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Weekly Market Update - The mood changes

Weekly Market Call

This week the markets gave up all of their year-to-date gains and then some. The search for a culprit was all over the place. Greenspan was blamed for having said a recession "was possible" later in the year. The Chinese stock market was blamed because they led off the slide this week by dropping 8.8% in one day. January durable goods dropped 7.8% from the previous month. Fourth quarter GDP was, as expected, revised downward to 2.2%. January new home sales dropped 16.6%.

The mood in the market now appears to be much more pessimistic that it was just last week. All this market and economic news would have been taken in stride last week as investors looked past it to a soft landing. This week it appears to have driven the sell-off.

Interestingly, nearly all the market commentators and fund managers made a point of saying the economy is in pretty decent shape and this abrupt drop was probably not the start of a major correction, let alone a bear market. Stocks continued to show lower lows for the remainder of the week, however, and trendlines in many sectors have been broken. With little near-term support in many of the charts, there could be more declines to come.

ETF Comments

Indexes - a horrible week. All three ETFs that I track have flashed the TradeRadar SELL signal. DIA and SPY have joined QQQQ in looking weak. This is a complete turnaround from last week when QQQQ joined the others in an uptrend. All this back and forth with the BUY/SELL signals in QQQQ seems to have been a predictor of what we see today.

Commodities - Oil was up this week but XLE, the energy ETF, was pulled lower in the downdraft of general selling that took place. Basic Materials (XLB) was also pulled down but managed to recover somewhat and at least close above its 65-day moving average. It is just shy of flashing the TradeRadar SELL signal.

Technology - XLK is now flashing a sloppy SELL signal.

Housing - The US Real Estate ETF (IYR) is now flashing a SELL signal though it is sitting at a support level. If it drops any further, it could be a long way down. As for the home builders (XHB), we have a weak SELL signal based on the start of its mild recovery from the lows on last July.

Biotech - I had start following XBI because it looked like a reversal from the Jaunary 2007 low was taking place. That reversal has been completely negated as XBI has fallen back almost to the same level it was back in January.

Financials - another sector flashing a clear SELL signal. The financials, as represented by XLF, look really terrible at this point and negative news seems to be accumulating.

As can be seen, all the sector funds took a hit this week. ProShares, however, just rolled out a set of inverse sector ETFs. I just wrote about these funds this week. (Read it here).

I have discussed in a previous post the ProShares UltraShort ETFs that track the major indexes. As can be expected, they all had a stellar week. Here is an abbreviated list of their symbols and the index they track: QID - NASDAQ 100, SDS - S&P 500, DXD - Dow Industrials, MZZ - MidCap 400.

TradeRadar Stock Picks

The one bright spot in my portfolio this week was the ProShares Ultra Short QQQ (QID). It was up over 13% this week. We are now showing a gain of over 8% since our recommendation went out.

As for the others, the news was not so bright. At $1.72, our gains on Generex (GNBT) were reduced to 1.2%. Tarragon (TARR) managed to hold most of its recent gains and by finishing the week up slightly at $12.84 delivers a gain of 10.5% since we recommended it.

We have now dropped into negative territory with PacificNet (PACT) which, at $5.09, leaves us with a 2.7% loss. The TradeRadar signal is flashing a weak SELL on PACT and with the focus on the drop in Chinese stocks this past week, it is no surprise to see the stock pressured.

Comments

Super Saver said…
Trade Radar,

It was ugly last week. Unfortunately, I think the market will be correcting for another couple months.
I agree. A drop of this magnitude will need some time to resolve itself.

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