Date: October 5, 2008
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Fundamental Data provided by Investors Business Daily
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Market Update
MARKET HEALTH:
MARKET IN CORRECTION!
Well this is why we monitor the markets, in the shortest new rally confirmation ever, the new rally came to an abrupt stop when a deal could not be made on a rescue plan from congress. The new rally confirmation that began on Sept. 25, headed straight back into a correction when the bailout plan failed to get enough votes to pass.
This is a very important lesson on why we always let the market dictate which way it will lead us. Last week, in anticipation of the rescue plan, it appeared that Wall Street was ready to begin a new rally, a confirmation signal occurred, and a green light was turned on to begin listing F.I.T. Stocks for proper buy points. However on Monday Sept. 29 the markets crashed to their worst drop in the history of the stock market when congress did not get the votes it needed to pass the rescue plan bill. Immediately the confirmation signal was wiped out when the index prices dived below the low of the first days rally attempt. Many people jumped into the markets ahead of the news assured that the indexes would shoot up. If the bailout plan vote had been successful, most likely the markets would have shot up, but as healthy investors we let the markets dictate the action and last Monday from the opening bell they told us they new something we didn't. The major indexes will always tell us when it is time to buy and when it is time to sell and the conviction behind the move is always produced through volume. Let the price and volume of the indexes be your leading indicator in deciphering the markets.
Let us take a look back at the week:
Monday: The biggest single down day in the history of the markets occurs when the U.S. House of Representatives is unable to pass a $700 billion rescue plan. A 2 day old new rally immediately falls back into a correction when prices fall below the low of the first rally day attempt on Sept. 18.
Tuesday: A new first day rally attempt begins as prices in the major indexes gap up from the opening bell and hold onto gains for the day. Lawmakers get back to work trying to come to agreement on a new rescue plan that Congress will pass.
Wednesday: No big news to mention.
Thursday: On day 3 of another new rally attempt prices fall below the low of the first day and is marked as a FAILURE. Two economic reports once again shatter the markets confidence dropping the indexes for the day on heavy volume. First, weekly jobless claims report registers a jump of 497,000 establishing a new 7 year high. Second, August factory orders dropped 4% which was a huge reversal from last months .7% gain. Markets tumble on the bad economic news.
Friday: Wells Fargo cuts in line in front of Citi and makes a bid to buy Wachovia for 15.1 billion. Citi is furious at the news. U.S. Economy loses 159,000 jobs. The U.S. House of Representatives once again goes to vote fro the rescue plan, this time approving the revised $700 billion plan for the financial markets. The economy worries trump the rescue plan bailout news and markets reverse on the day hitting multiple year lows.
All in all it was a terrible week for Wall Street. All 3 of the major indexes fell hard with the Nasdaq leading the way on a 10.8% free fall. The S&P dove -9.4% and the DOW crashed -7.3%.
WARNING: Now for a bit of possible GOOD NEWS, the stock market runs on emotions of FEAR and GREED and right now I would say people and companies are in a panic. However, it is exactly at this time, as healthy investors, we should be on our toes and following the markets every movement with a close eye. We need to be like a lion on the hunt, staying low and behind the brush, waiting patiently and ready to attack its prey. It is exactly at these times of fear and desperation, when people can't take the pain anymore that the markets tend to bottom out and start a new life. I am not saying it will happen, I'm just saying this is a very important time to be ready for the hunt if the bottom does occur; this is what healthy investors do.
Index Charts
This week we will take a look at the long term 3 year chart of the indexes with a one week time frame (each candlestick equals one week of price movement).
S&P 500:
The S&P has been in a down trend for almost a year since the index peaked in October of 2007. Last week the S&P hit new 3 year lows and the next possible area of support is a little above the 1000 price level as seen on a 5 year chart. If the S&P 500 breaks below this level it is possible that the next test of a low is down around 750. This would be the exact bottom that ended the 3 year bear market from 2000-03. After the big sell off last week I would expect to see a bit of a bounce up, but we shall see. Remember as healthy investors we do not predict where the stock market will head, we just follow its lead.
NASDAQ:
The Nasdaq has also just hammered down below significant support levels at 2150 and than straight through its 2000 level marking a 3 year low. The Nasdaq's next 2 levels to watch are 1800 and then 1600. Below the 1600-1500 level the only next clear support is at 1000, which again marked the bottom of the bear market of 2000-2003 as seen on a 10 year chart with a monthly time frame. The next couple of weeks will be interesting to watch as the market reacts to the rescue plan and the economy. Do not take your eye off of the markets as we want to be prepared and ready to pounce when the bottom does occur. Huge amounts of money will be made when you are prepared and ready for the next big Bull Run.
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Top 10 Industries:
- Retail Discount/Variety
- Computer Software Medical
- Medical Outpatient/Homecare
- Insurance Brokers
- Medical Genetics
- Retail Wholesale Food
- Banks West/Southwest
- Elec.-Military Systems
- Retail Drug Stores
- Commercial Services Schools
** Keep an eye on BANKS as an Industry. Several sub groups have been moving up in the industry rankings. Banks Supr. Regional has moved from 164 7 months ago to 12 last week. Several other regional type banks have had strong moves up the industry group rankings: Banking-Southeast, Banking-Northeast, Banking-Midwest... to name a few.
Important Message:
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