In my last weekly report, I mentioned the near vertical drop in the indices as they approached major support areas of a well defined bear market downtrend and to be prepared for a massive snap back rally.  We finally got the long awaited rally this week as better than expected results out of Wells Fargo, JP Morgan and Citigroup and plummeting crude prices helped to ignite the rally.  The question now becomes just how strong a rally was it and does it have legs? Was that Monday low of last week a long term bottom?  I think the chances are good. 

With the indices taking out the previous week’s lows then staging a big rally to close at the highs of the week with record volume, a floor in this market has been created.  We never quite saw panic reach a feverish pitch but the VIX did ramp up above 30 and as you’ll see in the charts below, capitulation in the Dow and S&P on the weekly charts was impressive.  At this point, the only way I see last week’s lows being taken out is if a major bank (Washington Mutual?) or homebuilder goes under which could really ratchet up the panic selling.  I’m not even going to try and put an odds on that happening, but there is some possibility there I suppose. 

As I mentioned to members in an email last week, I’m not chasing the rallies from here, but rather dabbling in long positions on the pull backs.  I’m not willing to get overly aggressive and want to slowly build my long exposure if the pull backs are orderly.  There will be plenty of time to profit and given the fact we are just getting into the bulk of earnings, it makes sense to be patient.  Wait for your price, it will come.  Let’s have a look at the charts of the indices:

I’ve been discussing the possibility of a big double bottom base in the Nasdaq and that still remains a good possibility.  Notice that the Nasdaq came very close to touching the 2008 lows before reversing sharply mid week.  I would have liked to have seen it take out those lows briefly to shake out a few more weak hands and it still could do that, but that area around 2175 is shaping up to be a very strong level of support.  Not even disappointing results out of Google and Microsoft could put much of a dent in the Nasdaq on Friday, so the market is showing some signs of stabilization and resiliency.

In my last report, I said "I do think we will get a furious rally if and when the S&P touches that channel around 1200.".  The S&P did touch the bottom of this downward channel as you see below and what a furious rally it was.  Note the amount of volume behind the move.  Combine that with the fact that the S&P closed at the highs of the week and you have a recipe for considerable momentum.  That doesn’t mean I’m chasing this rally.  As mentioned above, I’m buying select names on the pull backs with smaller positions.  The S&P cleared the first level of resistance at the March lows but will face some resistance at the Jan lows on Monday.  If it can clear that, there is a good chance of testing the 50 day moving average around 1325, but I do think we’ll rest just a bit before making a serious run at that level. 

Is it any coincidence the Dow hit right at major support at the bottom of the downtrend and rallied? Not likely!  As with the S&P there was tremendous volume behind this weekly move and with a close at the highs of the week, there is without a doubt enough momentum to carry it up to at least the next level of major resistance around 11750.  We could hit that early next week before taking a breather.

You can clearly see the framework the indices are working within, with major support at the bottom of the downward channel, resistance all the way up to the top.  An end to the bear market can not be declared until this well defined downtrend is broken and I’d be surprised if that happened this year.  Consider last weeks move the setup for a significant tradeable rally within a bear market. 

Commodities continued to unravel last week with much of that money flowing into the beaten down financials and home builders.  The give and take between those two extremes was just a matter of time, but it’s too early to tell if a major correction is underway in commodities AND if this is a bottom in financials.  Although, I think a bottoming out in financials is closer to reality then the beginnings of a major correction in commodities. 

I’m more interested in where new leadership will emerge from and there are some indications that leadership is emerging in medical and drug stocks.  Below are the best performing industries over the past 20 and 30 days (those linked with a number indicate that there are high quality breakout stocks from that industry in the Self Investors Breakout Tracker).  I have found that focusing on trends within the best performers over 20 days allows me to get in on the next area of strength early enough to capture the big moves, but not so early that it ends up being a false alarm.  Over the past 20 trading days, 13 of the top 20 best performing industries are medical/health related.  This strength is confirmed in the 30 day timeframe as well, with half of the best performing industries medical/health related. 

I’m going to provide an Excel download file to all my members tonight or tomorrow afternoon, with about 40 leading companies within the top performing industries over the last several weeks.  If you’d like to download this file it doesn’t cost a thing, just register for the free Bronze membership in the upper right of this page.  If you’re privacy paranoid (although no reason to be, you’re in good hands here at SelfInvestors!) and won’t provide a valid email address here’s a few to chew on (in no way buy recommendations, please do your own research): PRXL, EXAC & SRCL.

 

I::: Model Portfolio :::

** This section will now appear as a separate report about every other Wednesday. 

The Self Investors Model Portolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2% and is more than 10% ahead of the S&P in a very difficult 2008.  This is a REAL portfolio with position sizing and features annualized returns of 24%.

Would you like to receive buy and sell alerts in the Model Portfolio within minutes (NEW! now get them via instant messaging in near real time) of each transaction?  You can receive these along with ALL of the tracking tools and video reports with the very popular Gold membership.  Don’t delay, get started today and join me for many more highly profitable months here at SelfInvestors.com.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Major Airlines: 30.81%
2. Banks – SE:  22.15%
3. General Entertainment: 19.00%
4. Mortgage Investment: 18.00%
5. Drugs – Generic: 17.60%
6. Regional Airlines: 16.85%
7. Surety & Title Insurance:  15.65%
8. Investment Brokerages: 14.85%
9. Residential Construction: 14.65%
10. Investment Brokerages – Regional: 14.00%

– Top 10 Worst Performing Industries For the Week –

1. Nonmetallic Mineral Mining: -11.50%
2. Manufactured Housing: -9.50%
3. Industrial Metals & Minerals: -8.90%
4. Independent Oil & Gas: -8.20%
5. Steel & Iron: -8.15%
6. Oil & Gas Drilling & Exploration: -7.15%
7. Agricultural – Chemicals: -6.85%
8. Oil & Gas Refining & Marketing: -5.45%
9. Copper: -5.20%
10. Heavy Construction: -4.95%

– Top 5 Best Performing ETFs For the Week –

1. SPDR Home Builders (XHB) 16.10% 
2. HLDRS Regional Banks (RKH) 15.95%
3. iShares Home Construction (ITB) 15.15%
4. KBW Bank (KBE) 14.50%
5. Turkish Fund (TKF)  13.35%

– Worst 5 Performing ETF’s –

1. Market Vectors Coal (KOL) -12.75%
2. US Oil (USO) -11.05%
3. PowerShares Dynamic Energy (PXE) -10.75%
4. iShares Commodities (GSG)  -9.90%
5. US Natural Gas (UNG) -9.80%

::: Upcoming Economic Reports (7/21/2008- 7/25/2008) :::

Monday:        Leading Indicators 
Tuesday:       None
Wednesday:  Fed Beige Book, Crude Inventories
Thursday:      Existing Home Sales, Initial Claims
Friday:           New Home Sales, Durable Orders

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

Monday: American Express (AXP), Apple (AAPL),  Bank of America (BAC), Homex (HXM)

Tuesday: AmSurg (AMSG), Axsys Tech (AXYS), CH Robinson (CHRW), Chicago Mercantile (CME), Icon (ICLR), Intuitive Surgical (ISRG), Jacobs Engineering (JEC), Methanex (MEOH), NVR Inc (NVR), Options Express (OXPS), VMware (VMW), Yahoo (YHOO)

Wednesday: Air Products & Chemicals (APD), Airgas (ARG), Alcon (ACL), Baidu (BIDU), Chipotle Mexican Grill (CMG), EMC (EMC), Genzyme (GENZ), Hudson City Bancorp (HCBK), NVE Corp (NVEC), Omniture (OMTR), OSI Pharma (OSIP), Peabody Energy (BTU), Pulte Homes (PHM), Ryland (RYL)

Thursday: 3M (MMM), AsiaInfo (ASIA), Bucyrus Intl (BUCY), Celgene (CELG), Companhia Rio (RIO), Diamond Offshore (DO), Eastman Chemical (EMN), EZcorp (EZPW), Flir Systems (FLIR), Integral Systems (ISYS), Interactive Brokers (IBKR), Life Time Fitness (LTM), Perdigao (PDA), Potash (POT), Stericycle (SRCL), Strayer Education (STRA),  Terra Industries (TRA), Terra Nitrogen (TNH), Dow Chemical (DOW), VCA Antech (WOOF), Vision China Media (VISN), ZOLL Medical (ZOLL)

Friday: Arch Coal (ACI), Honda (HMC), T Rowe Price (TROW)