The longer than anticipated housing correction was heightened by sub prime concern which was the catalyst for the major indexes plunge to the tune of 1.6%, 2.0% and 1.9% for Dow, S&P 500 and NASDAQ composite. The bears witnessed the triggering of trading curbs for the first time, since March 13, 07. Delinquencies across all mortgages products together with deterioration of credit quality in the sub prime mortgages were the vehicle for falling financial sectors (leadership in recent up market). Confirming many investors worries with regard to the broader shakeout in the housing market: Even prime loans are testing the profit woes. The worst is likely in the offing, the popular notion that only sub prime is the victim of the recent housing fall out. Alas, prime loans are beginning to sour as well especially home equity loans that are being pegged as piggyback and are construed as a second mortgage. As the price of homes continues to fall, the banks/financial institutions will be forced to increase the provisions of the borrowers against any foreseeable losses. The concern of option adjustable rate mortgages, where loans are based on interest only could see a havoc developing where loans may push up payments by 80 to 120 basis points. A sign of relief in the offing where banks/institutions are increasing their reserve commitment for troubled prime home/equity loans portfolios. Bond investors for that matter are shunning away from the residential mortgage products in the hope of much higher yields bestowed upon their issues. The release of the July Beige Book by the Federal Reserve provided no surprise. Emphasis was given to weak residential construction, modest overall retail inflation (despite higher input/energy costs), modest consumer spending growth, some pickup in business investment/manufacturing output, and overall economic moderate growth.

The market has deviated from its traditional resiliency to withstand occasional bouts of sell off/distribution. Yesterdays action proved to be surely more severe, creating a disconnect between stocks and bond investors. Investors/traders are chasing risk in volatile issues, as manifested by the NASDAQ 100 index (large-cap technology), up by 14%. Expectancy of big returns by performance minded institutionals/hedge funds are driving global indexes to their highest. The belief in the growth Cos. with concentration overseas operations capture 50% of the S&P 500, where their earnings have grown by 20%. Recent market sell off is providing sharp swings: indicative of peril of recent shift toward volatile issues, where strong rebounds (at times V shape) to new records. (Dow @ 1,400.04, S&P 500 @ 1,553.08 and NASDAQ Composite @ 2,720.04.) Sharp volatility in the market may be here to stay till recent gains digestions are completed. Major economic data in coming sessions may influence the degree of the deviation upon their interpretation of positive or negative by investors/traders. Volatility is becoming a norm. Leadership in the market to be geared toward technology and transportation (emphasis-Railroads). Dow @ 18,000 may be a stretch but only 28% from 14,000. Achievable due to accelerating global profit growth.

DOW MOMENTUM: (13,480-14,025), S&P 500: (1,460-1,565), NASDAQ COMP (2,510-2,720). ACCUMULATE/TAKE POSITIONS IN STRONG ACTING ISSUES: AMYLIN PHARM /AMLN/ (47.41), ANDERSONS /ANDE/ (44.93), CHINA MEDICAL /CMED/ (33.83), DIEBOLD /DBD/ (52.34), INGERSOLL-RAND /IR/ (51.93), LILLY ELI /LLY/ (58.44), SCHLUMBERGER /SLB/ (96.91)