I have to admit I was turning a bit optimistic there in the middle of the week when the market rallied on the Bernanke testimony, indicating the government wasn’t interested in wiping out Citi shareholders (although at $1.50 that’s essentially what’s happened) and that he was optimistic of a recovery in the economy within a year or so.  Ordinarily, I wouldn’t place much importance on a move following a comment from a Fed official, but given the oversold conditions I thought maybe, just maybe this market was poised for a short covering fueled, oversold, relief rally.  Let’s just say it didn’t pan out that way. 

While Obama continues to enjoy high approval ratings from the general public, on Wall St it’s been an entirely different story.  That’s not to say this administration is responsible for the entire additional 20% plunge in the indices, but clearly the cabinet IRS gaffes, the doom and gloom rhetoric, the questionable stimulus package and the budget proposal has left Wall St clinging to a crisis of confidence and wondering if we’ll ever get out of this mess.  You have to wonder as 401K’s continue to implode, how long those lofty approval ratings will last.  On Thursday morning, with the market looking strong and still poised to potentially breakout, the budget proposal was released, immediately sending the market into a tailspin that broke key long term support levels.  I sent the following to my members on Thursday night:

“I have to say my optimism is waning a bit after two days of unsuccessful follow throughs after the significant buying conviction I saw on Tuesday.  Yesterday the rally fell apart on skepticism about the Capital Assistance Program and today the market fell apart steadily all the way into the close after Obama’s budget proposal was released.  The market hasn’t been impressed with the moves of the Obama administration since day 1 and it certainly didn’t like the tax increases and big government initiatives of this budget proposal either, erasing about 200 points. 

I did add additional long exposure yesterday due to oversold conditions and the higher volume buying of Tuesday but I’m prepared to abandon ship in a hurry.  As you know you have to be quick in this market and not afraid to quickly shift your portfolio.  We are just 12 points away from that critical S&P500 level again at 740, so I’ll be watching that level closely.  If we stall out again tomorrow morning, I may be proactive and close out a few long positions.  One candidate is OMTR due to the higher volume reversal today.  I still like this company very much but it is a small cap growth stock and if this market is going to take a sharp leg down, those will get hit hard.  The other candidate is the QLD trade. 

I don’t want to sound too alarming.  I just feel like after two days of late day sell offs we may need to make one last decisive plunge lower before this market can get moving up again for a sustained period.  The good news is that following a 60% plunge in the market over the past year and a half, this market WILL stage a furious relief rally and I do believe it will happen within the next couple months.”

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Let’s take a look at the indices..

The S&P500 wasn’t able to hold the November lows on Friday and on a weekly basis, it closed at the lows with heavy volume.  The momentum remains clearly down until a massive reversal takes place.  I believe there is a very good chance of testing the 700 level in the S&P. 

In my last report, I wasn’t convinced the Nasdaq needed to retest the lows around 1300, but I’m becoming a believer that it needs to happen.  Note the double bottom base.

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.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Banks – Midwest: 18.30%
2. Banks – SE: 9.85%
3. Semis – Memory Chips: 8.40%
4. Banks – NE: 7.65%
5. Banks – Mid Atlantic:  7.20%
6. Broadcasting – Radio: 6.00%
7. Movie Production – Theaters: 5.50%
8. Sporting Goods: 4.60%
9. Home Improvement Stores: 3.80%
10. Money Center Banks: 3.75

– Top 10 Worst Performing Industries For the Week –

1. Home Health Care: -24.35%
2. Health Care Plans: -24.05%
3. Textile Manufacturing: -19.50%
4. Long Term Care Facilities: -17.00%
5. Specialized Health Services: -13.90%
6. Printed Circuit Boards: -13.30%
7. Aerospace/Defense: -12.90%
8. Silver: -12.05%
9. Drugs – Wholesale: -11.60%
10. Medical Instruments & Supplies: -11.25

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

1. HLDRS Regional Banks (RKH) 14.75%
2. SPDR Series Trust (KBE) 11.80%
3. US Oil Fund (USO) 11.10%
4. iShares Commodities (GSG) 7.40%
5. Market Vectors Russia (RSX) 4.90%

– Worst 5 Performing ETF’s –

1. iShares US Healthcare Providers (IHF) -17.70%
2. SPDR Health Care (XLV) -11.15%
3. iShares Health Care (IYH) -10.60%
4. iShares Global Health Care (IXJ) -10.60%
5. Market Vectors Steel (SLX) -10.05%

::: Upcoming Economic Reports (3/2/2009- 3/6/2009) :::

Monday:        Personal Income/Spending, Core PCE, Construction Spending, ISM Index
Tuesday:       Pending Home Sales, Auto/Truck Sales
Wednesday:  ADP Employment, ISM Services, Fed Beige Book, Crude Inventories
Thursday:      Productivity, Initial Claims, Factory Orders
Friday:           Nonfarm Payrolls, Unemployment Rate, Consumer Credit

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

Monday: Cellcom Israel (CEL),  The Hospitalist Co (IPCM), Perfect World (PWRD), Tower Group (TWGP), Vision China Media (VISN)

Tuesday: Energy Recovery (ERII), Trina Solar (TSL)

Wednesday: Mindray Medical (MR)

Thursday: ArcSight (ARST), Fuel Systems Solutions (FSYS), Fuel Tech (FTEK), Shenandoah Telecom (SHEN), Urban Outfitters (URBN

Friday: PetroBras (PBR)