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Weekly Market Update and Alert HQ for week ending Feb 8, 2008

The latest lists of stock alerts are up and available at Alert HQ.

After nearly two weeks of a rising market, stocks dropped again this week. The prior week's strong gains essentially evaporated. This volatility is playing havoc with our indicators. As a result, this week's alert list has only 30 BUY signals and 1 SELL signal.

It is difficult to generalize about the stocks in this week's list. We see a sprinkling of tech and small banks and a few drug/medical stocks. Big names are lacking and it seems to be mostly small-cap stocks.

Weekly Market Update

The trigger for the week's sell-off was the ISM services report. This report generally doesn't cause much concern for investors but this time was different. The report, for the first time in five years, showed a significant and unexpected contraction of activity in the service sector. Stocks plunged in response.

The remainder of the week was bad but could have been worse. After the close on Wednesday, Cisco Systems (CSCO) reported their usual good numbers. Forward guidance was, once again, on the soft side. I expected the market to sell off strongly but the result was much more mild: a roller-coaster session Thursday that ended with modest gains.

In another counter-intuitive move, retailing stocks gained after weak retail sales were reported.

On Friday, tech and the NASDAQ continued to outperform but this time the reason was extremely weak: Amazon announced a billion dollar share buyback. First, this is pretty thin stuff to hang a rally on. Second, I'm not sure why anything having to do with Amazon affects the tech sector. The company is a retail behemoth that happens to use lots of technology and develops some of its own software. This is not so unusual for many businesses that are not considered tech stocks. As a result, I don't think this tech rally can last and I will hang on to my position in REW.

Financials returned to their losing ways after having led the market up in the previous two weeks. The bond insurers continued in the news with bailouts and downgrades being the topics of conversation. Reports of credit card delinquencies were extensively documented in the Wall Street Journal. In the end, investors turned their backs on the sector and we see XLF, for example, below all its moving averages and looking vulnerable. I am comfortable in my switch to SKF from UYG.

The other big news of the week was in regard to oil. There were reports that OPEC might cut output in order to keep oil above $80 a barrel. Just when I was resigned to the fact that the oil ETFs USO and DBO would be falling out of their recent trading range, we see them jump by over 3% in one day. They remain in those ranges but the short-term direction may now be up. Looks like I'll hang on to my position in DBO a little while longer.

In summary, we may have seen a bear market rally come and go. The question on the street now is whether we will test the January lows. Next week doesn't provide many economic reports though earnings season will continue. That would seem to be an opportunity for calmness in the market. Still, it seems that it doesn't take much to spook investors these days.

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