Archive for February, 2007

2007-02-28 :: A Technical Look At The Aftermath

Wednesday, February 28th, 2007

Below I have cut/paste a technical analysis of yesterday’s market action from Mark Mannings weblog. He’s a great technical analyst and his charts are very clear and understandable.

Today, we are seeing a nice bounce up in much of the market. Whether we make a quick return to index highs or whether this is a dead cat bounce drawing suckers in before a new leg down, its hard to tell.

We had some Good Till Cancelled purchase orders in that filled yesterday during the selloff, and which are all up today. For the most part, though, we are taking a wait and see stance before we make any major adjustments (if any are needed – Chairman Bernanke’s statement to the market today sounds like we are remaining on the path of continued growth and falling inflation…a good sign for the cyclicals that we like).

At the end of Mark’s weblog entry below he gives good advice – Don’t Panic! Always good advice, particularyly when you look at the history of the market’s other big drops (post-911, 1989, 1987, etc.) and the subsequent rebounds.

More later!

Mark

The Nasdaq Composite decisively broke the short-term support at the 50-day moving average. However, it held intermediate-term support levels at 2400. A break below that level on high volume would probably confirm a change in the intermediate-term trend.

The S&P 500 has broken its intermediate-term uptrend and pierced the 50-day moving average like a hot knife through butter on high-volume. We’ll have to see how the large-cap index reacts during a rebound rally. If it is quickly turned away at the 1420 to 1430 level, there may be more downside in the cards.

The S&P 600 Small-Cap index held critical support yesterday at the 405 level. The break below that would probably take it down to test the January lows around 390. We would certainly want that level to hold.

The Dow Jones Industrial Average also decisively broke its intermediate-term uptrend. We will also have to watch the price and volume action on any rebound rally.

Emerging markets have been one of the strongest areas of the market to be invested in. The only problem is that when they correct, it is usually quite dramatic. That is why I have continued to prompt investors to keep close protective stops in these areas.

The bottom line is it is important not to panic and sell into a waterfall. Wait for a bounce and see how the stocks in your portfolio react to it. The weakest stocks are the ones you will want to sell first. Then move your protective stops up under the recent lows to reduce your market risk.

2007-02-27 :: What A Day to Resume the Blog

Tuesday, February 27th, 2007

Today was a day to remember (or forget, depending upon viewpoint). The point loss was huge; with the DOW down > 500 points at one point, before recovering to down just 416. The technicals looked a lot like the mini-crash of 1989, where the market dropped > 6% in one day.

Today was one of the days where there was nothing positive, other than the price action of Radio Shack (+12% on earnings news), one of just two stocks in the S&P 500 that were positive for the day. I can’t recall the last time, other than that day in ’89.

Until today, the market had been acting just as I anticipated. A few weeks ago, the rotation out of the large cap index stocks started and the cyclicals/economically sensitive stocks began to outperform. These stocks, which are my preferred investment due to their earnings parallels with the US economy, turned with the announcement by Fed Chair Bernanke that the US economy was on a strong growth path and that inflation is under control. Today, they sold with the large caps and everything under the sun (except Radio Shack).

This selloff was predicated by the worldwide selloff that started in China, and spread to Europe. The Shanghai market was off 9% overnight, leading to > 3% losses in Europe, which lead to > 3% losses in the states. Tomorrow will be a day to watch. If Shanghai is off more overnight, and if Europe is off when we wake up, then we will have an uphill battle. We will likely see some upward moves as dip buyers step in at the open, but for this to be a one-off event the buyers will need to be steady all day, ending with an up market.

As we move through the next two weeks, look for buyers to come in for the defensive and high dividend stocks. This will be a short term thing as their day has been had. We are too close to the Fed cutting rates and the economic growth kicking in for the defensive stocks to be more than a sucker bet. We’ll need to ride out the storm, but the Parker Hanifins, the Joy Globals, and the Ingersoll Rands will be the big winners by year-end.

Tomorrow will be interesting.

More later!

Mark