DJIM #49 2008

A few things from last week Journal focus showed it's colors by Friday!.

"Shrugging off"….what better indicator of shrugging off bad news than what we witnessed Friday after the brutal employment number, yet market rebounded strongly.  Sells off are becoming shorter in duration.    A teflon market is seemingly here.   The market had reasons to go to bed and not get up, Economic data was horrendous last week…ISM, factory orders, ADP and endless EPS wrecks, outlook cuts in RIMM leading a pack of NOK AMD PALM ISIL SWKS TSM WFR XRTX  etc.   Add a bankruptcy news from PPC and at least 5 more defaults, credt mkts still trouble (Cali, NY/NJ),  geo -political tension(India) and the never ending Automaker debacle weighted in,  yet the market lived!.     Okay, it wasn’t all bad news, we had plenty of good stuff such as MBA/ mortgages numbers showing a huge refi boom , banks/gov’t interventions all over the world,  a potential gigantic and radical cash infusion in the U.K,  a strong USD and low Oil despite all the FED print work and more fed/ Bernanke positive announcements/ quantitative easing.   CSCO implied trends so far are consistent with guidance was a mid week positive.

In conclusion,  everything is deterioating from eco- news to EPS outlooks..but stocks held the previous week gains pretty well.   We have to think year end melt up possibility….basically we have to be openminded late in the year it seems or we may miss some substantial gains.

"Financials"…..there was one positive early Friday and many times it’s a tale of things to come.  During the early morning beating,   XLF (financials),   thus many brokerage and Financial stocks were OUT-performing.    We also had the Insurers  acting great,   HIG,  given out by a member led the way into a squeeze that lasted the day and probably into Monday!.    We keep harping to keep an eye on the financials and this is even true for day to day action trends, not just long term.    If they are doing well in a bad market day like Friday,  the market will most likely do well at some point intraday.    Friday proved this.   So always keep an eye on what's working and what's not,  even in bad markets as it may be a signal of things to come.    There is also news reports that the life insurance industry could receive relief from state regulators when it comes to capital, also a positive.

"Beaten down stocks"...one glance at HIG and other SPX leaders for the week lead to one way of thinking,  HIG +78%, CIT +51%, PFG +34%, PRU +28%, CTX +28%, LEN+28%, PLD +26%, LNC +23%, SHLD +23%, KBH +21%, BBBY +20%, BSX +20%, XL +19%, TIF +19%, DHI+17%, THC +16%, ODP +15%, LSI +15%, CI +15%, SNDK +15%.

It is time to look at beaten stocks,   particularly in the SPX that can have great gains in days-hours,  if we are in a melt up holiday ensuing market.   So, watch for news that may seem irrelevant.    Any other day in the EPS world, you'd look at HIG's EPS headline and let it pass,  but we have stocks at such beaten values the chances of a squeeze are great.   If we are in such an environment, start using the Forum to throw out a few names, some may turn out great like HIG, others may not.  We are responsible for own decisions if to chase the dollar store stocks (cheapies) or not.

"Oil".... sooner than later this will be a great opportunity,  even if it oil goes to $60.   That's a 50% gain.  We haven`t been at these prices since January 2005.   The money to be made won't be in in individual stocks.  Oil rig stats are declining day by day going forward.   Let's look at the ETF's instead.   Last week we had a question about the 3X ETF`s ERX-ERY on forum and said they are not going to follow OIL price,  but the R2K energy stocks component.   Well,  we saw more as we were monitoring their action.   One look at Fridays action and you can see why these can be powerful movers and have nothing to do with the price of OIL.   The rebound in say ERX went with the market rebound, Russell2002-SPX,  not the price of oil which basically stayed at the lows of the day, while ERX went from 26 to 32.70 by close.    Simply,  not only will these ETFs move with the indices such as the Russell small cap indices, but when energy-oil stocks also lead the way, these ETF`s will have even greater moves as they often move the SPX all by themselves in the past because of the weight of them in the index.    Basically, these ETFs can move in various ways…an index move, an index move led by energy and of course can move when oil finally spikes.   You have to think being so much under 200MA in oil is not going to last forever and this "risky" overnight hold maybe the way to play intraday.  DIG/ DUG are the 2x ETF's.

Into the trading week....."SPY"....Levels to watch on SPX futures , 855-850 on the downside and 875-900 on the upside.   Stocks worldwide should be playing some catch up to our markets overnight.  We also have some more Obama noise on a massive public spending program hitting the rounds and the apparent progress this weekend in regards to the Automakers.  Plus, stimulus/ cuts in China / India.   We should test 900 SPX resistance early on.  Under the terms of the agreement being discussed, $14-15B would be taken from the $25B worth of appropriated “green” funds sitting at the DOE to bridge the industry through early ‘09, when a more comprehensive restructuring package will be considered.   Also, not much Eco data this week to worry about,  this should ease concerns of buying into the market.