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.
2. PowerShares Asia (PDQ) -15.70%
3. Market Vectors Global Alternative Energy (GEX) -14.30%
4. India Fund (IFN) -13.20%
5.
::: 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 (
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