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Sunday, January 20, 2008

Weekly Market Update - still waiting for an up week

The financials killed us again this week with Washington Mutual, Citigroup and Merrill Lynch announcing massive losses. This was accompanied by more gyrations among the bond insurers. Based on write-offs by Merrill and others, analysts figure most of ACA's guarantees for CDOs are close to worthless. Ambac and MBIA are flailing about in tatters with ratings agencies seemingly lowering their credit ratings every week.

It was a standoff in tech with bellwether Intel coming in light on fourth quarter earnings and providing cautious forward guidance offset by IBM beating analyst expectations in both Q4 and 2008 projections. AMD surpised by meeting their projections for 4Q07 but still reported a large loss. They are by no means out of the woods yet.

Despite generally positive results from GE, manufacturing took it on the chin when the Philadelphia Fed's reading on regional manufacturing activity came in stunningly below expections.

After all this, I expected a rally on Friday based on the over-sold nature of the market and IBM's results but down we went again to leave the Dow and NASDAQ down 4% on the week and the S&P 500 down a whopping 5.4%.

What's next? Most of the big financials have reported already so the worst may be behind us in terms of 4Q07 earnings news. Energy stocks may disappoint as oil prices, which have been erratic lately, seem stuck in trading range. Still, investors continue to worry about the next shoe to fall in the financial sector and what ripple effects it will have on the economy as a whole.

With investors looking with trepidation at the remainder of 2008, last quarter's earnings may not carry much weight. Markets will be watching the guidance provided by reporting companies and stocks are likely to rally or falter based on how optimistic management teams are.

Comments on the TradeRadar portfolio

I have been watching the iShares FTSE/Xinhua China 25 ETF (FXI) and on Thursday it finally broke down out of its wedge-shaped chart pattern. This brings it right down to its 200-day moving average. On Friday, FXI bounced off the 200-day MA but was unable to penetrate the resistance level that was previously the lower boundary of the wedge. There was a report this weekend that a central bank official in China was quoted as saying that if US consumption comes down significantly it will have a serious impact on Chinese exports. This throws more doubt on the "decoupling" concept. I assume FXI is primed for more weakness unless there is a significant and sustained rally in US markets. Accordingly, I maintain my position in FXP, the ProShares UltraShort FTSE/Xinhua China 25 ETF. And, yes, we are again showing a profit in this position.

With the S&P 500 down 5.4% this past week, we saw a nice gain in the ProShares UltraShort S&P ETF (SDS). The chart for the S&P 500 looks horrible, it has been dropping practically straight down, so I think it will need to establish a bottom before it can begin to move up. Accordingly, it seems safe to continue to hold SDS.

I track the SPDR Technology ETF (XLK). This week it got a boost from IBM's pre-announcement but quickly resumed its recent downtrend. Our position in the ProShares UltraShort Technology ETF (REW) continues to grow. Tech seems more mixed than ever with results varying all over the board. With the negative sentiment in the markets and the unpredictability of techs we will continue to hold REW and keep a close watch on it.

We still keep a small position in Generex Biotechnology (GNBT). As it drooped down to this week's closing price of $1.42, it is approaching our stop at $1.34. If markets keep up their dismal behavior we may finally end up closing this long-held position.

As for the PowerShares DB Oil ETF (DBO), it seems trapped in a horizontal channel; however, it is sitting at the bottom of the channel at $32.83 as of the close Friday. Another serious drop in the price of crude and we could see DBO hitting our stop at $32. That would signal a potential drop into the $28 to $30 range.

As can be seen, the portfolio is mostly bearish. Sad to say, this negative period in the markets has turned out to be reasonably profitable for the TradeRadar portfolio.

2 comments:

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