Skip to main content

Weekly Review - all about the financials

Are you wondering, as I am, why the markets rallied toward the end of last week?

The only conclusion to draw is that turmoil in the financials must be good for investors. Earlier in the week we had the takeover of Fannie Mae and Freddie Mac. Their stocks are so wasted they were dropped from the S&P 500. Then we had the accelerating slide in Lehman Bros. Heading into the weekend, the government is hosting meetings trying to find someone to buy the company, whole or in pieces. Take-overs, take-unders: I guess it's all bullish.

For those who actually pay attention to fundamentals, the news this past week was not particularly good. Retails sales were weak despite lower gas prices. Growth in Europe is projected to be lower which will help the buck appreciate and decrease the cost of goods imported into the U.S. (consumer gets a break, exporters take a hit). The Producer Price Index (PPI) came in hotter than expected as did core PPI. On the bright side, the University of Michigan Consumer Sentiment Index came in much better than expected.

Fundamentals and sentiment are, of course, what drives the market yet it is useful to review the technical situation. Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. The following chart based on daily data summarizes the state of our technical indicators:


As can be seen on the chart above, the only line heading upward is the one that counts the number of stocks in strong down-trends as determined by Aroon analysis. Everything else is heading south: number of stocks above their 20-day moving average, above their 50-day moving average, number of stocks in strong up-trends according to Aroon and number of stocks exhibiting strong buying pressure as determined by Chaikin Money Flow.

Of note on the above chart is the path taken by the light blue curve describing the number of stocks whose 20-day moving average is above their 50-day moving average. The last time it reversed course and turned downward was back in early June. That was a prelude to the markets losing approximately 10% and falling to the July lows.

The chart below is based on weekly data. The same indicators are measured but here we get what looks like a sideways trending market.


S&P 500 Sector Analysis --

Below we present our sector analysis for the S&P 500. We have looked at three characteristics:
  1. Percentage of stocks in a sector whose Aroon analysis indicates they are in an UP trend
  2. Percentage of stocks in a sector whose DMI analysis indicates they are in an UP trend
  3. Percentage of stocks in a sector that are trading with their 20-day moving average above their 50-day moving average.

What is notable this week is how decimated the Energy sector is. Industrials, Technology and Telecom are showing increased weakness. Consumer Discretionary is finally starting to pull back a bit.

Some things are notable by how much they didn't change. The Financial sector, despite all the crazy gyrations and strange news, is actually hanging in there pretty well compared to the past few weeks.

In Summary --

Our work with daily data shows a market in danger of rolling over and moving to new lows. The weekly data shows a market stuck in a range.

This coming week will be dominated by the Financial sector yet again. Investors will be reacting to the outcome of the Lehman drama. We also have on tap this week earnings from Goldman Sachs (GS), Morgan Stanley (MS).

There will also be a full slate of economic reports to digest: Industrial Production, Consumer Price Index (CPI), notes on the FOMC policy statement, building permits and housing starts, crude inventories, weekly initial claims and the NY Empire State and Philadelphia Fed regional manufacturing surveys.

To me it looks like a market where risk is increasing. I am not inclined to assume the bottom is in. All we can do is be alert, be careful and be conservative until the trend reveals itself.

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional