounce around for a few more days and then take off on a tradable rally a rally which could potentially last months.  Should the market fail to crash by Monday morning, then we intend to go 100% long in our DJIA Timing System.  We will provide more details in this upcoming weekend commentary.

Best of luck,

Henry To, CFA

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