DJIM #13, 2008

The past trading week was one of the weeks that had the biggest disconnect, in our opinion.   The disconnect we are referring to is the performance of indices vs. individual plays.     If you look at the final box score at the end of the week, most of the indices ended up flat from prior week's close.    However, when we look at the plays on our watch list, most of the plays ended up anywhere from 5 to 20 percent higher than a week ago.    If you recall, during the whole week, we have been preaching to buy on weakness if we get an opportunity.    Despite the weakness from indices on both Thursday and Friday, there's simply no such luck picking up "cheap" shares from our favourite plays.

Before we start talking about the good plays, we have to first talk about the ones that are dragging down the indices here.     If you remember from last week, we mentioned that if this market was to rally, financials have to show strength and stay healthy.   Yes, the financials did show strength, but only for the first two days of the week.    Since Tuesday, most of financials are once again enjoying their downhill slide.     Apparently, the writedown woe is not over for this sector and the late week's rumor mill was also running high on LEH.    Whether the worries on the finacial market and the rumor on LEH are justified or not, it is not our concern.    Our main concern is that without the firming action of financials, you can kiss the idea of a powerful rally good bye.    The question remains now, will the financials revisit the recent low?   Is it even potentially possible?   In the short term, we think it's just very very difficult to imagine that would happen.    Of course, another BSC like disaster from the financial sector can definitely give a good reason to panic but we all know that Fed does not want to deal or see another BSC like incident.    So, assuming the market eventually squashes away the LEH rumor and financial market begins to find its footing soon, we should not totally write off the sector yet.

Technically, this market is back toward the recent strong support of Dow 12200 and SPX 1317.    If market makes a stand around here, then you can say for sure that this market has endured some pretty nice looking consolidation action.   If financials hold up, then we'd get a couple of interesting weeks to look forward to.   Early next week, we have BBY MON and RIMM reports to gauge set some reactionary moves in their respective sector.    If we can get some upbeat guidance from those companies, it sure would get many traders excited about playing the coming earning period.    We believe the coming quarter is very crucial as the reports/guidance would give us a much clearer picture about the current economy.   Right at this moment, we think many market participants have not drawn a firm conclusion on this economy as the latest economic data isn't giving us a clear signal.

Strong plays wise, we haven't made any change to last week's watch list and we continue to pray on some better entry points with some of our favourite plays.    Again, we look for some key action from the financial sector in the early week to give us a read on the overall market sentiment and we'd watch some earning reaction closely to see how far this market rewards/punishes the stocks.