S&P500 and Dow Breaking Down, Nasdaq Remains Strong

The indices are down but not out.  That was the theme of last week as the indices broke down out of tight, short trading ranges and are in the process of testing some key resistance levels which could soon tell us whether the rally will continue or enter a prolonged retracement.  Last week, I discussed the developing head and shoulders formations, but it’s much too soon to tell whether those topping formations will confirm.  For now, the Nasdaq remains remarkably strong and continues to trade above its 20 day moving average and actually looks poised to continue moving higher.  Contrast that with the Dow and S&P which closed the week below their 20 day moving averages for the first  time since the rally began in March.. so certainly some divergences and contradictions taking place that makes the current market a bit difficult to read.  I am leaning to the cautious side.  Tech and commodities have been the backbone of the rally and with commodities showing signs of cracking last week, perhaps they lead the market to the downside.  Let’s take a look at some key support and resistance levels I’ll be watching on the major indices next week.

Remarkably, the Nasdaq isn’t showing any signs of breaking down yet as tech bellweathers (with the exception of RIMM) such as CSCO, MSFT, AAPL and GOOG all remain quite strong.  The Nasdaq closed the week above that 20 day moving average (in green) yet again and actually looks poised to continue moving higher.  Perhaps it’s a head fake and we’ll know that by the end of next week. 


The S&P is showing some signs of deterioration having closed the week below the 20 day moving average for the first time since the rally began.  There is going to be significant short term resistance in the 925 – 930 area and BIG support at the 900 level where the 50 and 200 day moving averages converge.  If the S&P closes below the 900 level at any point in the next few weeks, I will get fairly aggressive on the short side.  On the other hand, if it bounces big off that level with volume, that may be a spot to get aggressively long.  That 900 level is the BIG line in the sand for me to determine a bullish/bearish market.


The Dow remains the laggard of the indices and not only took out the 20 dma last week, but closed below the 200 day moving average as well.  Friday’s highs will provide a significant hurdle next week as will the 8750 level if it can clear Friday’s highs.  On the support side, look for a test of 8250 if the Dow takes out the 8500 level next week.  If the 8250 level is taken out, that confirms a head and shoulders top, and sets up a much larger drop. 



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* Putting $100K into an S&P tracking index at the beginning of 2004 and you’re down more than $20K. 
* The Self Investors Model in the same time period would have more than doubled your money.  That’s the power of not buying and holding! 

When comparing the Self Investor Model Portfolio to the 535 Model Portfolios tracked by Hulbert Digest for annualized returns over the past 5 years, just four model portfolios produced better results and none of those used diversified approaches.

1. Cabot China & Emerging Markets: 22.2%
2. No Load Portfolios (Gold/Cash: 19.%
2. No Load Portfolios (Gold/Shorting): 19.9%
4. Outstanding Investments: 18.2%
    (focuses on oil & precious metals – did extremely well until it was crushed in the market crash)
::: >> 5. Self Investors Model Portfolio: 17.5%
(The SI portfolio isn’t currently tracked by Hulbert (and I’ve never looked into it) but every trade alert is sent via IM and email as well as tracked in a database which includes trade notes, position size and entry price)

** Astonishing fact #1: About a 1/3 of all model portfolios tracked by Hulbert Digest have not made a dime over the past 5 years!
** Astonishing fact #2: Just 6% of the model portfolios tracked have annualized returns over 5 years of 10% or more!

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::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Health Care Plans: 10.15%
2. Music & Video Stores: 5.60%
3. General Entertainment: 4.75%
4. Medical Laboratories & Research: 4.55%
5. Medical Equipment Wholesale:  4.35%
6. Home Health Care: 3.75%
7. Mortgage Investment: 3.65%
8. Healthcare Info Services: 3.40%
9. Education & Training Services: 3.30%
10. Research Services: 5.00%

– Top 10 Worst Performing Industries For the Week –

1. REIT – Hotel/Motel: -17.75%
2. Silver: -13.95%
3. Copper: -12.60%
4. Agricultural Chemicals: -11.30%
5. Tobacco Products: -10.35%
6. Oil & Gas Equipment & Services: -10.40%
7. Drugs Wholesale: -9.70%
8. Oil & Gas Independent -9.40%
9. Aluminum: -9.30%
10. Cement: -9.05%

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

1. iShares Health Care Providers (IHF) 5.65%
2. US Natural Gas (UNG) 3.35%
3. Biotech (BBH) 2.60%
4. iShares Healthcare (IYH) 2.00%
5. iShares 20 Year Treasury (TLT) 1.90%

– Worst 5 Performing ETF’s –

1. Templeton Russia & E Europe (TRF) -25.40%
2. Market Vectors Coal (KOL) -12.20%
3. India Fund (IFN) -12.05%
4. Claymore Global Solar (TAN) -10.80%
5. Central Europe and Russia (CEE) -10.70%

::: Upcoming Economic Reports (6/22/2009- 6/26/2009) :::

Monday:        None
Tuesday:       Existing Home Sales
Wednesday:  Fed Rate Decision, Durable Orders, New Home Sales, Crude Inventories
Thursday:      Initial Claims, Initial Claims, GDP (final)
Friday:           Personal Income/Spending 

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

Tuesday: AeroVironment (AVAV), Americas Car Mart (CRMT), Oracle (ORCL)

Wednesday: Monsanto (MON), Nike (NKE), Red Hat (RHT),

Thursday: Accenture (ACN), Lennar Cor (LEN)

Friday: AZZ (AZZ), KB Home (KBH)

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