Wall Street Sector Selector

Trying to Break Out

2009-11-15T21:54:00Z

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Dear Friends,

The markets remain mixed this week as the general indexes bounced off their recent lows and tried again to challenge, but failed to break out of the upside of the recent trading range.

Looking back at the past 30 days, we see leadership in diverse sectors like Gold, China, Short Small Caps and Short Financials so it’s easy to see the cross currents flowing through this market as people try to figure out if the rally is dying out or gathering new force to break higher above the 1100 level on the S&P 500.

On the technical side, the New High/New Low index is down and 58% of all stocks are above their 50 Day Moving Averages compared to 80% a month ago when the S&P was near current levels.

The Dow and NASDAQ are +1.98% and +1.95% above their October highs while the Russell 2000, the small cap gauge, is -5.6% off its October highs. Small caps generally lead any rebound and so weakness here would support the “tired market” argument and be a red flag for higher prices ahead.

Seasonally, we’re at the beginning of the “best” six months of the year where historically the market has outperformed between October and May. Known as the “Halloween Indicator,” for buying and the “sell in May and go away” bromide for selling, this seasonality has a good track record and perhaps we’ll see that in positive action again this year. It didn’t work in 2008-2009, but certainly recent times have been like no other times we’ve seen.

Nobody has a crystal ball and there's no way to predict the future and so the best strategy, as always, is to let the market tell you where it's going next and what to do. A sustained break higher will likely draw more money into the market and we could even see some panic buying, while another failure would dampen the "animal spirits" and "risk appetite" I've been reading about all year.

The View from 35,000 Feet

The news is murky, as well, with consumer sentiment unexpectedly down for the 2nd month in a row in November while insider buying has picked up. Wal Mart issued a disappointing outlook expecting a cautious holiday season and declining sales in non essential merchandise while Disney reported higher than expected profits. Overall operating profits have declined -14% which is the best since 3rd Quarter of 2007 and better than the -25% expected but still there is little revenue growth seen.

The Federal Housing Authority finds itself in trouble as its reserves have dropped below Congressionally mandated limits due to still rising foreclosure rates. Possible solutions include raising down payment requirements and credit score requirements which the real estate industry doesn’t want to hear anything about since those types of actions could crimp the still fragile housing market recovery.

My “Friday Bank Failure Report” indicates that 3 more banks failed on Friday bringing the total to 123 for the year and delivered another $1 Billion bill to the FDIC. One can only shake one’s head at the magnitude of these numbers.

Still, there’s more stimulus to come and it appears that a muted recovery is underway.

The Week Ahead

Lots of economic news this coming week along with earnings reports from key retailers Lowes, Saks and Limited, Dell in the tech. sector and CIT, the troubled lender to small businesses. Also, we’ll see significant reports on retail sales, manufacturing industrial production and housing.

Monday: October Retail Sales, November Empire Manufacturing, September Business Inventories

Tuesday: October Producer Price Index, October Capacity Utilization, October Industrial Production

Wednesday: October Housing Starts, October Building Permits, October Consumer Price Index

Thursday: Weekly Jobless Initial and Continuing Claims

Friday: October Leading Economic Indicators, November Philadelphia Fed

I had a little “minor surgery” this week and proved again that it’s only “minor surgery” when it’s not on you. But I’m fine, although realizing that I’ve come to the point in life where I’m in the repair and replace mode. As a neighbor of mine told me today, “R&R” used to have a much different connotation. But it’s always nice to be on the other side of those events, and a visit to the hospital helps one realize how much we have to be thankful for and how much we take for granted in our lives.

Wishing you a great weekend wherever you may be.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

[disclaimer]

What Next?

2009-11-08T16:14:00Z

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Dear Fellow Investor:

We remain in the "Red Flag" mode, expecting lower prices ahead, although that could change at any time in today's crazy world.

We still have “sell” signals on most of our major indicators as we oscillate in a relatively narrow trading range.

Here’s a picture of what the last month has looked like:

chart courtesy stockcharts.com

If a downtrend is confirmed, we’ll look for opportunities with inverse ETFs which are most effective in a trend since they track daily moves and significant tracking and compounding errors can develop over time in a sideways market or in a trend that is moving against you. If a new uptrend is formed, we will look for opportunities in the sectors that have the strongest upside potential.

The interesting thing about this most recent move back to 10,000 on the Dow is that the last time the DJIA closed above 10,000 before last week was on October 22nd at 10,081 or approximately -0.6% below Friday’s close.

However, the S&P 500 close on Friday was -2.1% below its level of October 22nd, the Russell 2000 close on Friday was -5.4% below its closing level on October 22nd and the NASDAQ is -1.9% below its close on October 22nd.

So you can see that while the Dow has recovered nearly all of its downside from the recent correction, the other major indexes have not.

Dow 10,000 makes great headlines, but since the other major indexes have not retraced their losses, this is clearly indicative of a narrow rally. Furthermore, small caps represented by the Russell 2000 typically lead the way in solid advances and so the performance of that index is particularly troubling.

Also, we currently see just 51% of all stocks above their 50 Day Moving Average which is widely regarded as demonstrating short term strength while on October 22nd we saw approximately 80% above this important level.

So overall things don’t look that strong to me and we’re facing serious overhead resistance just ahead at 1080-1100 on the S&P and 10,000-10,100 on the Dow.

I am working very hard not to be a bear or a bull but rather just use tunnel vision to focus on and follow my indicators because if you let a bias one way or other creep into your thinking, it invariably leads to trouble.

As always, discipline and patience, in my opinion, are the keys to long term success.

The View from 35,000 Feet

Lots of news this week, with the biggest being the employment report on Friday.

For the first time in 26 years and only the second time since World War II, the official unemployment rate went over 10%, to 10.2% to be exact.

This came in as an unexpectedly high number, especially after the largest stimulus package anyone has ever seen that was supposed to stop unemployment at 8.5%.

So far, 7.3 million jobs have been lost in The Great Recession, we’ve just seen our 22nd straight month of losses and “total unemployment” which includes unemployed, discouraged workers and those forced to part time status now stands at 17.5%, which means that approximately one out of seven Americans is either not working or working less than they want to, a record high.

The “Establishment Survey” said that 190,000 jobs were lost last month but the “household survey” said that unemployment went up by over 550,000 to a total of 15.7 million. The difference in the “establishment” and “household is that the establishment is focused on big businesses while the household includes smaller businesses, and people who are self employed, consultants, part timers and working out of their homes by polling through phone calls to directly to home telephone numbers.

For my weekly "Friday Afternoon Bank Failure Report," five more banks went under to bring the total to 120 for the year and an additional $1.5 Billion hit to the FDIC. At least the banks are staying open because without the FDIC, this would truly be a Depression, in my opinion.

On the positive side of the ledger, Warren Buffett went after Burlington Northern in an “all in wager” on the future of the economy and the Fed said they’d keep rates near zero for “an extended period of time.” Also earnings continue to largely come in better than expected and are now running only -15% behind last year’s levels, largely due to cost cutting rather than seeing any year over year top line revenue growth.

The Week Ahead

A quiet week for economic reports ahead but with a couple of notable earnings reports due from Disney, Wal Mart and J.C. Penny which should offer further insight into the health of the all important consumer.

Thursday: Weekly Jobless Initial and Continuing Claims

Friday: November Michigan Consumer Sentiment

I truy hope that the recession is over, that Warren Buffett is right about the future of the American economy, that employment will soon turn around and that we will have a blistering “V” shaped recovery. There has been too much pain already as we approach the end of the second year of this financial calamity. But if it isn’t and we face a “W” or “L” shaped or “jobless recovery,” we will continue looking for opportunities wherever they may surface during these troubled times.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

All information presented herein is for general information only and deemed to be from reliable sources, but we cannot guarantee its accuracy. Readers are strongly advised to check with their investment counselors before making any investment. There is risk of loss in all investment activity.

Red Flag

2009-11-02T00:39:00Z

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We go to “Red Flag Flying” status this after last week’s sell off and the technical damage done to the major indexes and sectors. We expect still lower prices ahead. The markets remain overvalued and clearly investor sentiment has dramatically changed over the past few days. As fast as this market has climbed, it’s perfectly plausible to imagine an unwind that could be just as fast and aggressive.

I would rather be “short” than in cash to seek profits in this environment, but the volatility and speed of this reversal has been quite breathtaking and so our cash position has been suitable for the times.

I’m looking forward to more buying opportunities on the long side as this bottoming process and correction completes. Short term, we’ll look for opportunities on the inverse side and in still strong sectors. Our signals caught the start of the March rally very early on and we will watch for a “second chance” to participate in the next leg up when it comes.

In this week’s report we take a close look at what has happened and how the tide has changed and there are lots of charts to look at and so I hope it will make for interesting reading.

I’m writing this at just after 1:00 pm on Sunday in Oregon and CIT has just announced that they will be declaring bankruptcy within a few hours. As we’ve discussed in this report, CIT is a major lender to small businesses and has been in trouble since the summer and this will be the fourth largest bankruptcy in U.S. history and generate a $2.3 Billion loss for the TARP program.

This news will very likely make for a volatile opening and trading day tomorrow.

Not that things haven’t been wild enough the last two weeks on Wall Street with the Dow Jones losing more than 100 points on 4 out of 6 days and putting in a +200 point gain on Thursday followed by a -250 point loss on Friday. The widely followed VIX, the “greed and fear indicator,” surged last week and now is back to mid summer levels.

While still not at the nosebleed levels of early in the year, in the chart below we can see how a degree of panic returned to the market during the last days of October.

Chart courtesy of stockcharts.com

And major technical damage was done on the S&P 500, as well, with the index dropping below its 50 Day Moving Average and breaking through significant support at the 1040-1050 level.

Beyond that, the MACD continued a steeper descent as seen on the bottom panel of this chart.

chart courtesy of www.stockcharts.com

I’m a student of Point and Figure Charting and many sectors and ETFs went to sell signals this week including major sectors like Oil and Gas Exploration (XOP) Homebuilders (XHB) Real Estate (IYR) Russell 2000 (IWM) and many of the formerly high flying emerging markets including Latin America, Brazil and Mexico.

But many major sectors remain on Point and Figure “buy” signals, including China, Financials, Industrials, Materials, Utilities, Consumer, Gold, Silver and Energy.

Among the major indexes, the Dow Jones went to a “sell” signal as did the NASDAQ and Russell 2000. The Russell and NASDAQ also broke their October lows which were significant support and indicative of lower prices ahead.

On the S&P 500, 1020 is the magic number for the October lows which, if broken, could lead to a quick drop to 1000.

It should be noted, however, that the S&P remains on a buy signal, barely, after last week’s rout. And all of the major indexes are still above their blue support lines and 200 Day Moving Averages and so still in technical long term up trends.

Further weakness is seen in that just 30% of all stocks are now above their 50 Day Moving Average, down from 90% just a month ago and Friday alone saw a shocking 42% decline in this percentage. The 50 Day Moving Average is a widely followed indicator for short term strength and often used by technicians as a “sell” signal.

So what does it all mean? Clearly a fast and sharp correction of 5% has taken place in just eight trading days beginning on October 20th. Whether this is just a normal correction or becomes something more remains to be seen, of course, but in today’s world, moves that used to take years now take months and months have been compressed into days.

Just as clearly, the sentiment has changed rather abruptly as Thursday’s ‘better than expected” GDP report triggered a powerful rally but one that didn’t have any legs or follow through on Friday as consumer spending and sentiment remained weak. Major technical support levels have been breached and so in my opinion, we can expect continued turbulence ahead as market participants try to figure out if this year’s euphoric rally has been justified or not.

Many economists put 890-1000 as fair price for the S&P 500, and we’ve been on a quick trip in that direction over the last few days.

The View from 35,000 Feet

The only good news for the week was the 3.5% growth in GDP for the 3rd Quarter reported on Thursday. The markets responded predictably but then reversed again on Friday as everyone wonders if the growth can be sustained without ongoing government support.

Treasury Secretary Geithner said as much on a Sunday talk show when he described his view of the recovery as being “uneven and choppy” and that “this is gonna be a different recovery from the past. A lot of damage was caused by this crisis. It’s just the beginning. This is a very tough economy.”

No kidding, Tim.

Nine more banks failed on Friday, bringing the yearly total to 115, the highest count since 1992 and as we’ve discussed, this is going to continue for as far as the eye can see due to the strapped consumer, the devastated housing market, a precarious commercial real estate market and continued tight credit with the biggest banks reducing lending activity by double digit percentages.

But the biggest danger remains the consumer as spending in September dropped for the first time in five months. As we’ve noted before, the consumer is 70% of the U.S. economy and all you need to do is understand what the consumer is doing to understand what the economy is and is going to do. With continued weak employment, reduced hours and ongoing deleveraging, slow growth is certainly the most likely outcome.

The Week Ahead

It's going to be a huge week ahead for economic reports that will be market movers.

Monday: September Construction Spending, October ISM

Tuesday: September Factory Orders, October Auto Sales,

Wednesday: ADP Employment Report,

Thursday: Weekly Jobless Initial and Continuing Claims

Friday: October Non Farm Payrolls Report, October Unemployment Rate

Last night was the first Halloween in 20 years that I didn’t go trick or treating with at least one of my kids. Our tradition was always to carve pumpkins and then go out together in seek of candy on the dark, autumn streets.

I would always wear the same costume they would, so over the years I’ve been Darth Vader, Phantom of the Opera, a ninja and a pirate among others. But yesterday, my teenager was off with his friends and we couldn’t even find a pumpkin to carve as late afternoon settled over Bend. As we drove home empty handed from the grocery store, my son said, “I’m sorry I grew up, Dad,” and I replied, “I’m sorry, too.”

But life does pass us all by and as he headed out the door dressed as “Edward” from the Twilight series and left the old man behind, I grabbed a single malt scotch and settled in to watch the Yankees game, remembering Halloweens past from his childhood and mine.

Wishing you a great weekend wherever you may be. To get a Complimentary Special Report from Wall Street Sector Selector, click here:

John

Wall Street Sector Selector

At the Top of the Mountain?

2009-10-25T03:27:00Z

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Fellow Investor:

This week found us in cash as the markets appear to be hitting the ceiling at approximately 1100 on the S&P 500. We remain in "Yellow Flag" mode and expect choppy prices ahead.

chart courtesy of stockcharts.com

In the chart above you can clearly see the resistance level at 1100 and support at 1075 with the 50 Day Moving Average just below at 1046. On the lower graph, the MACD is curling back into a "sell" signal on the daily while the weekly still indicated positive momentum.

So clearly the rally is running out of steam for now and the only question that remains is if it can reignite itself and power through the 1100 level.

As we mentioned last week, 1121 is another significant resistance point in Fibbionacci theory.

Short term, the % of stocks trading above their all important 50 Day Moving Average took a 10% decline on Friday to stand at 71%, down from over 90% in mid September.

And the Dow gave up the psychologically important 10,000 level after just reclaiming it last week.

We could see a rebound on Monday but overall choppy to declining prices are most likely ahead.

The View from 35,000 Feet

Weakness in the markets stemmed from housing starts being less than forecasat in September and higher than expected initial jobless claims on Thursday.

Also building permits fell for the 2nd time in 3 months and Burlington Northern, a bellwether transportation company, declined -8.4% on concerns over weak real shipments reflecting declining consumer demand.

Boeing was a significant earnings miss and concerns about overvaluation persisted witht he S&P 500 now standing at 20 times operating earnings, its highest level since 2004.

On the positive side of the ledger, tech continued to shine with Amazon blowing away estimates and Microsoft putting in a good performance.

Overall, earnings are on track for an eighth consecutive quarter of declines, a record, and more bank failures on Friday pushed the total to 106 for the year, the highest since 1992.

This coming week will bring another avalanche of earnings reports from nearly 150 S&P companies including heavyweights like Exxon, Corning, Visa, Procter and Gamble, General Dynamics and Chevron, all of which should give us more insight into the strength of the recovery.

Depending upon whom you read, we're either on the cusp of a crash or the dawn of a new bull market. Such is the nature of these confusing times.

My indicators still show an uptrend intact but with significant short term weakening.

The Week Ahead

Tuesday: Case/Shiller August Home Price Index

Wednesday: October Consumer Confidence, September Durable Goods, September New Home Sales

Thursday: Weekly Jobless Numbers, Q3 GDP

Friday: October Purchasing Managers Index, October Michigan Consumer Confidence Index

Sector Spotlight:

Leaders: Commodities, Hong Kong, China

Laggards: Home Builders

I went steelhead fishing this weekend, and although record numbers of fish are in the Deschutes, I didn't catch one. Maybe next week.

Wishing you a great weekend wherever you may be,

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

John

John Nyaradi

Publisher

Wall Street Sector Selector

Dow 10,000 is a Sad Milestone

2009-10-17T21:44:00Z

Dow 10,000 is a Sad Milestone

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Last Wednesday, October, 14, 2009, the Dow Jones Industrials closed above 10,000 and this milestone was met with the predictable cheerleading among the financial media.

But what was conveniently overlooked in all the hoopla was the sobering fact that the first time the Dow crossed 10,000, the date was October 15, 1999, just one daylater and ten years earlier in what could only be described as an eerie coincidence.

And so, in my opinion, this “milestone” was nothing to celebrate because buy and hold investors have lost ten years of their investment lives; not to mention that when you factor inflation into the matrix, the rate of return is profoundly negative.

But in spite of the cheerleading, the average retail investor has figured this out and has responded by pouring an extraordinary more than $200 Billion into bond funds this year compared to $15 Billion in stock funds as they seek safety and some sort of rate of return.

But I’m concerned that many of these people who got out at the bottom of the bear market are now setting themselves up for a double hit. With interest rates near zero, the next move has to be up, and when interest rates rise, the NAV of bond funds declines and so it’s quite likely that this flight to bond funds could generate significant losses ahead.

With this week’s burst above 10,000 and then Friday’s fallback, the question remains the same, “Can this year’s fireworks continue?”

Of course no one has a crystal ball but Dow 10,000 was an obvious target and some backpedaling would not come as a surprise. With 3^rd Quarter earnings down -23% from a year ago, a significantly overbought market and continued weakness in the consumer sector, some retrenchment would be in order and even welcome.

For followers of Fibonacci theory, 1121 on the S&P 500 marks a 50% retracement of the difference between the October, 2007, high and the March lows. Typically this level marks serious resistance and a possible turning point and so we’ll have to see if that materializes.

With warning flags all around, we expect choppy prices ahead. A decline below 1060 on the S&P would indicate further weakness ahead while short term resistance is at 1100 and so a break above there would open the door to higher highs.

The View from 35,000 Feet

The news was mixed this week as GE, IBM and Bank of America earnings disappointed, while Intel, Google and JP Morgan brought in some feel good numbers.

To date 3^rd Quarter earnings are down -23% from a year ago, the ninth straight quarter of declines, and the onslaught of reports will continue this week with notable reports expected from Apple, Texas Instruments and Zions Bank on Monday, Coke, Yahoo, Caterpillar and DuPont on Tuesday, Boeing, Wells Fargo and Morgan Stanley on Wednesday, CIT, Dow Chemical and American Express on Thursday and Microsoft, Whirlpool and Honeywell on Friday.

On Friday, consumer confidence took an unexpected drop to 69.4 from the prior reading of 73.5 and a consensus estimate of 73.3. As the consumer goes, so goes the economy; so this is not a good number by any measurement.

On the home front, MGIC, the largest US mortgage insurer, got clipped for a 12% drop in its stock price as more homeowners head for default and foreclosure. RealtyTrac reported over 900,000 foreclosures for the 3^rd Quarter, up 23% from a year ago, and equating to 1 out of every 136 dwellings in America being somewhere in the foreclosure process.

The U.S. budget deficit came in at $1.4 Trillion for 2009, up from $455 Billion for 2008, as we continue spending money we don’t have and tagging our kids and grandkids with the bill.

The Week Ahead

Tuesday: September Building Permits, September Housing Starts, September Producer Price Index

Wednesday: Fed. Beige Book

Thursday: Weekly Jobless Numbers, September Leading Economic Indicators

Friday: September Existing Home Sales

Sector Spotlight:

Leaders: Oil, Commodities

Laggards: Real Estate, Japan, Silver

It’s a beautiful autumn weekend in Bend as the aspens change and there’s new snow on Mt. Bachelor. Leaves are blowing in the streets and the Canadian geese are packing up and heading south. We get a lot of unusual birds at our feeders on the deck this time of year as the fly lanes south get busy, and if you’re a snow bird, as well, I envy you. This is the first year I can remember that I haven’t been really excited about ski season and the first snowfalls. Must be getting old, I guess.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

Best Wishes,

John

John Nyaradi

Publisher

Wall Street Sector Selector

Huge Week Ahead

2009-10-12T15:21:00Z

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It's a big week for earnings reports that could eitherl justify or torpedo the recent market rally.

On Tuesday we have the likes of Johnson and Johnson and Intel, on Wednesday, JP Morgan, Thursday brings CIT, Goldman Sachs, AMD and IBM, among others and Friday brings General Electric and Bank of America.

The consensus is that investors are going to be looking for top line revenue growth to help profits along in addition to cost cutting to beef up bottom lines.

Friday's action reversed the correction we had seen the previous week as the market struggles to breach resistance at the 1070-1080 level on the S&P 500.

We went to inverse positions on October 1 from 1060 on the S&P and now are looking at momentum swinging back to the upside.

This week will be critical as earnings will tell the tale.

A solid break above 1080 on the S&P would solidify the advance and indicate higher prices ahead.

It's a confusing time with lots of cross currents as the struggle for future direction plays out.

The View from 35,000 Feet

The Financial Times reports that fair price on the S&P 500 is 867 based on book value, P/Es, etc and so we're about 20% ahead of their estimate.

Usually at the end of a recession, P/E ratios are 14-15X and this time around we're at 27X and so many economists are saying stocks have gotten well ahead of themselves on a valuation basis.

Nobel Prize winner, economist Joseph Stiglitz, says things are "going to get worse," and Timothy Long,the chief national bank examiner for the Comptroller of the Currency warned of credit problems ahead for banks due to ongoing job losses and problems in the commercial real estate sector. Estimates of banking losses for the 3rd Quarter range to as many as 60% of banks will report losses this quarter.

Car sales are expected to show a sharp decline for the month as the cash for clunkers program expired and manufacturing hours are forecast to have declined -0.5% signalling a decline in output from previous months.

The Week Ahead:

Wednesday: September Retail Sales, August Business Inventories, September FOMC Minutes

Thursday: Weekly Jobless Claims, October Philly Fed, September CPI

Friday: September Industrial Production, October University of Michigan Consumer Sentiment

Sector Spotlight:

Leaders: Silver, Homebuilders, China

Laggards: Short Oil and Gas, Bonds

This weekend, my young son and I continued his college search with a trip to Oregon State and the Navy ROTC unit there and then down to San Francisco to see University of California at Berkely and Fleet Week. We had the chance to talk to a couple of astronauts and see the airshow over San Francisco Bay which was dramatic, and it's exciting to watch him start to frame his future.

In August we visited the Navy Academy in Annapolis and it's wonderful to see these kinds of opportunities during these difficult times. Made me wish I was 17 again.

Wishing you a great weekend wherever you may be. To get a Complimentary Special Report from Wall Street Sector Selector, click here:

John

John Nyaradi

Publisher

Wall Street Sector Selector

Red Flag Flying

2009-10-05T00:47:00Z

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We switched to "Red Flag Flying" mode, expecting lower prices ahead.

Mid week we entered inverse positions in both the standard and leveraged portfolios and have unrealized gains/losses ranging from -0.8% to +5.3%.

Our new Sector Selector 2X is up +5.3% in unrealized gains and the Standard Portfolio gained 1% this week.

We switched to Red Flag because our macro scoring system flashed a "sell" signal last week. There are several components to this but some include a Point and Figure "sell" signal on the Dow Jones Industrials, a bearish signal on the S&P 500, and a Point and Figure "sell" signal on the Wilshire 5000, our total market index.

We will try to take advantage of the correction by using inverse ETFs but a more conservative approach would be to tighten stops, lighten exposure to long positions or buy protective puts.

There is no way to know how long or how deep this correction might go but it is the most significant set of signals I've seen since the start of the rally in March.

However, earnings season is just getting underway and surprises could come to the upside which would force us to reverse course, as well.

The View from 35,000 Feet

Markets weakened considerably this week as a flurry of economic reports cast doubt on the strength and sustainability of the recovery. The jobs report on Friday came in substantially worse than expected with unemployment now at 9.8% and another 263,000 jobs lost for the month.

Unemployment now stands at a 26 year high and many analysts actually put the rate at double the published rate when you add in discouraged workers who have given up looking and part timers who really want full time work.

The scary numbers are that we've had 21 consecutive months of job losses, and 7 million jobs disappearing since December, 2007. The work week is at a record low 33 hours and the companion household survey mentioned a much worse rate of employment attrition. When the stimulus bill was enacted, it was supposed to keep unemployment below 8% and so that mark was missed by a wide margin.

CIT, the big lender to small businesses, appears to be back on the ropes with a possible bancruptcy filing by year end and Bernanke said this week that the recovery won't be strong enough to drive down unemployment in 2010. He also says that the commercial real estate situation we've discussed here on numerous occasions is a "very serious problem" but shouldn't cause another financial crisis. Of course, he had a similar view at the outset of the sub prime crisis.

Three more banks were seized on Friday, bringing the yearly total to 98, and the Chicago PMI contracted unexpectedly this week along with the Institute for Supply Management report which dropped for the first time this year.

The S&P currently trades at 19X earnings, it's highest level since 2004.

Car sales were down -30% or better last month as the cash for clunkers program wore off.

And "Dr. Doom," Nouriel Roubini, was quoted by Bloomberg as saying in an interview in Istanbul that "stocks have risen too much, too soon, too fast."

And finally, investors have ignored the fireworks in the equity markets this year as they've poured more than ten times as much money into bond funds as equity funds year to date.

The Week Ahead:

The data was mostly bad last week but the S&P managed to hold key resistance at 1021, its 50 Day Moving Average. It came down to test that level and then bounced to close for a small loss at 1025.

A break through 1025 would be extremely bearish while 1040 is now new upside resistance.

Earnings season starts on Wednesday with Alcoa and so this will be another huge week for global markets. It's a light week for economic reports but everyone will be looking for signs of better profits an especially top line revenue improvements. The market has risen on the notion of a "V" shaped recovery, and if it's going to be something other than that, it could get very ugly, very quickly.

Monday: September ISM Services Report

Wednesday: August Consumer Credit

Thursday: Weekly Jobless Claims, August Wholesale Inventories

Friday: August Trade Balance

Sector Spotlight:

Leaders: Inverse ETFs

Laggards: South Korea, Homebuilders, Real Estate

We will have to remain nimble in this crazy market. I'm looking forward to if and when we find ourselves in more peaceful days ahead.

We took our annual fall camping trip to South Twin Lake. It's a favorite spot and a bittersweet time of year as summer comes to an end, but the campground is always deserted except for a few hunters. We had a wonderful evening and hike around the lake and got home in the nick of time because today it snowed about four inches at our house.

It looks like an early winter, and I must be getting old because I used to celebrate the first snow and approaching ski season and this year feel like a trip to Hawaii would be just about right.

Wishing you a great weekend wherever you may be. To get a Complimentary Special Report from Wall Street Sector Selector, click here:

John

John Nyaradi

Publisher

Wall Street Sector Selector

[disclaimer]

A Huge Week Ahead

2009-09-26T22:52:00Z

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Dear Fellow Investor:

Things turned south this week, with the major indexes posting their first losing week in three. Our long positions gave up some ground along with the general indexes.

Markets remain overbought and we are very close to a "Red Flag Flying" signal, indicating lower prices ahead. The environment remains difficult and in my opinion, caution is in order.

We have a huge week ahead with a flurry of reports, particularly on Thursday and Friday, that could make for a wild ride in the markets later this week.

The View from 35,000 Feet

Economic reports were less than robust with U.S. home resales declining, new home sales basically flat and durable goods orders declining unexpectedly in August.

On the upside, the Fed kept interest rates near zero and the G20 said they'd sustain stimulus programs and they see a turnaround in progresss. Consumer confidence came in at the highest levels since 2008.

There were downwards revisions in financials and energy and upwards revisions in tech and consumer stocks.

On Friday we had our weekly bank failure, bringing the yearly total to 95 and unemployment is approaching the top of the double dip recession in 1982.

The Week Ahead:

As I mentioned at the outset, this week will have enormous implications going into the autumn and set the stage for the earnings season about to get underway.

Here are the more significant reports coming at us this week, with Thursday and Friday bringing whoppers like Construction Spending and Auto Sales and Friday's monthly payroll data and Factory Orders.

Tuesday: July Case/Shiller Home Price Index, September Consumer Confidence

Wednesday: September ADP Employment Summary, Final Q2 GDP, September Chicago PMI

Thursday: Weekly Jobless Claims, August Personal Income, August Personal Spending, August Construction Spending, September ISM Index, August Pending Home Sales, September Auto Sales

Friday: September Non Farm Payrolls, August Factory Orders

Sector Spotlight:

Leaders: Bonds, Yen

Laggards: Real Estate, Mexico

It's a warm weekend in Bend and we're soaking up the last few warm days as winter is certainly on its way.

Wishing you a great weekend, To get a Complimentary Special Report from Wall Street Sector Selector, click here:

John

John Nyaradi

Publisher

Wall Street Sector Selector

Six For Nine

2009-09-21T01:32:00Z

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Dear Fellow Investor:

Since August 3rd, the Standard Portfolio has made nine trades with six winners and three losers.

The tally looks like this:

Winners: Losers:

+2.0% -0.5%

+8.4% -2.2%

+4.2% -2.1%

+4.8%

+5.0%

+10.1%

The Ultra Portfolio didn't fare as well with 3 losing trades of -10%, -2.6% and -1.2%.

I never like to brag about perforance and am certainly not bragging now because that always seems to be the kiss of death, but I am happy with our recent performance in the Standard Portfolio compared to earlier in the year. I'm hopeful that we can continue improving upon our performance going into the 4th Quarter.

In the Ultra Portfolio we continue struggling with late exits where we stay too long and convert unrealized gains into realized losses, and in a note last week to Pro Members, I outlined a new initiative to exit earlier and try to take more frequent, smaller profits rather than try to stay longer for double digit gains that are difficult to keep.

This remains a very overbought market short term and very much in the "danger zone" for a pullback, although it continues to defy gravity on a weekly basis.

This week the only short pause came on less favorable outlooks from Oracle and Federal Express and perhaps that's a precursor to earnings season starting in October.

Also, October is notorious for market crashes with October 29, 1929, known as Black Tuesday; October 19, 1987, known as Black Monday, and the week of October 6th, 2008, known as Black Week when the Dow declined five days straight and lost -18% in a week.

Not to say that we'll have a crash, but it does worry me. A correction we are set up to manage and even take advantage of to seek profits on the downside, but the only real protection for a crash is being in cash.

With the exception of over extended nature of this market, we would be in the "Green Flag Flying Mode" as the major indexes broke to new highs for the year.

All of our indicators still point to "long" positions, but the overbought nature of this market demands extreme caution, in my opinion. We are trading more than I like but I feel almost like a mouse trying to snatch the cheese before the trap springs and so I feel we have to be nimble for the time being. For now I think the best plan is to scalp gains where we can.

The most likely scenario is that we're close to a major market top which could be followed by a correction and then another uptrend for however long that might last.

The View from 35,000 Feet

The news was good this week with declining jobless claims and Ben Bernanke declaring the recession had probably ended. I hope he's right but tell that to the 12% unemployed in California, a 70 year high.

And the news isn't so good on the mortage front, either, as "payment option arm" mortgages which are loans that had various initial payment options, oftentimes on jumbo mortgages, starting to reset to much higher levels.

Reuter's reported that Arizona alone has 1280,000 of these resetting in the next year and with many of these loans underwater, more forclosures are ahead in this next wave of problems in the housing market. It sounds bad enough to me, already, as 1 in more than 370 housing units in America was in some part of the foreclosure process in August.

The Week Ahead:

Monday: August Leading Economic Indicators

Wednesday: Federal Reserve Open Market Committee meeting on interest rates

Thursday: Weekly Jobless Claims

Friday: September Michigan Consumer Sentiment, August New Home Sales, August Durable Good Orders

Sector Spotlight:

Leaders: Natural Gas, Solar Energy

Laggards: Short Financials, Short Russell 2000

Wishing you a great weekend wherever you may be.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

Your partner in prosperity,

John Nyaradi
Publisher
Wall Street Sector Selector

A Coin Toss From Here

2009-09-14T03:25:00Z

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The bulls and bears fought to a standoff on Friday and next week could be a significant turning point in the course of the markets this year. Bull or bear is "a coin toss" because this market feels much more like a gamble than a stable platform upon which to make investing and trading decisions.

Here are the current cross currents and arguments for each side:

Bulls:

Fundamentals:

* Continued "better than expected" economic reports

* FedEx, a bellwether transportation company upped its guidance on Friday

* Consumer confidence came in higher than expected on Friday and highest since June

Technicals:

*Major indexes broke out to new yearly highs last week

* 91 % of all stocks above 200 Day Moving Average

* 87% of all stocks above 50 Day Moving Average

Bears:

Fundamentals:

* Fed Beige Book reports sluggish spending, downward pressure on home prices, weak labor markets, weak loan demand and tight credit

* Highest unemployment since Great Depression

* Recent weeks money supply in decline

* Corporate revenue in decline, earnings up only due to cost cutting

* P/E Ratios well above historical highs

* Best Buy downgraded on Friday by Oppenheimer from "outperform" to "perform."

* Wall Street Journal reports that median household income fell -3.6% last year, steepest drop in 40 years, poverty rate highest since 1997, and 2008 median income, adjusted for inflation, lowest since 1997.

* Wall Street Journal reports Chinese Premier in speech at World Economic Forum that "the pickup in China's economy remains unstable, unconsolidated and imbalanced."

Technicals:

* S&P 500 unable to breach 1044 significant resistance

* All major markets extremely overbought and indicating short term correction likely ahead.

* XRT, SPDR Retail ETF declines -1.2% on Friday inspite of positive consumer confidence report.

So next week will be key as some significant economic reports are due on Tuesday with August Retail Sales and Wednesday with Industrial Production, Building Permits and Housing Starts.

A break higher from here would indicate that this rally has further to run while consolidation and downward pressure would indicate that demand has dried up.

Next significant upside targets would be 1100 or approximately 6% from here on the S&P 500. Initial downside target would be 995-1000.

My signals remain mixed. Most sectors are on P&F buy signals while most are overbought and major index short term oscillators point to a correction ahead.

The View from 35,000 Feet

The Harvard Endowment reported a year over year loss ending June 30th of -27% which is signigicant because this investment organization has long been hailed as beinig the best and the brightest and even they have been unable to sidestep the carnage of this bear market.

Tuesday marks the one year anniversary of the Lehman Brothers collapse which touched off the financial firestorm and led to a -46% decline on the S&P 500 in 6 months to the March, 2009, lows and leaves the index -17% below its level one year ago.

Friday marked the 8th anniversary of the 9/11 terrorist attacks and the Dow closed Friday at 9605 which is uncanny becaust that's exactly its level on 9/11; so in eight years, this major index is flat while the S&P which is still trading below its 9/11 levels.

Sector Spotlight

Leaders: Real Estate, Oil and Gas Exploration, Energy

Laggards: Bullish Dollar, Utilities, Mexican Peso

My young son started his Junior Year in high school this week and we're all off on the quick run from Labor Day to Christmas. We're soaking up the last warm days of autumn with dinners on the deck looking out at Mt. Bachelor and some autumn fly fishing. Winter comes early in the mountains and seems all too close.

On the market front, the days ahead promise to be fast paced and exciting, as well.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

[disclosure'

Beware September

2009-09-05T19:23:00Z

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Dear Fellow Investor,

Our inverse positions slid backwards on Friday with the strong pre weekend rally and currently we have the following unrealized gains/losses in our positions:

Standard Portfolio:

Position #1: +0.6%

Position #2: + 1.3%

Position #3: +0.7%

Ultra Portfolio:

Position #1: +4.4%

Position #2: +2.4%

Position #3: -2.0%

The markets remain overextended and treacherous and next week will mark the beginning of the autumn season with all market participants back from vacation and so volumes should increase.

We stay in the "Yellow Flag" mode and expect choppy prices ahead as the bulls and bears struggle for control of the direction going into the autumn.

Strong arguments can be made for either side based upon fundamentals and we'll review some of those in a moment. On the technical side, the view is mixed, as well, as the markets remain overbought and MACD in the major indexes are on "sells" while many point and figure charts remain on "buys" but with short term negative momentum. Overall, the market remains very overbought but the VIX declined this week which could indicate higher prices ahead.

The View from 35,000 Feet

The big news this week was the jobs report on Friday with unemployment rising to 9.7%, the highest in 26 years and the 20th straight monthly decline.

65% of employers are still shedding workers and there are now fewer jobs in this country than there were ten years ago although we have added more than 30 million people to our population in that time.

The July unemployment number was revised upwards and there are an additional 9 million involuntary part timers. These numbers show improvement over the bottom of this recession but are still worse than the lows of recent recessions.

Also on the bearish side, a summary of newsletter writers puts bullish sentiment at levels last seen just before the beginning of the bear market in October, 2007, and insider stock selling ran far ahead of insider buying in August. Both of these would be considered bearish indicators going forward.

On the bullish side, the ISM manufacturing report crossed 50 this week, indicating a return to growth and retail sales were mixed but slightly better than expected. The bullish view of the employment report is that the numbers are declining which should be the precursor to job growth ahead.

The big question remains as to whether this rally is sustainable after all the stimulus runs out in light of the fact that the economy is facing extraordinary deficits, credit is still tight and the consumer is still under extreme pressure with prime mortgage loans now being the trouble spot and the commercial real estate debacle still lying dead ahead.

The Week Ahead

Tuesday: July Consumer Credit, Fed Beige Book

Thursday: Weekly Jobless Claims

Friday: Michigan Consumer Sentiment, July Wholesale Inventories

Sector Spotlight

Leaders: Silver, Taiwan, Korea

Laggards: Agriculture, Real Estate Oil

We can talk all we want about the fundamentals of the bull or bear argument, but in the end, the only truth is in the tape. Technical trading takes the emotion and subjectivity out of trading and our main task is to have the discipline to stick with what the signals tell us. The problem with this year has been, that like the fundamentals, the technical signals have been contradictory and confusing but we'll continue diligently in our efforts to interpret them correctly and make profitable trades.

This week my family and I have been on the beach just north of Naples, Florida, and truly this is a scary scene as whole strip malls sit vacant, many malls sport vacancies and residential foreclosures are rampant, even in the high end beachfront properties. The face of the recession can be more clearly viewed here in this post bubble crash landscape than anywhere I've seen.

But people are still out enjoying the Gulf on this last weekend of summer. I'm heading down to the beach now and then later tonight one more round of mini-golf with my son and a "last supper" before heading home and the start of the "new year" as summer draws to a close.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

Four Potholes Just Ahead

2009-08-31T13:54:00Z

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

Our inverse positions made slight gains for the most part this week and currently we have the following unrealized gains/losses in our positions:

Standard Portfolio:

Position #1: -0.3%

Position #2: +.02%

Position #3: +1.8%

Ultra Portfolio:

Position #1: +0.1%

Position #2: +4.5%

Position #3: +5.5%

These were all opened on August 24th, this past Monday, and so represent one week's results.

Members can view full details of entry prices and stop loss points as well as weekly commentary in your Weekly Position/Stop Loss email.

The portfolios are currently positioned in inverse ETFs and cash to reflect our view that the markets are poised to decline going ahead in the short term. We expect choppy action and so remain in the "Yellow Flag" mode. When and if the decline is confirmed, we will add two more inverse positions to each portfolio with the goal of profiting from any extended decline.

The markets remain overextended and treacherous in light volume expected this week.

The View from 35,000 Feet

The current rally faces 4 major risks:

1. Overvaluations

2. The impending onset of H1N1 "swine" flu

3. Seasonal weakness

4. Consumer spending

A steadily growing number of analysts see the growing danger of overvaluation in the markets. Estimates of overvaluation range as high as the mid-20% range to "just a tad," depending upon whom ou're reading, but well respected economist David Rosenberg reports that the index is currently priced for 4% GDP growth instead of the widely forecast 1-2.5% growth ahead. Fair price based on projected GDP growth would be 850 on the S&P 500, or more than 17% below current levels.

The swine flu has been declared a pandemic and estimates are that as much as 50% of the U.S. population could catch the disease this winter with as many as 90,000 deaths which would overwhelm the health care system and certainly put a pall on consumer spending, commerce and transportation. Apparently smaller numbers of the vaccine will be available than forecast and so this appears to be a growing danger.

Seasonality is now working against the market, with September being traditionally the worst month for stocks and with October harboring a penchanat for stock market "crashes." Short interest is up in August and investor sentiment as measured by Investors Intelligence Advisors Sentiment index, is at its highest level since late 2007 which was the market peak just before the onset of the bear market.

The consumer remains weak with consumer confidence falling to a four month low on Friday. Since we consumers represent 70% of GDP, this lack of confidence and continued deleverging presents a significant threat to recovery prospects. Due to the reverse "wealth effect" of declining property values and stock portfolios, people are feeling less well off than before and more and more economists point to a "U" shaped recovery rather than a "V" shaped recovery and even perhaps the possibililty of a double dip recession.

The Week Ahead

It will be a lightly traded week as Wall Street vacations continue but Friday's Non Farm Payrolls Report could easily provide some fireworks going into next weekend's long Labor Day weekend.

Monday: August Chicago PMI

Tuesday: July Construction Spending, August ISM Index, August Auto Sales

Wednesday: ADP Employment Report, July Factory Orders

Thursday: Weekly Jobless Claims

Friday: August Non Farm Payrolls

Sector Spotlight

Leaders: Silver, Homebuilders, Agriculture

Laggards: Brazil, China, Oil

We had a great visit to Washington, D.C., this week where we toured the Mall and the newer Air and Space Museum out near Dulles Airport and the Manassas Battlefied at sunset.

We went to a great restaurant in Annapolis where the Chesapeake Bay crabs were a delight and whenever I travel, I always try check on my "cab driver" index which goes like this:

"How's business?" I asked.

"Very slow," the driver answered.

"Many tourists?"

"Not many."

So maybe the "cab driver" index confirms our assessment of a weak consumer and perhaps more difficult days ahead.

In any case, have a great last week of summer and let's get ready for a surge of activity after Labor Day.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

[disclaimer]

Is This Rally a Bubble?

2009-08-22T21:56:00Z

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It was a wild week that began with panic selling and ended with panic buying.

On the Point and Figure Charts the Dow Jones went from a “sell” on Monday to a “buy” on Friday and all the major indexes have returned to a much overbought state as of close on Friday.

The overall markets still seem very much “ahead of themselves,” as demonstrated in the chart below.

http://www.chartoftheday.com

You can see here how earnings don’t support current valuations, however, the old saw remains true, “the markets can remain irrational longer than you can stay solvent.”

All bubbles come to an end, and this one will, too, the only question being when. Our task will be to try to profit from both the up and downside of these continuing violent moves.

The View from 35,000 Feet

On Friday, the yearly count of bank failures came to 81, including a Top 12 on the all time list with Guaranty Bank of Austin with $13 Billion in assets going under. Oddly, this one was sold to an outifit in Spain which is the first time that has happened and can only make one wonder if no U.S. banks had the economic strength to pick up these assets.

And many analysts forecast that up to 1,000 banks could fail over the next 3-5 years as the problems with commercial real estate continue to develop.

But for this week the news was all good as Chairman Bernanke went to Jackson Hole and said, “prospects for a return to growth in the near term appear good,” but he added a qualifier that “difficult challenges still lie ahead.”

Consumer prices declined roughly -2% year over year, the largest drop since 1950, as inflation continues to be held in check anad existing homes sales rose an unexpected +7% to log four straight monthly gains and the highest level of activity since August, 2007, which you may remember was the beginning of our long slide down.

However prices are down over -15% year over year and distressed property made up roughly 1/3 of the sales activity in July. Also, 13% of U.S. mortgages are either in foreclosure or a month behind on their payments which would cast a shadow on this week’s positive numbers.

And the labor market remains bleak with 15 states recording double digit employment levels.

The Week Ahead

Tuesday: June Case/Shiller Home Price Index, August Consumer Confidence

Wednesday: July Durable Goods, July New Home Sales

Thursday: Initial Jobless Claims, Q2 Preliminary GDP

Friday: July Personal Spending, August University of Michigan Consumer Sentiment Revision

Sector Spotlight

Leaders: Oil, Home Builders, Russell 2000

Laggards: Silver, Taiwan, Agriculture

This week we spent a few quiet days camping next to a beautiful mountain lake in the High Cascades. The fishing gods weren’t good to us, but my sons and I scaled a 10,000 foot mountain which was terrifying and hard on my 59+ year old body.

This week promises to be a little more civilized with a trip to Washington, D.C. for a little sightseeing and to visit the U.S. Naval Academy with my young son as we start the college search process with him.

With the miracle of the internet and wi-fi, I was able to monitor the markets from the lakeshore and will do the same this week as we watch this fascinating time unfold.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

Taking Profits

2009-08-16T19:42:00Z

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

On Friday, we closed our 5 positions in the Standard Portfolio for the following gains:

EEM: +2.2%

XOP: +2.1%

SLV: +4.2%

IYR: +8.4%

MOO: +2.1%

The earliest of these were opened on 7/27, so in three weeks we banked +3.8% realized gains over the 5 position portfolio.

Looking ahead, we are at a critical turning point in the progress of the market this year.

Reprinted courtesy of stockcharts.com

The chart above is of the Wilshire 5000, the broadest look at the U.S. stock market. The moving average is the 70 Week Moving Average which is widely regarded as the barometer of bull or bear markets. You can see how it picked up on the tech wreck in 2001, the subsequent rally from 2003-2007 and the current bear market.

Today the current rally has brought us to just below the moving average and we currently stand 1.4% below this decisive point. A break above the moving average could confirm that indeed a new bull market could be underway and we could expect perhaps years of higher prices ahead.

A failure here could indicate declining prices and continuation of the current bear.

The next weeks and months will prove pivotal to our future.

We have switched to a "Yellow Flag Flying" mode in that we expect choppy prices ahead. Right now we're in a trading range bunched around the 1,000 level on the S&P and looking for a break above 1018 or below 990 for short term direction.

Also, MACDs on the major indexes went negative on Friday, indicating declining momentum and the possibility of lower prices ahead in the short term.

The View from 35,000 Feet

Last week's news was a little ominous for the continuation of the current rally.

The biggies were the unexpected decline in retail sales for July which came in worse than expected and the also unexpected decline in consumer confidence which came in at the lowest since March and was the second monthly decline in a row.

And no wonder, since jobless claims unexpectedly rose on Thursday and roughly one third of American homeowners are "underwater" in their houses, meaning they owe more on their home than it's worth.

The Fed statement after their meeting pointed to a subdued recovery and continuing problems with job losses, declining housing prices and household

The S&P currently trades at 18.7X earnings, the highest since 2004, and many analysts now are saying that the market has gotten ahead of itself.

Other flashing red lights are the facts that September is historically the worst month for the stock market, increased insider selling has been reported, and corporate earnings, while better than expected, were due mostly to cost cutting rather than top line earnings improvements.

The consumer has always been the key to economic recovery, and this time we're possibly looking at a systemic change that could make this recovery very different from previous ones we've seen; huge declines in house prices, income, household net worth and excessive debt that needs to be worked off consumer balance sheets all point to something other than the traditional V shaped recovery.

To top it all off, the largest bank failure of the year, Alabama's Colonial Bank, happened on Friday along with a couple of others in Arizona and Pennsylvania, bringing the total to 78 bank failures for the year and the FDIC having to protect more than $300 Billion in assets going into this lazy mid August weekend.

The Week Ahead

Monday: August Empire Manufacturing Report

Tuesday: July Building Permits, July Housing Starts

Thursday: Initial Jobless Claims, July Leading Economic Indicators

Friday: July Existing Home Sales

Sector Spotlight

Leaders: Bonds, Japanese Yen, Short Emerging Markets

Laggards: Real Estate, Oil, Homebuilders

We've talked a lot about the consumer being the key to the future of the recovery and the stock market. I'm sure you've noticed changes in your own spending patterns over the past few months, as I have in my family's.

Last summer we went to England on a $10,000 vacation of a lifetime. This summer we're camping by a beautiful mountain lake in Oregon about two hours from home and spending about $1,000. If collectively we continue this behavior, the economic picture will remain very subdued, indeed.

Nevertheless, there will always be opportunities and we will continue to seek those out. The next few days, weeks or months will set the future direction of this market and we will work to attempt to correctly position ourselves as bulls or bears according to how this situation develops.

To get a Complimentary Special Report from Wall Street Sector Selector, click here:

All the best,

John

Wall Street Sector Selector

[disclaimer]

The Stampede Goes On

2009-08-08T20:38:00Z

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It was another wild week as the bulls continued their stampede. This market continues defying gravity and is certainly due for a breather, long overdue, in fact.

People are saying they've never seen a rally like this but while impressive, it's not unprecedented.

Looking back at the "tech wreck" of 2000-2002, the initial rally at the end of that bear market logged more than 25% on the S&P 500 in 2003 and went on to eventually gain 100% until its peak in October, 2007, a quick rise over four short years.

During that time, there were minimal corrections and none of them were more than 10%, the "official" definition of a correction.

Going farther back in time, we see that after the Great Depression, there were several explosive, double digit bear market rallies on the Dow with six greater than 10% between 1929 and 1932.

Of course the big question is, "is this a new bull market or 1930?"

I don't know but with the commercial real estate problems looming ahead and earnings improvements being driven more by cost cutting rather than top line revenue, along with a stressed out consumer, it's easy to make an argument that we're not out of the woods yet.

But, almost all the news was good this week and I really hope it's the start of a new bull market and a real recovery rather than a revisit of the 1930s because before it was all over back then, the Dow lost 90% of its value from peak to valley.

The market remains very overbought and dangerous, in spite of all the positive cheer around right now. There isn't much resistance between here and 1100 on the S&P and good support at 980 and then again at 950.

The View from 35,000 Feet

Unemployment improvement was the big news on Friday with job losses declining from 443,000 in June to 247,000 in July. Weekly hours were up and the unemployment rate actually declined which launched Friday's rally.

The S&P went to a 10 month high, which by the way, is equal to where it was in 1998, and so a buy and hold investor hasn't moved an inch in eleven years.

Earnings reports continued to be "better than expected," and are down -28% year over year compared to the forecast -35% and more than 70% of companies have beaten estimates.

Friday saw yearly bank closures spike to 72 with two more going under and many analysts are now saying the recession ended in July.

The only piece of glum news was a drop in consumer spending, -4.7% year over year, the biggest drop since records on that subject were started in 1960. And this could be ominous since consumer spending makes up 70% of GDP.

But existing home sales were up and insurance giant AIG reported its first profit in 7 quarters.

The Week Ahead

Tuesday: June Wholesale Inventories

Wednesday: Federal Reserve meeting/interest rates

Thursday: Initial Jobless Claims, July Retail Sales

Friday: July Consumer Price Index, July Industrial Production, August Michigan Consumer Sentiment

Sector Spotlight

Leaders: Home Builders, Financials, Real Estate

Laggards: Bonds, Singapore, Inverse Indexes.

August is going by way too fast. I hope you're enjoying a peaceful summer in spite of all the uncertainty that surrounds us.

Sincerely, To get a Complimentary Special Report from Wall Street Sector Selector, click here:

John

John Nyaradi

Publisher

Wall Street Sector Selector

[disclaimer]