More Selling or
Opportunity?
Monday,
November 24th, 2008
The financial challenges facing the investment markets aren’t going away and in many respects are getting worse. Scanning the markets from last week we find that financials were the biggest loser by far. The S&P Financial Index lost 24% last week alone. Prior to the rally on Friday the index was down more than 32%. Wasn’t the $700 billion suppose to solve this matter? I have stated several times that the problem is bigger than the $700 billion. The problem really revolves around confidence in the system. Currently that confidence is in trouble. After Treasury Secretary Paulson announced his change of mind towards buying troubled assets the sector has moved lower. The Libor three month rate has stagnated at 2.15% after declining steadily following the bailout package. The 10 year Treasury bond has fallen to 3.15% and the two year note dipped below 1% for the first time in history. The fear factor has crept back into the sector eroding confidence to the level selling has accelerated.
The lack of confidence in the financial sector bleed over to the economic outlook, spurring speculation of how long the recession will last. Thus, four and a half days of selling led to all the major sectors ending in the red with the exception of utilities, up 0.1%. Energy was hit hard as well with crude falling below the $50 mark. Speculation now is putting crude at $40 before year end. The consumer services sector was down 8% as the expectations for a slow holiday season continues to be priced into stocks. This all goes back to the confidence issue for investors. Stocks are priced looking forward and the view is not very good.
Last week I posted a table with the break points for support on the major sectors and broad market indices. I have put that below for you to review again. By last Thursday we had moved below most of these points. However, the rally Friday helped some bounce back above support. From my view this creates an opportunity to bounce higher or confirm the downside break with the market moving lower. There is some momentum heading into the week, but there is an avalanche of economic data on tap. I don’t expect any of the data to be helpful looking forward. This puts investors at a key decision point. Hold support or sell and move towards the next level of support (2002 lows).
This week I am looking for a bounce in financials from an oversold state technically. Utilities are attractive and I am expecting a strong move higher confirming an opportunity short term. Energy and basic materials are oversold as well. The gain of more than 11% on Friday showed there is money ready to be put to work in the sectors. There could be a pullback to start the week and then a move higher. Precious metals are another area to watch with gold moving near the $800 mark. Look for a pullback early and then a resurgence back above $800 presenting an opportunity to play. These opportunities are short term and any plays need to be made with a disciplined strategy. Define your entry, exit and target before investing. These are updated daily on SectorExchange.com.
Jim Farrish, founder and editor of Melbourne, Florida-based SectorExchange.com, writes regularly about sectors and speaks widely about investing and money management.
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