Obama’s Foreclosure Bailout Fails To Impress Market

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

Indices Confirm Bearish Triangle Patterns But Prepare For Short Covering Rally

In my last weekly report I continued to highlight the impending collapse of the indices as they negotiated the last levels of support of their bearish descending triangles, commenting:

“The S&P continues to manage to hold up at support at the bottom of the triangle as well, but there is absolutely no more room to run to the downside.  It has to get going and get going quickly to avoid a melt down here.  Notice the failure at the 50 day moving average in blue for the 2nd time in a month.  This indicates that the likelihood of a break down from here outweighs the possibility of a break out to the upside.  Be extremely careful here and maintain capital preservation mode until the S&P can convincingly breakout above major resistance levels.” ……

The indices did indeed finally breakdown from support levels that had held for over a month and this time there was no government announcement that could save them.  The day that Obama announced the details of his mortgage bailout plan, the market was absolutely flat as traders remain skeptical that the moves would do much good. 

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The Self Investors Model Portfolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2%, finished nearly 35% ahead of the S&P in a very difficult 2008 and is off to a good start here in 2009, ahead of the S&P YTD performance by 15%.  This is a REAL portfolio with position sizing and not based on extrapolated hypothetical gains for each trade.  On average it beats the S&P by 20% per year. The result?

* Putting $100K into an S&P tracking index at the beginning of 2004 and you’re down more than $30K. 
* The Self Investors Model in the same time period would have more than doubled your money.  That’s the power of not buying and holding. 

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Let’s take a look at the indices..

Tuesday was the day the indices broke the first levels of critical support and then some.  Notice the S&P also took out the important 800 level as well, met resistance there and nearly tested the November lows in the 750 range.  The volume on Friday was heavy but not what I would call massive capitulation to mark a bottom.  Had we closed in the green with a bit more volume I’d be a bit more optimistic, but the rally fizzled a bit and the S&P is still in position to test the 740 – 750 level.  Stochastics reveal that the indices are getting mighty oversold down here, so it’s going to get increasingly risky on the short side.

22209_sp500

The Nasdaq remains the strongest index and I’m not yet convinced that it too needs to test those November lows.  It held (barely) support of the January lows on Friday and still has support of the December lows around 1400. 

22209_nasdaq 

The Dow continued its slide into the abyss, took out the November lows and is closing in on the absolute low of the 2002 crash and burn around 7200.   I believe a test of 7000 is a near certainty at this point, especially if the Dow doesn’t get back above 7500 in a hurry.  At the 7000 level keep an eye out for capitulation.

22209_dow

To sum it up for this week, I’m still bearish on this market but prefer to be largely in cash at this point while the bottoming process plays out over the next couple weeks.  I began closing out a few short positions in the Self Investors Model Portfolio last week and am now about 85% cash with the 15% in equities split between long and short.  With the market down another 15% to start off 2009 and the indices getting back into very oversold territory, I just feel that there is increasingly too much risk on the short side down here.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Broadcasting – Radio: 15.70%
2. Auto Parts Stores: 8.50%
3. Sporting Goods Stores: 5.25%
4. Recreational Goods: 4.30%
5. Drugs – Generic:  2.50%
6. Healthcare Info Services: 2.30%
7. Grocery Stores: 1.05%
8. Discount – Variety Stores: .25%
9. Silver: -.45%
10. Education & Training: -.50

– Top 10 Worst Performing Industries For the Week –

1. Cement: -22.65%
2. Credit Services: -20.95%
3. Major Airlines: -19.85%
4. Life Insurance: -19.80%
5. Money Center Banks: -18.80%
6. Office Supplies: -18.60%
7. Housewares & Accessories: -18.55%
8. Banks – Midwest: -18.05%
9. Semis – Memory Chips: -17.80%
10. Banks – Foreign Regional: -17.70

– Top 5 Best Performing ETFs For the Week –
(excluding leveraged ETFs)

1. iShares Silver (SLV) 6.90%
2. SPDR Gold (GLD) 4.95%
3. iShares Gold (IAU) 4.75%
4. PowerShares Precious Metals (DBP) 4.50%
5. Central Fund of Canada (CEF) 4.05%

– Worst 5 Performing ETF’s –

1. HLDRS Regional Banks (RKH) -22.59%
2. SPDR Series Trust (KBE) -21.20%
3. SPDR Financials (XLF) -17.45%
4. iShares South Korea (KF) -16.50%
5. Central European & Russia (CEE) -15.60%

::: Upcoming Economic Reports (2/23/2009- 2/27/2009) :::

Monday:        None
Tuesday:       Consumer Confidence
Wednesday:  Crude Inventories
Thursday:      Durable Goods Orders, Initial Claims, New Homes Sales
Friday:           GDP, Chicago PMI

::: Earnings I’m Watching This Week :::

Monday: Icon (ICLR), Partner Communications (PTNR)

Tuesday: Astec Industries (ASTE), Balchem (BCPC), Chicago Bridge & Iron (CBI), Epiq Systems (EPIQ), First Solar (FSLR), Henry Schein (HSIC), Home Depot (HD), Mercado Libre (MELI), Target (TGT), VanceInfo Technologies (VIT)

Wednesday: Aegean Marine (ANW), Berry Petroleum (BRY), Clean Harbors (CLH), Flowserve (FLS), Fluor (FLR), ManTech (MANT), Netease (NTES), Psychiatric Solutions (PSYS), SalesForce.com (CRM), Synovis Life Technologies (SYNO),

Thursday: AirMedia (AMCN), Akeena Solar (AKNS), Athena Health (ATHN), Cubic (CUB), eResearch (ERES), Genoptix (GXDX), Hansen Natural (HANS), LKQX (LKQX), Nasdaq (NDAQ), World Fuel Services (INT)

Friday: Shanda Interactive (SNDA), Trex Co. (TWP)

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