You could call Friday’s action an exclamation point to one of the wildest weeks of intraday reversals I’ve ever seen.  With about 30 minutes to go of trading, the market was dead in the water with volume picking up and the indices right on the verge of taking out the lows of the day.  We had already taken out support of those wedge formations I’ve been discussing which was critical to staying away from the possibility of testing the January lows.  The only way we were going to avoid serious technical damage today was some kind of end of day miracle rally.  I have to admit, given the trading of the past week it was in the back of my mind.  But nothing like this.  There he was, Charlie Gasparino of CNBC mentioning a rumor of an Ambac bailout plan that was imminent (Monday or Tuesday of next week). 

.. and here we go again.  It led to a 250 point reversal in 30 minutes.  Suddenly, the short positions I had put on earlier in the day didn’t look like such a good idea!  In 30 minutes, the market changed from one on the verge of another big break down to one in a state of uncertainty.  As has been the case for much of the past 8 months or so, good technical and fundamental analysis has given way to rumor, Fed speak and news driven rallies.  It remains an incredibly difficult environment to trade and one that I have to continue to recommend staying out of for now.  You’ve seen how difficult it has been for me to pull profits out this year and I eat and breathe this stuff while trading for a living. 

I liked what one member said in an email to me: "It feels like skill is being replaced by luck."  So true.  Of course there is luck involved to successful investing, but it seems much more so in recent weeks.  There will come a time when new leaders emerge and the rumors, Fed speak and big news headlines subside.  When the technicals matter and patterns become more predictable.  When that time comes, there will be extraordinary profit potential.  Take this time to watch and learn.  Maybe read that investing book you’ve always wanted to read, study the tutorial here and the nearly 4 years of Stock Watch report archives to get an idea of what  a great looking chart looks like.  Keep your watch lists up to date (the Hot Stocks screen here at Self Investors is a great place to start!).  Be patient but prepared.

On Friday, Don Worden of Telechart summed up the recent action so well in his notes:

"There is an old saying you seldom hear anymore: "The market knows." It is generally uttered in kind of a spooky, ghostly tone. But it would mean the same thing even if somebody like the late Judy Garland were belting out the ghostly lyrics. It means that the market is clairvoyant. It often behaves in a way that convinces traders it must have known all along what was going to happen. 

     It is something the market has repeated very often–over the years. And nobody has ever been able to explain it, although many think they know. However, if I know anything about ghosts, they are very "shut mouthed." They don’t give away many secrets.  I think it’s possible that I’ve never encountered a market that lacks intuitive insight to the degree this one does. It’s clear the market spends most of the time bewildered these days. This obviously means the ghosts themselves are confused. Maybe they went on strike with the writers and are refusing to come back.
     In the meantime, the rest of us mortals are forced to think for ourselves. All we can do is try not to lose money until the market or the ghosts lurking about make a mistake and inadvertently drop a clue.

     That was an impressive move during the last half hour today. The problem is that was an ominous move yesterday. And a bullish move the day before that. And so it’s been. Each day the market puts on a show for us, delivering a believable clue that soon falls apart–or more often is just forgotten. "

Let’s turn to the charts.  Perhaps they provide us with some clues (or not!)

Like all the indices, the Nasdaq too was left for dead heading into the last 30 minutes of trading on Friday.  It broke down below the wedge formation in convincing fashion before staging that massive late day  reversal.  Notice how it just got back to the point of resistance/support of that bottom short term trend.  Are we bearish or bullish here?  It’s just damn tough to tell at this point.  We do appear to be breaking down in the short term but with the bulls having an outside chance to still break out from the top of the wedge, given Friday’s high volume reversal.  It’s entirely possible that Friday’s lows just marks the bottom of a wider triangle formation, but at this point I have to give the nod to the bears.  It took a massive rally based on speculation of a deal getting done with Ambac and a whole helluva lot has to happen for that to work out.  With all of the deteriorating economic news and rising inflation, the bulls are pinning their hopes on a bail out of bond insurers.  The bulls have legs to stand on, but I’m darn certain it’s less than 4.

Notice that the S&P really took out that wedge on Friday with the massive rally just getting it back to resistance of the wedge.  It just looks like this market is going to need to see a massive follow through very early in the week next week for Friday’s move to mean anything.  Again, Friday’s lows could just mark the bottom of a much wider wedge formation, but regardless, we’re going to need to break out of the top of the formation to avoid a retest of the January lows.

The Dow looks better than the S&P and Nasdaq do and was able to get back inside that wedge but lets remember that the Dow isn’t the best representative of the overall market.

The bottom line is that this market remains a big uncertainty with no trend, little leadership (commodities) and a flurry of upcoming important economic events (PPI, GDP, housing numbers).  Not to mention a speech from Bernanke on Thursday to contend with.  This market is probably ready to explode very soon, but which way remains to be seen.  It’s best to stay out until a firm sense of direction is resolved.

::: Model Portfolio :::

** This section will now appear as a separate report to be published every other Wednesday. 

The Self Investors Model Portolio wrapped up 2007 with a 30.2% gain.  Would you like to receive buy and sell alerts within minutes (NEW! now get them via instant messaging in near real time) of each transaction in the portfolio?  You can receive these along with ALL of the tracking tools and 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. Internet Service Providers: 10.75%
2. Steel & Iron: 8.15%
3. Wholesale – Other: 7.80%
4. Aluminum: 7.60%
5. Copper: 7.25%
6. Gold: 7.15%
7. Technical Services:  6.05%
8. Meat Products: 6.05%
9. Heavy Construction: 5.95%
10. Diversified Computer Systems: 5.75%

– Top 10 Worst Performing Industries For the Week –

1. Toy & Hobby Stores: -7.65%
2. Sporting Activities: -6.70%
3. Consumer Services: -5.75%
4. Apparel Footwear: -4.95
6. Rental & Leasing Services: -4.65%
7. Manufactured Housing: -4.50%
8. Personal Computers: -4.25%
9. Drug Delivery: -4.20%
10. Security Software & Services: -4.20%

– Top 5 Best Performing ETFs For the Week –
 
1. Herzfeld Caribbean Basin (CUBA) 22.35%
2. Market Vectors Steel (SLX)  7.60%
3. Asa Gold (ASA) 7.40%
4. Ishares Brazil (EWZ) 7.30%
5. Market Vectors Gold Miners (GDX) 7.15%

– Worst 5 Performing ETF’s –

1. HOLDRS Telecom (TTF) -6.20%
2. Ishares Telecom (IYZ) -5.45%
3. iPath India (INP) -5.30%
4. SPDR Biotech (XBI) -4.80%
5. Powershares Clean Energy (PBW) -4.75%

:::  IPO’s Worth Watching for This Week :::

This section will now appear as a separate post on Mondays (if there are some interesting IPO’s coming to market).

While 2008 should be a much slower year for IPO’s considering the deterioration of the market, there will continue to be some good companies coming to market here and there.  I’ll be highlighting the best IPO’s every Monday.

::: Upcoming Economic Reports (2/25/2008– 2/29/2008) :::

Monday:         Existing Home Sales
Tuesday:       PPI, Consumer Confidence
Wednesday:  Durable Orders, New Home Sales, Crude Inventories
Thursday:      GDP, Initial Claims
Friday:            Personal Income/Spending, Core PCE Inflation, Chicago PMI

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

Monday:
Henry Schein (HSIC), Donaldson (DCI), Focus Media (FMCN), LDK Solar (LDK), Shanda Interactive (SNDA)

Tuesday:
China Fire & Security (CFSG), Foster Wheeler (FWLT), Home Depot (HD), Internet Gold (IGLD), Natus Medical (BABY)

Wednesday:
Amedisys (AMED), Toll Brothers (TOL), LifeCell (LIFC), Central European Distribution (CEDC), Ctrip.com (CTRP), Flowserve (FLS), Gmarket (GMKT)

Thursday:
Arena Resources (ARD), Chart Industries (GTLS), Flour (FLR), Rowan (RDC), American Intl (AIG), China Finance Online (JRJC), China Medical Tech (CMED), Comp Vale Do Rio (RIO), Deckers Outdoor (DECK), Grant Prideco (GRP), Hansen Natural (HANS), Heico (HEI), SW Energy (SWN)

::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::

1. Goldcorp (GG) Breaking Out After Blowing Out Estimates, Vasco Data (VDSI) Crushed Again

2. Axsys (AXYS) Breaks Out to All Time Highs, Suntech (STP) Blinds Solar

3. The Coal ETF, Gold / Agriculture Topping? Time to Play Financials / Homebuilders?

For this week’s market report I’m doing something a bit different by highlighting moves in certain sectors through ETF’s to get a good picture of the overall market.  I’ll have analysis of the major indices following any significant moves next week.

In the last ETF review, I discussed the opposite trends of gas and oil – oil generally breaking down, while natural gas appears to be in the beginning stages of new major uptrend.  Note the double botton base in the US Natural Gas Fund and a beak of the downward trend.  It’s overbought in the short term, but natural gas appears to be in play on the long side for 08.

Oil did indeed break down in a big way but has retraced much of that move back to resistance.  I think it’s probably setting up for another move down soon to test the lows of the correction.  The Energy Select SPDR ETF (XLE) is hitting resistance of the 200 day moving average.

Interested in leveraging up on another move down in oil?  Then DUG is your tool.  It seeks to return twice the inverse of the move in oil. 

Topping High Flyers?

Gold and Agriculture stocks have been flying but showing some signs of deterioration, at least in the short term.

Gold broke out of a nice looking bullish triangle formation back in December and is carving out another.  However, this triangle formation is showing some heavy selling and more likely prone to failure.  My guess is that it needs to form a more substantial base than a short triangle in order to coil the spring for a move to 1000/oz and beyond.  If this triangle is broken up here, look for a move to the 50 day moving average around 86, where it has found support in the past.

The Powershares Agriculture ETF (DBA) just keeps pushing higher, but topping signals are beginning to appear.  The high volume reversal on Feb 6th was the first.  Perhaps it hits psychological resistance around 40 and fails.  This thing is well overdue for a correction, but it won’t happen until it can take out that 20 day moving average, which it has been trending along for several months.

Left for Dead, Now Bottoming Out? Homebuilders & Financials

I’ve written about the bottoming homebuilders on a couple of occasions in the past several weeks and admittedly received some flak from people for making the first call.  Then they ran up 50% and the talking heads began to call a bottom.  That’s when I wrote up my 2nd report mentioning they were bottoming but very overbought in the short term (time to profit on the short side!).. and profit we did!  So where do we stand now?

The homebuilders continue to retrace that big ramp up out of downward trends and in my opinion getting close to ending this consolidation phase and beginning a new leg up.  The sell volume on Friday was a bit on the heavy side, so I think there is the possibility of more consolidation (maybe another 5 – 10%)  The key is not trying to jump in too early and wait for a new leg up to emerge.  In other words you want to wait for big buyers to step in again and start buying just as they did the first time around. 

Financials are trading in near tandem with the builders.  The big run up after the Fed cuts, followed by a retracement of that move.  I think the financials are a bit closer to beginning a new leg up then the builders are, but I want to see sell volume diminish to about half of the average followed by another big surge in buying.   I do think the financials bottomed though as a whole.  That certainly doesn’t mean individual financial names couldn’t continue to slide further or go bankrupt. 

New Kid on the Block – Market Vectors Coal ETF (KOL)

Coal has been hot of late and recently has been receiving much mainstream attention at lofty levels.  No wonder coal names have begun to see some correcting.  I think that continues for a bit longer, but coal does seem like another good play in 08 once it retraces some of this move up.  KOL is a new ETF from Market Vectors that began trading in January.  It’s liquid enough out of the gates to consider as a good, diversified way to play coal.

 ::: Model Portfolio :::

** This section will now appear as a separate report to be published every other Wednesday. 

The Self Investors Model Portolio wrapped up 2007 with a 30.2% gain.  Would you like to receive buy and sell alerts within minutes (NEW! now get them via instant messaging in near real time) of each transaction in the portfolio?  You can receive these along with ALL of the tracking tools and 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. Rubber & Plastics: 10.70%
2. Internet Service Providers: 10.70%
3. Aluminum: 8.90%
4. Heavy Construction: 7.80%
5. CATV Systems: 7.45%
6. Oil & Gas Equipment Services: 6.30%
7. Nonmetallic Mineral & Mining:  5.50%
8. Steel & Iron: 5.45%
9. Broadcasting – Radio: 5.15%
10. Shipping: 5.10%

– Top 10 Worst Performing Industries For the Week –

1. Toy & Hobby Stores: -12.00%
2. Surety & Title Insurance: -8.90%
3. Manufactured Housing: -5.45%
4. Education & Training Services: -5.15
6. Jewelry Stores: -4.90%
7. Electronic Stores: -4.75%
8. Gaming Activities: -4.25%
9. Medical Practitioners: -4.20%
10. Healthcare Info Providers: -3.90%

– Top 5 Best Performing ETFs For the Week –
 
1. Market Vectors Global Alernative Energy (GEX) 10.35%
2. Market Vectors Nuclear Energy (NLR)  8.85%
3. Powershares China (PGJ) 7.55%
4. Market Vectors Russia (RSX) 7.50%
5. Ishares Sweden (EWD) 6.40%

– Worst 5 Performing ETF’s –

1. Ishares Home Construction (ITB) -3.45%
2. KBW Banking (KRE) -3.20%
3. Powershares High Yield Dividend (PEY) -2.45%
4. SPDR Gold (GLD) -2.05%
5. SPDR Homebuilders (XHB) -2.00%

:::  IPO’s Worth Watching for This Week :::

This section will now appear as a separate post on Mondays if there are some interesting IPO’s coming to market.

While 2008 should be a much slower year for IPO’s considering the deterioration of the market, there will continue to be some good companies coming to market here and there.  I’ll be highlighting the best IPO’s every Monday.

::: Upcoming Economic Reports (2/18/2008– 2/22/2008) :::

Monday:         None
Tuesday:       None
Wednesday:  CPI, Building Permits, Housing Starts, FOMC Minutes
Thursday:      Leading Indicators, Initial Claims, Philly Fed
Friday:            None

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

Tuesday:
Walmart (WMT), China Fire & Security (CFSG), Fossil (FOSL), Crocs (CROX), iRobot (IRBT)

Wednesday:
Garmin (GRMN), Transocean (RIG), Given Imaging (GIVN), Sina (SINA)

Thursday:
The Street.com (TSCM), Morningstar (MORN), Hornbeck Offshore (HOS), ICON (ICLR), ANSYS (ANSS), Pan American Silver (PAAS)
Ritchie Bros. Auctioneers (RBA), GFI Group (GFIG), Blue Coat Systems (BCSI), Cleveland Cliffs (CLF)

Friday:
Life Time Fitness (LTM)

::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::

1. Yahoo Rejects Microsoft, Google Wins

2. Technicals Improving, But Significant Risk Remains

3. Gaiam (GAIA) to Spinoff Real Goods Solar (RSOL)

4. Focus on the Present to Improve the Future

5. Market In Need of Some Roger Clemens Juice; Stock of Day – Balchem (BCPC)

6. Jim Cramer Credibility Problem Part Deux

4. Stop, Drop and Think

It was a great day for bulls on the surface with a better than expected retail number (although in part fueled by rising gas prices) and not as bad as expected results from Applied Materials (AMAT).  Near the bottom, the market looks for excuses to rally and I think there was certainly some of that today but I don’t think we’re out of the woods from testing the lows of this correction. 

There continues to be no leadership.  When I’m running through my watch lists on a day the market rises nearly 200 points and have a hell of a time finding good buy candidates, I know it’s still not a healthy market.  That’s exactly what I’ve been seeing over the past few weeks.  Sure there are pockets of strength in some of the metals, railroads, coal, etc but most of the stocks moving are those that have been beaten down the most. 

The brightest red flag of the day was in the volume levels.  Institutions just aren’t putting big money to work as buy volume continues to trickle in at below average levels.  You want to see some gusto on a day like today, but it just wasn’t there.  There is a good chance of pushing a bit higher, but combine the lack of leadership with the lack of volume and the long side remains a dangerous place to play.

The Nasdaq cleared that first steep downward trend today with light volume.  Considering the Nasdaq reversed off its highs yesterday with increasing volume I was a bit surprised at today’s move and in hindsight regret closing my QLD positions   This move sets up a move to the next resistance area at the Jan highs around 2425, but given the lack of buy volume recently, we may need to pull back first and test that developing short term upward trend line (in green).  Keep an eye on the green line.  If we take that out, I think there is a very good chance of testing the lows of the correction or worse.

The S&P has yet to clear that first downward trend resistance and may have a tough time doing so given the lack of buy volume.  If it does clear, look for a retest of the next resistance level around 1400.  Also, keep an eye on the short term upward trend developing off the bottom – again, if we take that out there is a decent chance of testing the lows of the correction.

The Dow is a near replica of the S&P in terms of support and resistance.  Notice the downward slope of buy volume.. not what you want to see in a strong market.

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  It’s been quite some time (last featured Parexel (PRXL) since I featured a Stock of the Day here as the market just hasn’t yielded many quality candidates, but as the market pushes higher off a bottom, a few more leading stocks are beginning to move up with significant volume (although leadership is non existent at this point and caution is urged).  I try and highlight stocks in this section that most people aren’t talking about but "could" be talking about (hopefully after you’ve already pocketed big gains).  Today’s stock certainly fits the bill – Balchem Corp (BCPC), a diversified specialty chemical company.

Balchem Corporation (Balchem) is engaged in the development, manufacture and marketing of specialty performance ingredients and products for the food, nutritional, feed, pharmaceutical and medical sterilization industries. The Company has three segments: specialty products, encapsulated/nutritional products and the unencapsulated feed supplements segment (BCP Ingredients). The Company operates four subsidiaries, all of which are wholly owned: BCP Ingredients, Inc. (BCP), Balchem Minerals Corporation (BMC), BCP St. Gabriel, Inc. (BCP St. Gabriel) and Chelated Minerals Corporation (CMC). In August 2006, Balchem acquired from BioAdditives, LLC, CMB Additives, LLC and CMB Realty of Louisiana, an animal feed-grade aqueous choline chloride manufacturing facility and related assets located in St. Gabriel, Louisiana. In May 2007, the Company completed acquisition of the European-based choline chloride and methylamines businesses of Akzo Nobel Chemicals S.p.A. in Marano Ticino.