Saturday, January 23, 2010

Obama drops a bomb on the market

Every week after the market closes on Friday I go to Barchart and use the same methodology to gauge what happened to the market in the previous week and plan what my strategy will be for the next week. Things started out fine early in the week but then our Prez dropped a bomb when he demonized the banks and everything on Wall Street. Most of the middle class owns a mutual fund, has an IRA or a securities account and has a bank account and/or loans with a bank. The confidence that the middle class has in these institutions is the key to this economic recovery. The balance and direction of the stock market is tied to the confidence people have in the banks and securities firms. I find it hard that he did not know the consequence of his attacks. Enough of that let's see what kind of damage he did.

Value Line Index -- contains 1700 stocks so it is much broader than the S&P 500 or the very narrow Dow 30 -- 20 DMA is sensitive and signaling caution
  • The Index was down 3.37% for the week and is down .61% for the month
  • The Index closed below its 20 day moving average but is still above the 50 and 100 DMA
  • Barchart's 13 technical indicators signal a short term 60% sell signal but an overall hold

Barchart market momentum -- contains 6000 stocks -- the percentage of stocks trading above their daily moving averages for various time frames -- 20 DMA also signaling caution

  • 20 DMA -- only 33.90% trading above their DMA -- that's less than half!
  • 50 DMA -- 55.50% trading above their 50 DMA
  • 100 DMA -- 69.20% trading above their 100 DMA

The ratio of stocks hitting new highs to stocks hitting new lows for various time frames -- above 1.0 bullish, 1.0 neutral, below .99 bearish -- all 3 time frames bearish

  • 20 day new high/new low ratio -- 484/2347 = .21
  • 65 day new high/new low ratio -- 272/327 = .83
  • 100 day new high/ new low ratio -- 208/229 = .91

Summary and strategy: The stock market has taken a blow to the gut given by the person who is supposed to be leading the recovery. He sees the key as new jobs but he is attacking the institutions that can lend the money and raise the capital to make those new jobs possible. This next week I will trim any stocks failing to maintain a price above its 50 DMA but will not be replacing in my portfolios until I see the Value Line Index recover above its 20 DMA. I don't spit into the wind.

Wall Street Survivor results: I took it on the chin this week. The market as measured by the S&P 500 down 2.09% month to date and the leader Anthony Miraydari is up 30.14% so far this month. I'm down in the 7th out of 8th place with a loss of 3.61% month to date -- maybe next week.

Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email JimVanMeerten@gmail.com.

1 comment:

  1. Obama should have waited a while to see how the economy was doing before dropping any type of bomb on the market without real details and what was actually going to be proposed to Congress. I almost think it had to do with the fact he was losing people's faith in the polls. This was not the time or the place to attack banks since they should have regulated the money given to banks to make sure the banks took the money to stimulate the economy. Obama must take just as much blame as the banks. However banks should have not flaunt fat bounuses in the face of taxpayers either so soon after making profit while the US economy suffered in loss of jobs and houses.

    Now it has become a playground for kids to duke a battle to see who should get into the sandbox first. Obama now is just throwing quick bandages and fixes and no real thought out solutions before presenting them. It has rocked fear on the markets and since Obama's statment overshadowed earnings from companies and everything else inbetween. Investors seemed less inclined now to step into the market and less inclined to really look at the state of earnings of companies without having to think "What the hell is Obama going to say or do next"?

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