Recent discussion has revolved around whether this is a bear market or not.   Well, I think that debate can officially be put to rest now.  This is a bear market and has been for at least a couple weeks after the major indices broke key long term trendlines.  Of course, now the debate turns to "Are We At a Bottom?" following the massive capitulation early last week following the emergency Fed rate cut.  That isn’t such an easy question to answer, but we can remind ourselves of some of the characteristics of a bottom.

First of all a bottom is a process, often a long one following the kind of severe technical damage we’ve seen over the past few week.  Bottoms typically occur once everyone quits talking about when it will happen and we are a long ways off from that.  We are no doubt in the early stages of a bottom forming process that will take months to sort out. 

Significant rallies can occur in a bear market.  The spike in fear as measured by the VIX this week and subsequent capitulation sets us up for some kind of a rally over the coming weeks, but I think buying into long term positions is a mistake.  It just provides "trading" opportunities on the long side.  It’s important to shift focus from a predominant core strategy of adding to winning long positions on the dips to a strategy of initiating shorts on any bumps up (in addition to locking in short term long trade profits).  If you don’t have a successful short strategy you better be preserving cash and limiting your trading to just "dabbling" on the long side. 

I personally am being cautious on the long side until I see further evidence of some stability in the market (ie. light volume selling) followed by some follow through buying by the institutions.  I never like to see big reversals off the highs like we saw on Friday, but the volume came in much lighter than in previous days.  That’s a start, but this market is still too dangerous to get aggressive with.  Given that the Fed decision is on Wednesday and the tendency for the market to whipsaw in the days following, I may just hold off on aggressive trading until the following week.  The bottom line for most people is to keep sitting on your cash until the dust settles a bit. 

It’s a BARE market.  There is absolutely no leadership right now and very little opportunity on the long side which can be seen in my watch lists.  I maintain a top shorts and top longs watch list that I update every single day and watch in real time during the trading day.  Months ago there were nearly 3 great long opportunities for every short.  That has reversed and now I’m seeing 2 great short opportunities for every long.  You have to take what the market gives you.  While the market remains oversold and potentially bottoming over the intermediate term, the short side is going to be the place to be over the next several months.  Until I begin to see a flurry of new leaders breaking out of healthy bases, we aren’t at a bottom.  It’s as simple as that. 

 ::: Model Portfolio :::

** This section will now appear as a separate report to be published on 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 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. Residential Construction: 28.75%
2. Surety & Title Insurance: 27.05%
3. Banks – SE Region: 18.25%
4. Savings & Loans: 15.15%
5. Banks – Mid Atlantic: 14.00%
6. Auto Dealerships: 13.90%
7. Toy & Hobby Stores:  12.85%
8. Apparel Clothing: 12.65%
9. Home Furnishing Stores: 11.90%
10. Sporting Goods Stores: 11.90%

– Top 10 Worst Performing Industries For the Week –

1. Diagnostic Substances 13.15%
2. Personal Computers: -12.65%
3. Heavy Construction: -9.50%
4. Health Care Plans: -8.10%
5. Drug Manufacturers – Major: -7.45%
6. Specialized Health Services: -6.80%
7. Water Utilities: -6.45%
8. Medical Equipment Wholesale: -6.45%
9. Drug Manufacturers – Other: -6.00%
10. Drugs – Generic: 5.85%

– Top 5 Best Performing ETFs For the Week –
 
1. Ishares Homebuilders (ITB) 21.00%
2. SPDR Homebuilders (XHB) 18.70%
3. KBW Regional Banking  (KRE) 10.40%
4. KBW Bank (KBE) 9.45%
5. HLDRS Regional Banks (RKH) 9.25%

– Worst 5 Performing ETF’s –

1. SPDR Biotech (XBI) -8.65%
2. PowerShares Dynamic Biotech (PBE) -8.25%
3. Ishares Health Care (IHF)  -7.90%
4. HLDRS Pharma (PPH)  -7.40%
5. Ishares Germany (EWG)  -7.20%

:::  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 (1/28/2008– 2/1/2008) :::

Monday:         New Home Sales
Tuesday:       Durable Orders, Consumer Confidence
Wednesday:  GDP, Fed Rate Decision
Thursday:      Personal Income/Spending, PCE Inflation, Initial Claims, Chicago PMI, Crude Inventories
Friday:            Auto / Truck Sales, Nonfarm Payrolls, Construction Spending, ISM Index

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

Monday:
Chattem (CHTT), American Express (AXP), VMWare (VMW)

Tuesday:
CyberSource (CYBS), 3M (MMM), Centex Homes (CTX), Emc Corp (EMC), OptionsExpress (OXPS), Yahoo (YHOO)

Wednesday:
Covance (CVD), Altria Group (MO), Amazon (AMZN), Pulte Homes (PHM), Starbucks (SBUX), Boeing (BA), United Parcel (UPS)

Thursday:
Intuitive Surgical (ISRG), Green Mountain Coffee (GMCR), Google (GOOG), Dolby Laboratories (DLB), Monster Worldwide (MNST), Cameron Intl (CAM), Nasdaq (NDAQ), Hologic (HOLX), Mastercard (MA), Abaxis (ABAX)

Friday:
NYMEX Holdings (NMX), MF Global (MF), Exxon Mobile (XOM)

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

1. Subprime Mortage Meltdown on 60 Minutes

2. Portfolio Update: Hello I Have Losses

3. Rick Santelli Calls Out Cramer

4. Upcoming IPO’s – RMG, HOO & IPCM

5. Fed to the Rescue, Capitulation Day But BE PATIENT

6. ETF Trends & Observations: Gold, Oil, Banks, India, China & More

Whenever you have extreme moves in the markets, emotions run high.  You can see that clearly in a quick run through the blogosphere.  When the overseas markets began selling off and our own US futures sold off in tandem, the web was a buzzin.  Trash talking ensued from those who have been short, calls for a crash were common.  Would the Dow hit 10,000 before it’s all said and done?  The emails came in wondering what the heck to do.

It’s the kind of thing you see at bottoms.  Throw in the fact that the major indices were flashing oversold signals and the VIX was sure to spike at the open and you had a perfect recipe for a big flush out of sellers and resulting capitulation.  However, I have to admit I was concerned this morning about a potential crash.  Hank Paulson was was reiterating that the economy was strong blah blah blah.  Was this it?  Where was the Fed.  With the Dow taking out 12,000, the Nasdaq taking out 2300 and S&P 1300 the only way to avoid a meltdown today was massive Fed action.  .. and there it came.  Why the Fed has been hinting at a big cut and waited so long is the billion dollar question but 75 bp cut and the Fed saves the day.  A reactionary rather than a proactive cut, but futures took off ..
but only briefly.  We were right back to where we started.  Dow down over 400, Nasdaq 70, S&P 65. 

Uh oh, didn’t work this time.  The biggest cut in decades ahead of next week’s meeting and the market isn’t impressed.  The crash scenario is still alive and well but it’s no time to panic.  I emailed members last night and ran through some scenarios and what I planned to do but most of all it served as a reminder to avoid panic and remain cool headed if you have long positions.  It is critical to give the market 30 minutes to one hour to sort itself out at the open.  If you did that you were in good shape and avoided selling positions at what might have been the lows.

Just as the Volatility Index spiked to levels not seen since the low of last August (see below), buyers stepped in right from the open and pushed the indices well off their lows creating the potential for a capitulation day.  The gains of the day held up very well and we still closed near the highs of the day, but the lack of a stampede of buying into the close casts a shadow over today’s move.  We are not out of the woods yet and you should not be getting aggressive on the long side.  Institutions did not step up and buy into the close.

Today was a good start though.  I’d like to see a retrace of today’s move with light selling volume followed by some kind of confirmation day.  Then a big 2% move or more with volume higher than the day before.  Until that happens, cash remains the best place to be.   Remember that we’re just now getting into the bulk of earnings and as was seen with Apple (AAPL) after the bell today it’s going to be a mine field this quarter. 

There currently is no leadership in this market and good trade setups on the long side are few and far in between.  Wait for new quality bases to form and new leadership to emerge.  There will be plenty of time to profit.  Patience. 

::: 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 22nd 2008

Nasdaq: DOWN 2.04 today with volume 37% ABOVE average
Nasdaq ETF (QQQQ) DOWN 2.58%, volume 81% ABOVE average
Dow: DOWN 1.06%, with volume 70% ABOVE the average
Dow ETF (DIA): DOWN 1.128%, with volume 62% ABOVE the average
S&P ETF (SPY): DOWN 1.01%,  with volume 95% ABOVE the average
Russell Small Cap ETF (IWM): DOWN .71%, with volume 57% 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.  Leading stocks didn’t do particularly well but outperformed the tech heavy Nasdaq.  Today’s rally was all about laggards recovering from extreme oversold conditions.

Summary:

* Decliners led Advancers 186 to 72
* Advancers were up an average of 2.4% today, with volume 62% ABOVE average
* Decliners were down an average of 3.25% with volume 58% above the average
* The total SI Leading Stocks Index was DOWN 1.67% today with volume 59% 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, Bonds, Gold
                                          
* Current Lagging Sectors/Industries (over last 30 trading days): 
Broadband, Global Energy, Utilities, Aerospace/Defense

* Today’s Market Moving Industries/Sectors (UP):
Homebuilders, Retail, Real Estate

* Today’s Market Moving Industries/Sectors (DOWN):
Nuclear Energy, Software, Biotech, Broadband, Heath Care Providers, Health Care

::: 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.  I’m exhausted tonight so won’t highlight a stock of day today.. There were only two leading stocks above both moving averages and moving with volume today.  Check ’em out  —–

Meridian Bioscience (VIVO) and Yamana Gold (AUY).  I’ll be considering both personally for a purchase soon.

Nowhere to run to, nowhere to hide.  That was the mantra of last week as the bears ripped the market to shreds.  Just about every ounce of it.  Even Gold and Oil sold off.  Remember the good old days when every time Bernanke spoke, the market rallied.  My how times have changed. 

It is a bear market and has been for close to 2 weeks now as all major indices have now taken out support of more than 4 year trend lines.  In the past four years the strategy was to buy the breakouts and add to positions in strong companies on the dips.  Every market correction no matter how severe was met with ferocious buying, resulting in V like bases.  This time it’s different and bears are firmly in control.  The strategy changes to shorting and/or trimming positions into rallies (although oversold conditions within a bear market do present some short term long opportunities).

Dips aren’t finding buyers and the market leaders such as Research and Motion (RIMM), Garmin (GRMN), Google (GOOG) and Apple (AAPL) have all but disappeared.  There are no leaders in this market.  Take a look at the Self Investors "Hot Stocks" screen.  This filter spits out a list of companies that are above both the 50 and 200 day moving averages, showing great demand (a SelfInvestors Demand Indicator (DI) score of 20 or above), within a buyable breakout range (within 5% of the pivot point) AND/OR within 4% above the 50 day moving average.  In a nutshell, the best looking leading stocks.  In a typical market there are 20 – 40 candidates in this list.  Currently, there are just 6 – LXU Industries (LXU), Chattem (CHTT), Oracle (ORCL), Sun Healthcare (SUNH), Babus Medical (BABY) and Smith & Nephew (SNN).  Note that 4 of the 6 are medicals.  Keep an eye on medical industries for possible leadership once the market turns around.

Yeah it’s gloomy out there but I think we’re close to an intermediate bottom.  It seems like the market will never rise again, but bears do sleep and we are reaching levels that indicate an oversold rally is near.  Just remember that we really need that big capitulation day to mark a bottom.  Several days ago we got some minor capitulation which led to a short lived bounce and resulting failure.  We need panic selling followed by a stampede of buying, not just bargain hunting and short covering.  Only then can a bottom be in place.

There has been much mention that the Volatility Index isn’t quite at panic levels but the fear is creeping into the market.  Perhaps once the VIX nears those November levels above 30 we can begin talking about a capitulation point. 

The VIX aside, the price and volume levels of the major indices aren’t indicating a bottom is in place yet, but we are sitting on some key support levels now and an area of a potential rally. 

As you’ll see in the charts of the major indices, we’re hitting support of a downward trend as well as areas of previous consolidation.  Nobody knows if we’ll capitulate, hold at these levels and rally into resistance but we certainly need to begin looking for it.  I’m looking for a test and possible breach of Dow 12,000 to induce some panic selling and induce a big reversal.  I think it happens sooner rather than later.  So look for another 100 – 200 point plunge in the Dow next week and keep an eye on the VIX if it does so.  If it gets above 30, perhaps the buying stampede begins.  To take advantage of any stampede consider trading a leveraged long ETF such as the Proshares Ultra Q’s (QLD) or the Proshares Ultra Russell (UWM)

We see the S&P touching the bottom of a downward trend as well indicating a good potential point to begin rallying.  Also note this is the point of the 2006 high, creating another potential support area.  If we can’t hold in the 1300 – 1325 area it’s a long ways down to the next level of support, S&P 1225.  We need to hold here or it’s going to get even uglier.

Same story with the Nasdaq.  Support at the bottom of the downward channel and an area of previous consolidation around 2325.  Also a long ways to go if we don’t hold  around these levels.  Next support is at Nasdaq 2000.  Yeah, that’s a nearly 15% additional drop from current levels.  Ouch.  We better get going here.

 ::: Model Portfolio :::

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

The Self Investors Model Portolio just wrapped up 2007 with a 30.2% gain.  Would you like to receive buy and sell alerts within minutes 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. Home Improvement Stores: 5.80%
2. Sporting Goods: 4.70%
3. Trucking: 3.80%
4. Residential Construction: 3.30%
5. Semiconductor – Equipment & Materials: 3.15%
6. Department Stores: 2.65%
7. Jewelry Stores:  2.15%
8. Food Wholesale: 2.10%
9. Specialty Retail: 1.15%
10. Medical Equipment Wholesale: 1.10%

– Top 10 Worst Performing Industries For the Week –

1. Surety & Title Insurance: -25.60%
2. Heavy Construction: -13.40%
3. Agricultural Chemicals: -12.30%
4. Copper: -11.55%
5. Technical Services: -11.40%
6. Oil & Gas Equipment & Services: -11.30%
7. Building Materials Wholesale: -11.15%
8. Wholesale Other: -11.10%
9. Industrial Metals & Minerals: -10.65%
10. Nonmetallic Mineral & Mining: -12.85%

– Top 5 Best Performing ETFs For the Week –
 
1. HLDRS Internet Infrastructure (IIH) 4.60%
2. SPDR Homebuilders (XHB) 3.30%
3. Ishares US Home Construction (ITB) 3.05%
4. Ishares Tawain (EWT) 2.05%
5. HLDRS Retail (RTH) 1.50%

– Worst 5 Performing ETF’s –

1. iPath India (INP) -22.25%
2. PowerShares Asia (PDQ) -15.70%
3. Market Vectors Global Alternative Energy (GEX)  -14.30%
4. India Fund (IFN)  -13.20%
5. Powershares Clean Energy (PBW)  -12.60%

:::  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 (1/21/2008– 1/25/2008) :::

Monday:         None – Holiday
Tuesday:       None
Wednesday: Initial Claims, Existing Home Sales, Crude Inventories
Thursday:      None
Friday:            None

::: Upcoming Notable Earnings Reports :::

Monday:
Satyam Computer (SAY), HDFC Bank (HDB)

Tuesday:
Jacobs Engineering (JEC), Fastenal (FAST), Apple (AAPL), Bank of America (BAC)

Wednesday:
Noble (NE), Ametek (AME), Stryker (SYK), Freeport-McMoRan (FCX), Parexel (PRXL), CNH Global (CNH), Energen (EGN), Gilead Sciences (GILD)

Thursday:
Siemens (SI), Nokia (NOK), MEMC Electronics (WFR), Alladin Knowledge Systems (ALDN), Sunpower (SPWR), Danaher (DHR), Microsoft (MSFT), VistaPrint (VPRT)

Friday:
Weatherford Intl (WFT), IDEXX Laboratories (IDXX), Caterpillar (CAT)

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

1. 2030 Projections for the Oil & Gas Industry

2. Brief Hiatus

3. Take the Fear Out Of Options With a Straddle

4. Final Portfolio Review – SelfInvestors Up 30.2% in 2007