The charts never lie.  As the rally continued to soar to epic heights, the charts began to reveal the warning signs well ahead of the crash.  Granted, this has been a historic, Fed fueled, artificial rally where minor topping patterns failed again and again as the market pushed higher and higher with considerably less conviction.  That began to change in January, when institutions began to unload positions which was revealed in the heavy volume on the sell side.  I have to admit, I thought there was a very good chance of topping in February following the January plunge, but was forced to abandon the plan to get aggressively short on March 4th.

I sent the following note to members:

“With very little conviction on the buy side I’m still skeptical of this market, but with last Thursday’s reversal day and the inability of the bears to run today, that skepticism continues to diminish and the odds of retesting the 2010 highs soon are growing by the day.  I continue to close out short exposure and today added a few longs for the first time in awhile to get more to the neutral side.”

Within a few days the market continued to push higher with no buy volume and the market was running up to new 2010 highs.  As CNBC paraded bullish analyst after bullish analyst, some even calling for a retest of all time highs, the cracks began to appear.  The first major crack occurred on March 25th with a high volume reversal day. I began to sound the caution alarm:

“The cracks in this rally are beginning to appear.  While fairly subtle they are there as the Nasdaq battles the 2400 area and the Dow battles the 11,000 level which it nearly hit today.  Today was the biggest crack I’ve seen since this rally began on Feb 5th as the indices wiped away strong gains to close flat.  The Naz was up more than 30 and closed in the red.  While volume wasn’t all that intense on the sell side, today marks a higher volume reversal day.  Days like this always sound the caution alarm for me.  No, it wasn’t a dramatic, definitive reversal but it likely indicates this leg of the rally is on its last legs.“

The next crack appeared on March 31st: “Volume was not great on the sell side today, but it was a bit heavier than yesterday’s volume, so technically we had a day of distribution today.  That’s another subtle clue of caution.”

About two weeks later, fear continued to plummet as the market began to extend to extreme overbought conditions and when you have those kinds of conditions in place, the correction is near as I highlighted to members on April 12th:

“Outside of the overbought conditions, we have tremendous complacency in this market as revealed by the VIX which is at levels not seen since the height of the bull market in 2007.  ALL of the concerns that cropped up in 2008 are clearly out of the minds of most and that doesn’t bode well for the bulls as the Dow and S&P negotiate the next tough levels of resistance at 11k and 1200 respectively.”

It really felt like at that time, all the market needed was some kind of catalyst to topple it.  On April 16th, it began with Goldman Sachs.  News of the SEC fraud case led to the largest day of distribution in more than 6 months, creating yet another warning signal. I indicated to Self Investors members that while I was skeptical of the news being “the” event to topple it, it would be a big weight around the neck of the bull:

“One day certainly doesn’t make a trend, but I do have a feeling that the Goldman event may just be a significant weight around the neck of the bull.  However, I don’t see the Goldman news as “the” event to send this market into tailspin.  I’m more concerned about the debt issues and credit ratings in Europe.”

The common argument from perma-bulls was that the Europe situation wouldn’t matter to US markets, proceeding to compare Greece to a small US state.  However, as we saw in 2008 with the collapse of one bank, then another .. and.  Yeah, these kinds of things tend to domino and I think the market recognizes this… at least eventually.  It was a really strange end of April and on into May as the market yo yo’d back and forth, between high volume distribution days (more red flags) and weak buying.  One morning it was Greece bailout optimism, followed by concern nothing would get done.  While the indices remained in a fairly tight range, volume levels continued to reveal that the foundation of this market was beginning to crack in a big way and on May 4th, a gaping hole appeared.  My report to members on the night of May 4th summarizes my thoughts and warns of the coming correction:

“What a wild few weeks eh?  Up down and all round with increasing volatility and volume.  It happens at market bottoms as well as market tops, frustrating the masses including myself.  I don’t believe I’ve seen anything quite like what we’ve had in the past two weeks with the market in schizo mode, rallying on Greece optimism one day and plummeting the very next with big volume.  It’s unusual to have so many consecutive big moves and not make any progress.  As you know, I’ve been increasingly bearish in recent weeks due to the increasing number of distribution days as well as the extreme overbought conditions on the monthly and weekly charts.  I have been building and building short exposure, slowly but surely… AND wondering yet again whether that was such a good idea by yesterday afternoon after the market failed to roll over yet again following Friday’s high volume plunge.

Today reveals the bears are emerging from hibernation and they’re starving.  The mauling was on display and for the first time since the rally began in early February, we have a significant technical breakdown and the indices are on the verge of rolling over.  Today marks the eighth day of distribution in the past month and the fourth in about the last two weeks.  Granted, this is a mighty unusual market and distribution days haven’t mattered much over the past year, but in any other year that means a correction is underway.  If nothing else, I think today provides the signal to sell in May and go away for awhile and see how this market plays out for a few weeks.  If you’re comfortable shorting the market, I think there will be easy money made on the short side.”

Last week, the foundation disintegrated with the Dow plunging 1000 points in a single day fueling speculation as to what exactly caused the dramatic plunge from around 300 to down 1000 in minutes.  While I tend to agree with those that think the fat finger scenario is ridiculous, does it really matter what caused the plunge?  Regardless of the cause, the plunge completely shatters investor confidence at a time when confidence has already taken a beating.  Following the 2000 collapse, the 2008 collapse and now the 2010 mysterious plunge,  how many people are going to completely get out of the market?  How many boomers are fed up with the market and want to preserve what’s left of their nest egg with less volatile investments?  Whether the market dropped because of a fat finger, a computer glitch, a coordinated hack or just good old fashioned panic taking out sell stop after sell stop, trust in the stock market and in Wall St continues to erode and that’s never a good thing.

So what now?  In my opinion, I think the indices may be carving out a big head and shoulders top.  I’ve included a chart of the S&P below to outline what we may see in the coming months.

If indeed what we’re looking at is a big head and shoulders top in the making, the left shoulder was formed during the Jan/Feb sell off, the head formed on a low volume advance to new 2010 highs, followed by the steep plunge we saw last week.  At some point, I see some kind of relief rally to carve out the right shoulder with the top of the shoulder formed somewhere in the area of resistance between the Jan high at 1150 and the 50 day moving average around 1170.  There is clear support at the 1100 S&P level, so we could hold there and begin forming the right shoulder.  If that level doesn’t hold, look for a test of Thursday’s low and possibly the Feb low.  (Breaking: With the IMF just approving a Greece bailout), futures are up significantly, so the support at 1100 scenario is looking much more probable.  Should we get that run up to the 1150 – 1170 I will look to add back much of the short exposure closed on Thursday and Friday.   Good trading out there and be careful on the long side.

On Wednesday night I made the following comments to my members:

“Today’s high may have marked the top…

After Monday’s big move and the way the gains were held Tuesday, I
commented to Gold members last night that a move to the 200 day
moving averages in the S&P (around 940) and Dow (around 8800) is
becoming more likely. We may not get that far.  While the market
staged a decent rally in the morning today, that rally completely
fell apart following the Fed minutes.  It may have had something to
do with the Fed waking up to reality and revising their estimates for
GDP and unemployment downward. 

Technically, there are a few major bearish implications of today’s
move.  For one, it was another high volume reversal and a close near
the lows of the day.  In addition, the indices confirmed a head and
shoulders top formation on the intraday charts and a possible double
top formation on the daily charts.  Tomorrow’s action will be very
telling.  During most of this rally, the market didn’t follow through
to the downside after days of significant weakness like this, so a
big plunge tomorrow would indicate a change of character and likely
mark a top to this rally.”

Taking a look at the chart of the Nasdaq reveals a break down back below the 20 and 200 day moving averages with a likely retest of 1665 coming soon.  A break below that level confirms a double top and sets up a test of the 50 day moving average at the  very least. 

The S&P has taken out the 20 day moving average as well as the up trend channel and looks poised for a test of the 850ish level at the 50 day moving average.  Volume has been light ahead of the holiday weekend, so we’ll have to see if the deterioration in this market picks up once normal trading volume resumes towards the latter half of next week.  Tough resistance around the 900 level, so a close with volume above that level would indicate bulls are back in control.  I think those odds are slim at this point.

:::::::::::::::::::::::::::::::::::::::::::

Isn’t Time You Took Control of Your Financial Future?

The Self Investors Model Portfolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2%, finished nearly 35% ahead of the S&P in a very difficult 2008 and is off to a decent start here in 2009, ahead of the S&P YTD performance by 5%.  This is a REAL portfolio with position sizing and not based on extrapolated hypothetical gains for each trade.  On average it beats the S&P by 20% per year. The result?

* 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! 

Would you like to receive buy and sell alerts in the Model Portfolio within minutes (NEW! now get them via instant messaging in near real time) of each transaction?  You can receive these along with ALL of the tracking tools and video reports with the very popular Gold membership.  Don’t delay, get started today and join me for many more market beating months here at SelfInvestors.com.

::: Best/Worst Performers :::

- Top 10 Performing Industries For the Week -

1. Hospitals: 15.15%
2. Internet Service Providers: 13.50%
3. Gold: 11.95%
4. Silver: 10.65%
5. Copper:  9.35%
6. Recreational Goods: 9.05%
7. Steel & Iron: 8.65%
8. Nonmetallic Mineral & Mining: 8.60%
9. Foreign Regional Banks: 8.05%
10. Beverages – Brewers: 7.80%

- Top 10 Worst Performing Industries For the Week -

1. Banks – SE: -7.45%
2. Banks – Mid Atlantic: -6.95%
3. Banks – Pacific: -6.50%
4. Home Health Care: -5.95%
5. Health Care Plans: -4.40%
6. Medical Equipment Wholesale: -4.30%
7. Savings & Loans: -4.25%
8. Banks – Midwest: -4.20%
9. Home Furnishings & Fixtures: -3.65%
10. Industrial Equipment & Components: -3.50%

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

1. WisdomTree India (EPI) 22.75%
2. iPath India (INP) 21.20%
3. Morgan Stanley India (IIF) 18.05%
4. India Fund (IFN) 17.20%
5. Market Vectors Gold Miners (GDX) 11.70%

- Worst 5 Performing ETF’s -

1. US Natural Gas (UNG) -14.45%
2. Morgan Stanley China (CAF) -11.45%
3. SPDR Banking (KRE) -6.25%
4. Herzfeld Caribbean Basin (CUBA) -5.45%
5. iShares 20 Yr Treasury (TLT) -4.60%

::: Upcoming Economic Reports (5/25/2009- 5/29/2009) :::

Monday:        None
Tuesday:       Case Shiller Home Price Index, Consumer Services
Wednesday:  Existing Home Sales, Crude Inventories
Thursday:      Durable Goods Orders, Initial Claims, New Home Sales, Crude Inventories
Friday:           GDP, Chicago PMI 

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

Monday: Giant Interactive (GA)

Tuesday: Canadian Solar (CSIQ), Cellcom Israel (CEL)

Wednesday: Autozone (AZO), China Finance Online (JRJC), China Nepstar (NPD), China Sunergy (CSUN), Netezza (NZ)

Thursday: Costco (COST), Freeseas (FREE), Trina Solar (TSL)

Market strength has certainly been on display over the past 6 weeks with 6 straight up weeks.  Strength was on display when the S&P easily moved above resistance at 750.  It was on display once again when the S&P moved quickly above resistance at 800 and again when it came back to find support at 800 and yet again when it took out the downward trend off the Oct and Jan highs around 840.  Now the S&P faces another test of its strength at 875 which is an area where it formed a double top in late January and early February.  Does the S&P have the kind of momentum now that it did back at 750 or 800? In a word – no.

I say this for a few reasons.  One being the distribution day we had on Tuesday, then the two bounce back days with relatively light volume culminating in a near churn day on Friday.  A churn day is when an index trades with significantly heavier volume than the day before with no progress in price.  Ok, we did have options expiration which certainly accounts for some of the volume surge, so not a major churn day but certainly a day when the indices looked like they were tiring. 

I won’t sit here and pretend this isn’t an incredibly tricky market to navigate up here. While the market does indeed look like it’s running out of steam there are some conflicting signals.  You have the S&P looking like it will have a real tough time getting over and staying above 875 after the sharp V spike and “cracks” in the bulls armor last week, but on the other hand you have the Nasdaq breaking out above the Jan highs and holding that level to close the week.  Technically, that is a breakout of a large double bottom base and considerably bullish for this market.  Could this market vault another 5 – 10% to push it into the next level of resistance? Sure, anything is possible in this market.  However, my strategy has always been to add long exposure on the pull backs.  I added some long exposure when it appeared the indices were going to hold the 50 day moving averages, but the rally has largely been too swift for me to fully participate the way I would have liked.  It’s disappointing, but I won’t abandon my strategy.

For next week, I want to see big sell volume come into this market with some key intraday support levels taken out, preferably in the first half of the week.  If that does not happen and the bulls hold the line heading into the latter half of the week, it is possible we could get some kind of final flush to the upside in which I would trade very short term on the long side.  IF another move of 5 – 10% takes place to finish this rally, in my opinion it would provide one of the finest areas to short this market since the top in May of 2008.  Either way, once key intraday levels are taken out I will get considerably aggressive on the short side and look for a return to the 50 day moving averages (so a move down of about 10% from current levels).

Here are the charts of the S&P and Nasdaq. 

Note the resistance at 875 which the S&P clearly had trouble with Friday.  If we blow through that level too the odds greatly increase we test the next level around 950 but I don’t believe that happens without significant rest due to the distribution day on Tuesday and (almost) churn day Friday.

The Nasdaq nudged above the Jan highs at 1665 and held above to close the week, so technically a breakout from a large double bottom base which is considerably bullish.  I know I said that kind of move would signal a new bull market for me, but I’m going to retreat from that statement a bit considering how it was done.  IF we get an orderly pull back to around the 50 day moving average from here and institutions began to participate in a big way resulting in another break of the double bottom base (and probably by then a move above the 50 day moving average), THEN I will be ready to call it a new bull market.  Like I said above, I suppose it’s possible  this market blows the top off for one last finale with the Nasdaq touching near 1800, but I’d put the odds of that at 20 – 30%.  I think at the very least we need to spend time sideways up here, but the market doesn’t care what I think.  Bulls have the upper hand for now and if the cracks of last week don’t develop into gaping holes early this week, we could see one last stampede to the upside. 

:::::::::::::::::::::::::::::::::::::::::::

Isn’t Time You Took Control of Your Financial Future?

The Self Investors Model Portfolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2%, finished nearly 35% ahead of the S&P in a very difficult 2008 and is off to a good start here in 2009, ahead of the S&P YTD performance by 5%.  This is a REAL portfolio with position sizing and not based on extrapolated hypothetical gains for each trade.  On average it beats the S&P by 20% per year. The result?

* 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! 

Would you like to receive buy and sell alerts in the Model Portfolio within minutes (NEW! now get them via instant messaging in near real time) of each transaction?  You can receive these along with ALL of the tracking tools and video 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. REIT – Hotel/Motel: 22.36%
2. Broadcasting – Radio: 22.10%
3. Hospitals: 19.15%
4. Banks – SE: 15.55%
5. Jewelry Stores:  13.35%
6. Banks – Mid Atlantic: 13.00%
7. Printed Circuit Boards: 11.30%
8. Residential Construction: 11.15%
9. Housewares & Accessories: 11.00%
10. Textile Manufacturing: 10.80%

- Top 10 Worst Performing Industries For the Week -

1. Home Health Care: -6.45%
2. Gold: -6.25%
3. Long Term Care Facilities: -4.80%
4. Silver: -3.80%
5. Surety & Title Insurance: -3.65%
6. Electronics Stores: -3.50%
7. Mortgage Investment: -3.20%
8. Appliances: -3.10%
9. Confectioners: -2.75%
10. Saving & Loans: -2.20%

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

1. Herzfeld Caribbean Basin (CUBA) 30.30%
2. Indonesia Fund (KBE) 13.15%
3. Templeton Russia & E Europe (TRF) 12.70%
4. iShares Home Construction (ITB) 11.45%
5. SPDR Home Builders (XHB) 11.25%

- Worst 5 Performing ETF’s -

1. Market Vectors Gold Miners (GDX) -6.30%
2. HLDRS Internet Infrastructure (IIH) -4.65%
3. US Oil Fund (USO) -4.05%
4. iShares Silver (SLV) -4.05%
5. Central Fund of Canada (CEF) -3.30%

::: Upcoming Economic Reports (4/20/2009- 4/24/2009) :::

Monday:        Leading Indicators
Tuesday:       None
Wednesday:  Crude Inventories
Thursday:      Existing Home Sales, Initial Claims
Friday:           Durable Orders, New Home Sales

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

Monday: Allegiant Travel (ALGT), Bank of America (BAC), Intl Biz Machines (IBM)

Tuesday: Ametek (AME), Capital One (COF), Caterpillar (CAT), Cree (CREE), Gilead Sciences (GILD), Hudson City Bank (HCBK), Johnson Controls (JCI), New Oriental Education (EDU), Terra Industries (TRA), Terra Nitrogen (TNH), US Bancorp (USB)

Wednesday: Altria (MO), Apple (AAPL), AsiaInfo (ASIA), Axys Technologies (AXYS), Core Laboratories (CLB), Ebay (EBAY), Epiq Systems (EPIQ), Freeport McMoran (FCX), Genzyme (GENZ), Morgan Stanley (MS), Wells Fargo (WFC)

Thursday: ABB (ABB), Amazon (AMZN), American Express (AXP), Bucyrus (BUCY), Computer Programs & Systems (CPSI), Credit Suisse (CS), CyberSource (CYBS), DeVry (DV), Diamond Offshore (DO), HDFC Bank (HDB), ITT Educational Services (ESI), MEMC Electronics (WFR), Netflix (NFLX), Omniture (OMTR), Potash (POT), Starent Networks (STAR), SunPower (SPWRA), United Parcel (UPS)

Friday: 3M (MMM), Ford (F)

Credit Suisse analyst Dong Tao views the number positively, but cautioned that China isn’t out of woods as exports remain relatively weak.  Up to this point, the government’s stimulus to spur domestic demand and increasing investments in fixed assets has been been able to offset much of the weakness in exports to the US, Japan and Europe, but it will take a few more quarters to determine if they will be able to continue to do so.  Banks in China have already issued $670 billion in the 1st quarter which is more than 90% of the target for the entire year.

“The government’s rapid easing of credit and rollout of infrastructure projects has bolstered [fixed-asset investment], helping offset decreased investment by export manufacturers and property developers,” J.P. Morgan said

Everyone wants to know.. is this the bottom? How long will the rally last?  I think the charts can provide some clues to that.  Taking a look at the magnitude of the initial rallies off the October and November lows reveals that the average gain was right around 20% with the rally in October rising 19% over 6 days and the November rally producing a quick 21.5% gain in just 5 days.  If we assume that this rally will be in the neighborhood of those moves and falter after popping 20%, that runs the S&P500 right into big resistance at 800.  So, it’s quite possible we see another quick 5 – 7% in the first half of next week.  Yeah, these bear market rallies are sharp and deceptive leaving many behind.  If you missed it, don’t sweat it!  Whatever you do, don’t chase these rallies.  Be patient and wait for a digestion of this sharp move up because it will come.

Taking a look at the technicals of the S&P shows the break of the Feb/March downtrend on Wednesday, followed by another big surge on Thursday that sent the S&P back above the November lows….

The fact it was able to hold that level on Friday indicates there is considerable strength to this rally.  BUT. … please keep in mind the volume is diminishing with each up day so tiring a bit.  Yes, as I mentioned above there is a decent shot at a quick test of 800 before a significant pull back but the odds are just as good of retracing this move before that happens.  Do not get aggressive on the long side up here.

A  big double bottom base is potentially forming in the Nasdaq which wouldn’t be confirmed until it breaks the middle peak it formed right at the beginning of the year around 1665.  There is much work to do before that can take place.  The Nasdaq also broke the Feb/March downtrend on Wednesday but is now hitting significant resistance of the Jan lows.  If it doesn’t have any trouble there in the coming days, look for a test of the next big level of resistance around the 50 day moving average (roughly the 1500 level).  Volume levels are a bit anemic indicating the big fellas are not putting big money to work yet.  This rally was undoubtedly fueled by short covering and bargain hunting.  I’ll say it again, don’t fear missing this rally.  Get the watch lists together and wait for a better entry if you missed this move.

I know the Dow isn’t the best representative of the market, but it’s still the index that the average person as well as the main stream media pays attention to, so it’s still worth taking a look at.  There is a tremendous amount of overhead resistance to work through in the Dow with another 250 point surge just getting back to big resistance of the November lows.  Volume was much better in the Dow but we can throw that out considering there are only 30 stocks traded.  A test of 7500 is a near certainty with the possibility of a test of the 50 day moving average around the 7750 level a decent possibility in the coming weeks. 

To sum up this week, this rally has enough legs to run us right into major resistance levels at Nasdaq 1480 – 1500, S&P 800 and Dow 7500 – 7750.  If/when we hit those levels, you better be looking to take your profits and move back to get cash and/or put shorts back on. 

:::::::::::::::::::::::::::::::::::::::::::

Isn’t Time You Took Control of Your Financial Future?

The Self Investors Model Portfolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2%, finished nearly 35% ahead of the S&P in a very difficult 2008 and is off to a great start here in 2009, ahead of the S&P YTD performance by 16%.  This is a REAL portfolio with position sizing and not based on extrapolated hypothetical gains for each trade.  On average it beats the S&P by 20% per year. The result?

* Putting $100K into an S&P tracking index at the beginning of 2004 and you’re down more than $35K. 
* 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! 

Would you like to receive buy and sell alerts in the Model Portfolio within minutes (NEW! now get them via instant messaging in near real time) of each transaction?  You can receive these along with ALL of the tracking tools and video 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. Resorts & Casinos: 35.15%
2. Semis – Memory Chips: 27.45%
3. Banks – Midwest: 25.70%
4. CATV Systems: 24.40%
5. Recreational Vehicles:  24.15%
6. Auto Dealerships: 22.70%
7. Life Insurance: 22.30%
8. Major Airlines: 22.10%
9. Toy & Hobby Stores: 21.35%
10. Money Center Banks: 21.00%

- Top 10 Worst Performing Industries For the Week -

1. Beverages – Wineries & Distill: -1.25%
2. Gold: 1.10%
3. Drugs Wholesale: 1.25%
4. Diversified Utilities: 1.80%
5. Advertising Agencies: 2.10%
6. Gas Utilities: 2.95%
7. Multimedia & Graphics Software: 3.05%
8. Aerospace/Defense: 3.10%
9. Electric Utilities: 3.55%
10. Medical Laboratories & Research: 3.65%

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

1. HLDRS Regional Banks (RKH) 44.75%
2. SPDR Series Trust (KBE) 37.38%
3. SPDR Financials (XLF) 32.50%
4. PowerShares Private Equity (PSP) 22.90%
5. iShares Broker Dealer (IAI) 22.65%

- Worst 5 Performing ETF’s -

1. iShares Malaysia (EWM) -2.95%
2. iShares 20 Yr Treasuries (TLT) -1.45%
3. US Oil Fund (USO) -1.30%
4. iShares Gold (IAU) -1.25%
5. SPDR Gold (GLD) -1.05%

::: Upcoming Economic Reports (3/16/2009- 3/20/2009) :::

Monday:        Empire Manufacturing, Capacity Utilization, Industrial Production
Tuesday:       PPI, Building Permits, Housing Starts
Wednesday:  FOMC Rate Decision, CPI, Crude Inventories
Thursday:      Leading Indicators, Initial Claims
Friday:           None

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

Monday: Sina Corp (SINA) 

Tuesday: Canadian Solar (CSIQ),  Factet Research (FDS)

Wednesday: Nike (NKE), Oracle (ORCL)

Thursday: China Sunergy (CSUN), FedEx (FDX)

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.”

:::::::::::::::::::::::::::::::::::::::::::

Isn’t Time You Took Control of Your Financial Future?

The Self Investors Model Portfolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2%, finished nearly 35% ahead of the S&P in a very difficult 2008 and is off to a great start here in 2009, ahead of the S&P YTD performance by 17%.  This is a REAL portfolio with position sizing and not based on extrapolated hypothetical gains for each trade.  On average it beats the S&P by 20% per year. The result?

* Putting $100K into an S&P tracking index at the beginning of 2004 and you’re down more than $35K. 
* 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! 

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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)

DryShips (DRYS) has been in the news of late, taking traders on a wild ride.  Last week the company was notified that it was in breach of its financial terms on a large chunk of debt and the company announced it would dump stock and cancel ship orders to preserve liquidity.  The stock plummeted more than 50% in just 3 trading days….

Yesterday, the stock got a reprieve when it announced an agreement with Piraeus Bank to restructure two of its loan facilities in order to regain compliance, resulting a swift recovery rally.  DRYS is a favorite of traders, but I prefer to take a look at its competitors – TBSI International (TBSI), Diana Shipping (DSX), Excel Maritime (EXM) & Genco Shipping (GNK). 

All broke out today with heavy volume and could gap up in the morning.  Be very careful about chasing these particularly in this market.  Be patient and wait for your price.  Diana Shipping (DSX) is probably the safest of the group while Genco Shipping has problems of its own having recently suspended the dividend and share buyback.  It should be noted that most of the shippers have suspended their dividend, but as far as I know Excel Maritime (EXM) is still paying out. 

Yes, the shippers have problems but these are technical trades of a few weeks.  They look quite bullish in the short term. 

Disclaimer: I don’t currently own any of the stocks mentioned in this article.