Date: July 13, 2008
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Fundamental Data provided by Investors Business Daily
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Market Update
MARKET HEALTH:
WE ARE IN A BEAR MARKET!
Right now you should be converting to CASH as the best way to protect yourself if we head further south. If you are not in CASH, monitor your stocks closely for price and volume movement.
Tuesday, July 8 marked the first day of a new rally attempt, but that new rally attempt was short lived as Friday the indexes all closed below the lows of the first days rally attempt. The DOW at one point had retreated over 200 points and undercut a key support level at 11,000, but was able to make up some ground by the end of the day finishing only down -128 and remaining above this key level of support. Since their October highs the NASDAQ is now down -22%, the S&P 500 has slid -21%, and the DOW has crashed -22%. When the markets slump over 20% from their 52 week highs this qualifies as a BEAR MARKET.
To turn this market around we have stated often that we are going to have to see Crude Oil begin sell off, the financial markets will have to firm up and the dollar will have to regain strength. So far none of this is happening. The same news that has driven this market down continues to be the catalyst to drive it further down. The news headlines continue to be smattered with the rising cost of Crude Oil, the fears of a melt down in the credit markets, and inflation.
The Headlines
Light Sweet Crude Oil sank as much as 9% before regaining 10%, hitting new record highs at $147.27 before finishing at $145.08. Three big headlines caused the supply fears in Oil. First, OPEC's no. 2 exporter of oil, Iran, has been rumored to be testing long range missiles that could hit Israel or any of our US military bases located in the middle east. It was then rumored that Israel began running military test flights over Iraq in preparation for retaliation. Second, Nigerian hostiles have stated that they will no longer be adhering to the cease fire agreement as of this weekend. Third, one of the big oil operators in Brazil, Petrobras (PBR), said its employees have threatened a strike at some point this weekend. The possibilities of these events have put fear in the oil markets that the supply lines could be threatened. This week watch the news closely for events happening in these areas. If they get worse we can surely expect to see oil continue its rise and the major indexes to lose more ground.
The Financial Sector was once again another disruptive measure to the indexes with credit crunch fears hitting two mortgage financing industry behemoths Freddie Mac and Fannie Mae. The question now will be whether the FED will step in and offer a cheap line of credit to the two mortgage lenders. Both Freddie Mac and Fannie Mae have encountered billions of dollars in losses as the US battles a severe foreclosure crunch. This all being said many analysts are stating that the whole situation has been blown out of proportion. These were probably the same analyst that suggested Bear Stearns would be OK.
At any rate the headlines will continue to be important in the coming weeks. We must watch for news on the dilemma in the Middle East and the conflict possibilities between Israel and Iran and possibly the US. Next, what will happen with Freddie Mac and Fannie Mae? Will they be bailed out by the government or not? Can the FED come up with a solution to ease the burden for the financial markets? What new regulatory issues will arise to make sure these credit crunch fatalities to occur again in the future? The answers to these key problems will be what begin to turn these markets around.
This coming week we will also be faced with second quarter earnings season. We expect the picture will not be to pretty.
It is times like these that we must follow your sell rules with great discipline. When a stock hits a stop loss it is time to get out. DO NOT hesitate, second guess, or doubt your decision. You set forth a RULE, now you must stick with it, NO QUESTIONS ASKED. Selling a stock is probably the hardest healthy investment habit you will have to learn. DO NOT go through the EMOTIONS of "the price will come back tomorrow" or "I'll buy more because the stock is getting so undervalued" or "But this is such a great stock it will rise again" or my favorite, "I'll buy some more on this dip and dollar cost average my way down", this type of thinking is setting you up for FAILURE. You became a healthy investor by creating a solid game plan for your investing that was the easy part, now you must follow your plan taking all of your emotions out of the equation. This is the hard part, but JUST DO IT!
Now is a great time to review your investment plans, study your investment journals and hone your investment skills. Analyze the trades that went well for you and the ones that did not work out so well, this is what HEALTHY INVESTORS do.
NASDAQ
3 Year Chart, weekly price bars.
On this 3 year chart of the Nasdaq it is clear to see the long term downwards trend line that is forming. Both moving averages have started to slope down with the faster moving 10 week moving average leading the slower 40 week moving average. We have drawn a red line at roughly 2150 which is the last low the Nasdaq made. If the Nasdaq undercuts this level we will continue a typical downwards channel of making higher lows and lower lows. Following this the 2000 level will be the next area of major support.
NASDAQ:
Short Term 6 month time frame with daily price bars.
In the short term we can see the close up picture of the 2150 level. If we look at the last price bar to the right you can see the volatile movement in price on Friday. This is a day of indecision as the market closed basically where it started. The key for next week is whether news will drive this market through its 2150 creating a lower low or whether we will get a much need bounce as we have been heading south for the past 6 weeks.
Top 10 Industries:
- Oil and Gas US Explor. and Prod.
- Energy - Other
- Oil and Gas Drilling
- Mach. Gen Industry
- Steel Producers
- Oil and Gas Field Services
- Retail Discount Var.
- Oil and Gas US Royalty
- Chemicals and Fertilizers
- Oil and Gas Cdn Explor Pro
