The Fed induced capitulation gave way to a quick ramp up in the market off an oversold bottom but it didn’t long for traders to lock in profits as poor economic news poured in.  Just as the conviction behind buying levels reveals much about the health of the overall market, the conviction behind the selling does the same. 

The technical action last week was encouraging.  Some fear crept back into the market on Tuesday’s nearly 400 point Dow plunge, but as I mentioned in the after market report that day, there was a divergence between price and volume.  The selling intensity was not characteristic of institutions dumping positions left and right.  To me, it looked like healthy selling following, a V like spike up off the bottom.  Notice that over the next 3 days, the market stopped the bleeding almost immediately despite a significant futures sell off following a poor Cisco outlook.  That action on Thursday was a good indication that maybe buyers are beginning to return.  I remember reading all the doom and gloom regarding Cisco on some of the discussion boards with calls for a drop below 20.   Cisco closed in the green for the day with a massive day of capitulation.   It was significant for Cisco, for tech and the Nasdaq in general. 

Let’s take a quick look at the charts….

The Nasdaq looks mighty close to bottoming, but if in fact that is the case we need to get some big buying follow through soon.  That revesal off the lows on Thursday with heavy volume was in my mind a telling sign that bulls are resuming some control at least in the short term.  I do believe that the odds of a rally here are significantly greater than another leg down below key support of 2200 but much risk remains.  This is still a headline driven market with no leadership.  Keep that in mind when making trading decisions.  If the Nasdaq can take out 2425, look for a run to 2500.

I like the healthy retracement of the initial surge off the bottom.  Notice that buy volume has been overshadowing sell volume.  There is short term support in the S&P at 1325 so taking out that level and closing below that level would indicate that a test of the lows  around 1275 are likely.  Again, I think big buying needs to happen quickly (sometime next week) or testing the lows of this correction (or worse) becomes much more likely.

You see the Dow is about at the half way point of a retracement as well and could very well yo yo back and forth between support and resistance as the market sorts out a bottom down here.  Volume levels do indicate more bullishness, but institutions need to step in and start doing some buying soon or we’re testing the lows around 11500 – 11750.

 ::: Model Portfolio :::

** This section will now appear as a separate report to be published on most Wednesdays. 

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. Wholesale – Other: 2.75%
2. Medical Laboratories & Research: 2.55%
3. Medical Practitioners: 2.30%
4. Home Health Care: 2.05%
5. Drug Related Products: 1.50%
6. Drug Delivery: 1.10%
7. Entertainment Diversified:  .85%
8. Medical Instruments & Supplies: .65%
9. Medical Equipment Wholesale: .35%
10. Independent Oil & Gas: .25%

– Top 10 Worst Performing Industries For the Week –

1. Semiconductor – Memory Chips: -15.35%
2. Residential Construction: -14.45%
3. Credit Services: -11.05%
4. Recreational Vehicles: -10.70%
5. Banks – SE: -10.25%
6. Toy & Hobby Stores: -10.05%
7. Heavy Construction: -9.90%
8. Cement: -9.55%
9. Home Furnishing Stores: -9.20%
10. Farm Products: -9.10%

– Top 5 Best Performing ETFs For the Week –
 
1. US Natural Gas (UNG)  7.50%
2. Powershares Agriculture (DBA) 4.80%
3. Powershares Commodity (DBC) 4.70%
4. US Oil (USO) 3.45%
5. Ishares Silver (SLV) 2.45%

– Worst 5 Performing ETF’s –

1. SPDR Homebuilders (XHB) -14.60%
2. Ishares Home Construction (ITB) -12.60%
3. Chile Fund (CH) -10.90%
4. Market Vectors Global Alernative Energy (GEX)  -10.10%
5. iPath India (INP) -9.85%

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

This section will now appear as a separate post on Mondays.

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 (2/11/2008– 2/15/2008) :::

Monday:         None
Tuesday:       Treasury Budget
Wednesday:  Retail Sales, Business Inventories, Crude Inventories
Thursday:      Trade Balance, Initial Claims
Friday:            Export/Import Prices, Capacity Utilization, Industrial Production, Mich. Sentiment

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

Monday:
Qiagen (QGEN)

Tuesday:
Rick’s Cabaret (RICK)

Wednesday:
Nvidia (NVDA), First Solar (FSLR), The Navigators (NAVG), Baidu.com (BIDU), Healthcare Services Group (HCSG), Genzyme (GENZ), Rio Tinto (RTP), Millicom Intl (MICC)

Thursday:
Bucyrus (BUCY), Capella Education (CPLA), Chipotle Mexican Grill (CMG), Strayer Education (STRA), Hittite Microwave (HITT)

Friday:
Abercrombie and Fitch (ANF), Diana Shipping (DSX), Yingli Green Energy (YGE)

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

1. Not So Super Tuesday But Selling Constructive

2. Solera Holdings (SLH) One To Watch After Strong Earnings

3. Model Portfolio Update: Big Tech Is Killing Me

4. WMS Industries (WMS) Breaks out to All Time Highs On Earnings

5. China Oil Perspective – CNOOC (CEO), Petrochina (PTR) & China Petroleum (SNP)

6. Vanguard Mutual Funds Tops in 07

No, it wasn’t a super tuesday for the market today for bulls, but in terms of finding a bottom it was VERY constructive.  Huh? (more on this below).  The selling started early with the ISM report which showed contraction for the first time in a few years and provided a bit of ammunition for recession forecasters.  With Merrill Lynch predicting another inter-meeting Fed rate cut, maybe we’ll also see Jim Cramer making another irresponsible, irrational exclamation of a market soaring to new heights after another surprise Fed rate cut.  It’s hard to say, but one thing is for sure – if you make investment decisions based on his wild, "sure thing" predictions you will lose and lose big.  I really do want to quit picking on the guy, but he just makes it so difficult.  He needs to be held accountable.

The magnitude of the move down today was a bit surprising, but the move down in and of itself was not.  Carving out a bottom after a major sell off is a long process with many fits and starts.  The Fed induced rally off the bottom led by financials and homebuilders had just simply run out of steam with traders looking for an excuse to take profits into short term overbought conditions.  Today’s selling, believe it or not was positive!  It’s hard to see that if you were too aggressive long, but looking at the sell volume reveals there was little conviction behind the move.  That’s what I call constructive selling!  Let’s have a look.

It was easy to get wrapped up in the headlines today – Dow down 370, ISM Index worst in 5 years.. and think another melt down was on the horizon.  I didn’t see it that way today.  Just take a look at the volume levels today in the S&P.  The selling volume was average!  This looked like big profit taking and healthy consolidation of a V like run up off the bottom to me.  A healthy bottom always begins with constructive selling and today, while large in magnitude, could be categorized as just that.  I’ve said it several times here in the past few weeks and I’ll say it again – until we begin to see new leadership emerge in this market, we are not at a bottom.  We could still very well test the lows of this correction.  If you’re not a shorter term trader, you should STILL be out of the market.

 

I didn’t note in the graphic below but note that again sell volume didn’t correlate with the big sell off today.  A test of the lows would be healthy and go a long way in helping to repair the recent technical damage and shake out a few more sellers… and hopefully begin the process of producing new leadership in this market.

Same thing for the Dow.  The sharp, V like move off the bottom simply wasn’t sustainable and the ISM report this morning just provided an excuse to take profits en masse.

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day February 5th, 2008

Nasdaq: DOWN 3.08% today with volume 1% ABOVE average
Nasdaq ETF (QQQQ) DOWN 2.85%, volume 11% ABOVE average
Dow: DOWN 2.93%, with volume 8% ABOVE the average
Dow ETF (DIA): DOWN 2.44%, with volume 2% BELOW the average
S&P ETF (SPY): DOWN 2.68%,  with volume 27% ABOVE the average
Russell Small Cap ETF (IWM): DOWN 2.56%, with volume 31% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  There continues to be no leadership in this market and that was reflected today with Self Investors Leading Stocks down significantly more than the general market.

Summary:

* Decliners led Advancers 239 to 16
* Advancers were up an average of 1.62% today, with volume 34% ABOVE average
* Decliners were down an average of 4.17% with volume 8% above the average
* The total SI Leading Stocks Index was DOWN 3.8% today with volume 9% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Agriculture, Commodities, Gold, Bonds
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Global Energy, Utilities, Aerospace/Defense, Broadband, Clean Energy

* Today’s Market Moving Industries/Sectors (UP):
None

* Today’s Market Moving Industries/Sectors (DOWN):
Broker/Dealers, Nuclear Energy, Telecom, Energy, Financials

::: Stocks :::

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.  No major moves in leading stocks to speak of today.

If I were a bear I’d probably bury my cash in a hole (can bears bury things?) and hibernate for 3 months, but I’m neither bear nor bull, choosing to be objective through chart analysis.  Lately..  ‘er should I say for  the past year, that hasn’t been so easy.  There is a reason why I’ve been recommending for the past few months that most investors stay out of this market for now.  Volatility, irrationality, manipulation, rumor, Fed/government bailouts, blah, blah.. and that thing called a bear market.

Today, I thought I was clever.. maybe clever isn’t the word.. but pursuing opportunity in what I thought was sound technical analysis.  It was sound technical analysis, really it was.  Throw that out the window.  Home builders were overbought (up 70 – 80% in 3 weeks!, many were hitting resistance and showing distribution on the daily.  Easy short right?  Wrong.  They defied gravity today and rocketed through the roof with heavy volume, burying me in debris.  I have never. .. Let me repeat. . I have never been as in disbelief as I was watching those builders today.  I know..fed cut.. stimulus package…. how could I short the builders in this environment?  Trusting the technicals usually treats me well, but they won’t always and they didn’t today.  I was reminded of one my rules which I broke today.  Don’t make significant trading decisions on the day of or the day after a Fed announcement.   Tomorrow is a new day.. perhaps a day when the technicals will prevail and I obey my rules.  Discipline, discipline, discipline.

For the second day in a row it was a vomit inducing roller coaster ride.  250 point swing yesterday, 400 points today.  Yesterday signaled distribution, today signaled accumulation.  It continues to be difficult to know which way to trade but one thing is for sure.  Anything affected by rate cuts – financials, home builders and gold, have been soaring.  Not much else is working and there continues to be no leadership.  Yes, cash is still the best place to be for most.  Tomorrow could be another wild ride as the market (for some reason) seems to trade big off the unemployment reports.  Strap on the belts and enjoy the show from the sidelines.  Now where did I put that gin and pepto cocktail.

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day January 31st  2008

Nasdaq: UP 1.74% today with volume 19% ABOVE average
Nasdaq ETF (QQQQ) UP 1.71%, volume 41% ABOVE average
Dow: UP 1.67%, with volume 25% ABOVE the average
Dow ETF (DIA): UP 1.79%, with volume 62% ABOVE the average
S&P ETF (SPY): UP 1.82%,  with volume 48% ABOVE the average
Russell Small Cap ETF (IWM): UP 2.48%, with volume 20% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  With beaten down stocks leading the way in this bear market rally, leading stocks didn’t fare all that well today, significantly lagging the general market

Summary:

* Advancers led Decliners 187 to 69
* Advancers were up an average of 2.79% today, with volume 24% ABOVE average
* Decliners were down an average of 2.51% with volume 68% above the average
* The total SI Leading Stocks Index was UP 1.36% today with volume 35% ABOVE average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days):  
Agriculture, Gold Miners, Commodities, Gold, Bonds
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Energy, Utilities, Aerospace/Defense, Broadband, Clean Energy

* Today’s Market Moving Industries/Sectors (UP):
Homebuilders, Retail, Cosumer Discretionary, Financial

* Today’s Market Moving Industries/Sectors (DOWN):
Oil Services, Energy

::: Stocks :::

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.  There just aren’t many (should say any) leading stocks breaking out to new highs or on the verge of doing so, but here’s a short list of leading stocks that moved up with volume today and are above both moving averages. 

In order of fundamental rank:

Mastercard (MA)
CyberSource (CYBS)
Helmerich & Payne (HP)
Allergan (AGN)
Investment Technology (ITG)
Green Mountain Coffee Roasters (GMCR)
Greif (GEF)