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Saturday, March 17, 2007

Weekly Market Update - No progress

Weekly Market Call

This week the big down day was Tuesday when markets fell almost 2% again. The rest of the week was spent in modest recovery mode. We have essentially ended up back where we started two weeks ago. Does no progress mean we have established a bottom? My feeling is that there is further to go on the downside.

As has been the norm lately, the economic news was mixed at best. Delinquencies on sub-prime mortgage loans hit 13.3%, the highest since the third quarter of 2002. The words "liquidity crisis" are beginning to be heard and more market participants are beginning to think the sub-prime problems could spill over into other financial sectors. Other news this week (manufacturing reports, PPI, CPI) portrayed the economy as plodding along but certainly gave investors nothing to boast about.

Market sentiment at this point remains nervous. A new negative factor coming into play would send the indexes to new lows. A little hedging with some of the inverse ETFs might not be a bad idea.

ETF Comments

Indexes - all ETFs that track the major indexes continue to flash the TradeRadar SELL signal. SPY, DIA and QQQQ are all in the same boat with IWM, representing the Russell 2000, in the least bad shape, only down 1.1% year-to-date.

Commodities - XLE has been flashing a TradeRadar SELL signal since early January and has continued to move essentially sideways for the past month. This week, though, the price of oil moved down to around $57 a barrel. Looking at the chart of USO, you would now wonder why XLE didn't followed it down. TradeRadar, which had been flashing a potential BUY signal on USO since mid-February has now gone neutral. The Basic Materials SPDR, XLB, didn't sustain too much damage this week but still stays mired in bear territory according to TradeRadar.

Technology - same as last week, the TradeRadar signal for the Technology SPDR, XLK, looks very much like that for QQQQ: a sloppy SELL. There are still good individual tech stocks out there (see my Pick o' the Month post) but my advice is to avoid XLK.

Housing - the SPDR Home Builders ETF (XHB) is looking even worse than last week as the sub-prime mortgage mess expands. The iShares REITs ETF (IYR), is down slightly this week as compared to the previous week and is still flashing a solid SELL signal. It seems that IYR has not been tarnished with the sub-prime lending problem and is holding up decently. Still, there's no rush to put money into IYR.

Biotech - XBI, the biotech SPDR is a mess and the trend is down. Stay away from this one for while.

Financial - The Financials SPDR, XLF, also lost a bit this week and the signal remains a screaming SELL. In spite of a strong earnings report this week by Goldman Sachs and a decent showing from Lehman Brothers and Bear Stearns, the financials remain vulnerable to the mortgage situation, problems with the carry trade (though that seems to get a little less press these days) and the feeling that interest rates won't be coming down anytime soon.

TradeRadar Stock Picks

With the NASDAQ 100 dropping a few cents this week, the ProShares Ultra Short QQQ (QID) gained a bit. At $59.92, we are now showing a gain of 8% since our recommendation went out.

We continue to hold Generex (GNBT) even though it is going nowhere. It lost six cents this week to close at $1.65. We are showing a slight loss of 2.4%. TradeRadar is showing a weak SELL signal and we may be dumping this one during the coming week.

As mentioned last week, Tarragon Corp. (TARR) suddenly took a dive and it was sold Monday of this past week at $10.57, wacking us with a 9.7% loss.

As investors, though, we remain ever hopeful and so I add two new stocks to track in this section: Cisco Systems (CSCO) and BigBand Networks (BBND). They were both recommended Friday before the opening bell (see the full post). With one day under our belts, CSCO is up twenty cents, having been purchased at the opening at $25.79. As for BBND, it is a recent IPO and Friday was only its second day of trading. Opening at $17.45 and closing at $16.66, we immediately incur a 4.5% loss. Ah, the excitement of trading IPOs...

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