Skip to main content

Weekly Market Update - tech joins financials in the doghouse

The long run of outperformance tech stocks have enjoyed came to an end this week. Cisco and Qualcomm failed to provide forward guidance to Wall Street's liking and tech stocks were treated like tainted financials; ie, they sold off with a vengeance.

The technical outlook --

With financials already dragging the markets down, the collapse of tech has removed on of the major supports for the major averages. We now see both the Dow and the S&P 500 falling below their 200-day moving averages. We also see the 20-day moving averages just about crossing below the 50-day moving averages. This situation occurred in August and the markets recovered; unfortunately, there is no guarantee that history will repeat itself.

Especially ominous are the intra-day charts. It can often be seen these last few days that volume is heaviest on down moves. This can be observed looking at both financial and tech ETFs. This is not a good sign.

There some analysts who say the financial and economic situations are worse than in August so the market is probably heading down. There are value players saying stocks, especially financials, are getting cheap and that now might be the time to buy. As there are always two sides to every trade, there are always two ways to look at the markets. No matter which group is correct in their analysis, the charts are clearly signaling "caution."

The week coming up --

The week hasn't even started and the financial sector is raking in more bad news. Bank of America and JP Morgan Chase announced late Friday that their fourth quarters would be affected by issues surrounding exposure to CDO's. E*Trade announced an SEC investigation into its mortgage trading and that earnings would be hit by the deteriorating value of its mortgage portfolio. Rumors continue to dog Barclay's concerning their sub-prime holdings and HSBC is reported to be ready to announce another round of write-downs. Financials can't get out of their own way.

According to the New York Times, Bank of America, Citigroup and J.P. Morgan Chase have finally agreed on how to structure a fund to help stabilize the credit markets. Sounds good but will it help? To quote the Times:

"The fund's impact is unclear, however, because the debt markets have worsened, investors are shunning asset pools, and structured investment vehicles are trying to unload the securities they hold on the assumption that the new fund will not work."

Interestingly, their were no bombs dropped over the weekend concerning any tech stocks, only reports that short interest has spiked in Microsoft. Have we seen the beginning of a rotation out of tech or just another buying opportunity? Stay tuned...

As for potentially market moving economic reports, we will see the latest on producer prices and consumer prices reported on Wednesday and Thursday, respectively. October retail sales is due on Wednesday and October industrial production and capacity utilization on Friday. The September pending home sales index will be reported Tuesday. Anything that hints inflation is increasing or the economy is slowing down could potentially trigger another sell-off.

The TradeRadar Model Portfolio --

The gyrations in the markets this week caused us to hit stops in several of our holdings and encouraged us to pick up another inverse sector ETF. Details can be found on the TradeRadar Track Profit & Loss page and in the following posts: Financials tank but ultrashort ETF is up nicely and Overweight tech no longer. The titles say it all.

Comments

Popular posts from this blog

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 professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. 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)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…