Date: October 12, 2008
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Fundamental Data provided by Investors Business Daily
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Market Update
MARKET HEALTH:
MARKET IN CORRECTION! The Markets are in complete Panic Mode!
FEAR has taken over and Panic has set in on Wall Street. I myself am fighting MAD as I talk to friends, family, neighbors, and acquaintances and hear the stories of how they have lost half of their retirement or stock portfolio and do not no what to do. I'm MAD because I ask if they have heard from their brokers or investment advisors, if they have been given a call just to console their nerves or discuss the market issues at hand. Most say "NO", but if you can say "yes" you have a broker worth keeping. But I cannot blame everything on the brokers or the long term investor gurus, individuals MUST ASSUME RESPONSIBLITY FOR THEIR OWN INVESTMENTS, after all it is your money and no one will look after your money or be more responsible for your money than you will. One of the best lessons I ever learned was as a day trader for a private firm. My mentor who looked over my shoulder to monitor my progress noticed that I was way down for the day and even more so for the month. I listed about 10 excuses as to why none of the losses were my fault: "I got a bad fill on my entry", "that stock always comes back from this support level, it just didn't this time", "The market had no reason to turn around, so I held on knowing it would come back", it never did. Finally my mentor looked at me and said, "You have to take responsibility for your own trading, quit with the excuses". This was the best lesson I could have ever have learned and a turning point in my trading. If my rules said to get out, I get out. No excuses, no what if's, no nothings, just get out with no emotion.
I bring this up, because I truly believe that no one will look after your hard earned money better than you will. No one will be more responsible for your hard earned money more than you will. In every aspect of our lives, whether it be our jobs, our health, our family, our safety, we take responsibility and take action. Yet when it comes to our money we give control to someone else. Mostly we hand over our hard earned money for someone else to take care of because we do not want to bother with it, it seems complicated, we do not have the time ...take responsibility. You can take control of your investments, take responsibility for your investments, and with a little work, do better than your broker or banker or investment advisor could have ever done. If you want proof, there is no better proof then right now, as Wall Street, major banks, insurance firms, and even hedge funds begin to fail, it is only in the past 2 weeks where we have seen big money investors start to dump equities in a big way. Maybe it has been individual investors calling their brokers saying they could not take the pain anymore or the big money investors needing to sell off equities to raise cash. Either way I can guarantee you as an individual investor you could not have done any worse then the people investing your money for you.
As an individual investor who spends a little time each day studying the stock markets daily activity you would have known to go to CASH last December 2007. You would have recognized a new rally that took place from March 2008 to May 2008 and captured some profits. You would have known that when the indexes broke down through major support levels in September of 2008 that big trouble was on its way and CASH once again was the only place to be.
If as an individual investor you would have watched these signals you would be sitting at home with a nice profit for the year and resting in CASH right now while many around you are in turmoil. Why? Because you took control of your own financial destiny, your own investment responsibility and did not leave it in the hands of someone, for most of us, who you barely know.
Now let me leave this segment on investment responsibility with a little story. I belong to two investment clubs that are great for education. There is a man in the club that had seen his retirement account from his employer dwindle down from a comfortable retirement to a mere $4000. This man took responsibility for his account and began monitoring the daily stock market and his particular companies stock for 6 months. Following the 6 months of self education and learning to understand the stock market, he began to trade his companies stock on a daily basis. Sometimes holding it for several months, sometimes just for a day. Within the next 6 months the man was sitting on all of the retirement money he had lost and then some. Now he pulls up to the investment club meetings in his nice corvette, continues to educate himself on different investment ideas and most importantly is proud to say and tell you that he is thankful for taking responsibility for his investment future.
Take control of your investment future whether it be through an investment advisor, your bank, a work retirement plan, or on your own. Ask questions, have a strategy, be disciplined, and learn from mistakes whether they are yours or the person controlling your investments. The key here is times change, investment strategies change, conditions in the economy change and when one takes an active role in the responsibility of their investment future you will develop an awareness of these conditions. This is what healthy investors do.
NOW BACK TO THE MARKETS:
This week the major indexes all crashed through major areas of support and finished off with one of the worst down weeks in the history of the stock market. The S&P 500 actually did have its worst week ever, nose diving 18.2%. The DOW crashed 18.1% and the Nasdaq fell 15.3%. Since the approval of the rescue plan all we have seen is a sell off in the major indexes. Now it has become the sell off heard around the world as major indexes around the globe are in fear of a world wide recession. In an effort to stop the free for all sell off the Federal Reserve and the European Central Bank along with other countries began to cut key lending rates. This weekend the Group of Seven Nations or G-7 is in meetings to help find a solution to the global financial crisis. The efforts of their meeting should hit the newswires this week. Until then we must now look back to 10 year charts on the major indexes to see where history may possibly take us.
Index Charts
DOW JONES: 10 Year chart with monthly price bars.
On this 10 year chart of the DOW you can see how we have now broken through 3 levels of major support at 12,000, 10,600, and 9,600. The next vital area of support that the DOW must try to maintain is 7500 or its 10 year lows.
S&P 500: 10 year chart with monthly price bars.
OUCH! Take a look at the dive. 760 is the next possible support level which is exactly where the new bull market of 2003 started.
NASDAQ: 10 Year chart with monthly price bars.
The Nasdaq broke through major support at 2200 and then 2000. It passed through 3 year lows at 1800 and now has the possibility to drop to 1200 or 5 1/2 lows. We will discuss the Nasdaq in further detail below.
NASDAQ: 3 year chart with weekly price bars.
This 3 year chart with weekly price bars shows the ugliness of the last 2 weeks as the Nasdaq sold off hard crashing through 2200 support and straight through 2000 support without ever looking back.
NASDAQ: 6 month chart with daily price bars.
Some GOOD NEWS, after gapping down at the opening bell by almost 50 points and being down nearly 100 points on the day, the Nasdaq stages a late day rally and holds on for its first positive day in 8 trading sessions finishing up by 4.39. Notice the major distribution that took place last week. The heavy sell off puts us almost 600 points away from the 50 day moving average. However, this reversal on Friday suggests buyers finally stepped back in and I would be willing to bet we have our first bounce in the market next week. This is no buy signal by any means, but definitely a RED ALERT to see if buy side volume can step in a push this market from the doldrums.
Remember, when the markets are at their worst and panic and fear have set in, is when Big Institutions like to sneak in and start buying up shares of equities. Now is not the time to forget about the markets, but a time to watch them like a hawk for signs of good health and buyers stepping back in. It is a time to keep a close watch list for stocks that have fundamentally held up well and technically stayed strong during the sell off. Stocks like FCN are a good example.
Stay on your toes and keep alert to the markets every movement. Expect a bounce this week.
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Top 10 Industries:
- Banks-West/Southwest
- Retail Discount Variety
- Computer Software Medical
- Medical Outpatient/Homecare
- Retail Drug Stores
- Banks-Southeast
- Insurance Brokers
- Retail Wholesale Food
- Commercial Services Schools
- Banks-Northeast
** Keep an eye on BANKS as an Industry we now have 3 in the top 10. 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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