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

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