Week of Crash That Wasn’t: Performance By Sector

Examining last week’s market performance by sector shows that most finished green, but the longer term picture is just plain ugly. 

To view the downloadable spreasheet, go here: Week of Crash That Wasn’t: Performance By Sector

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From the Wall Street Journal, January 1st, 1930.

And below, the Daily Journal, October 25, 1929.

To see the above image large enough to actually read it, go HERE.

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I have looked at many, many beaten up charts over the last two evenings, and tonight’s 52 week highs list has only 7 names on it. Stocks are in need of some major repairs before great setups will appear.

However, one of the stocks on tonights 52 week highs list is [[CPHD]]. Since I happen to be long the name, and have voted it as my stock of the year at Ragin’ Cajun’s place, I decided to post the chart above. It is on the overbought side and did print a bearish candle today. However, it is hard to argue with the strength represented in the chart.

Another strong name from the Healthcare industry is [[OMCL]]. This stock is also overbought, but is worth watching to pick up some on a pullback. A nice pullback here on low volume will make a great Cup-with-Handle formation.

Finally, my favorite setup from tonight’s screens is a [[DE]] short. I heard some grumblings about Deere’s competitor [[CNH]] citing weaker growth in 2008. Deere is setting up beautifully after 2 days of failing to overtake the 50 day average. With a weak outlook posted by its competitor, DE looks ready to re-test support and the 200 day moving average near $70.00

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Tuesday’s reversal after the Fed cut .75 still left market breadth showing an extreme of pessimism, with fewer than 80 of the S&P500 stocks trading above their 200 day moving averages.

The NYSE also printed a new low for stocks trading above their 200 day moving average.

For the NYSE, this percentage of stocks trading beneath their 200 day moving average is lower than any time in the 1994, 1998, and 2000-2002 bear markets.

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It has been obvious lately that Fear is more powerful than Greed. That is why the down moves happen so quickly and the moves up take time. It is also why it is called going “short,” as profits made from shorting must be harvested quickly before they evaporate. As a result of fear, markets have developed extremely oversold conditions. Some nice profits have been made on the downside, and fear of losing these profits coupled with some positive news of a monoline bailout has resulted in this reflex rally. 

The charts show all the markings of a bottom, i.e., large volume, huge intraday reversal, and a spiking volatility reading.

The DJI actually shows the strongest likelihood of a sustainable bounce here, as the volume on this reversal is mammoth. I’m not sure why the volume on the Dow is so much greater, relative to the SPY and Nasdaq, but it might be that investors see large caps with international exposure as the best place to hide.

  

Notice on the [[SPY]] and the COMP that volume did not quite reach levels seen during the August lows. I find this makes the argument for a long-term bottom difficult to defend.

The Nasdaq was the weakest today, relative to the Spy and the Dow. Notice that [[AAPL]], [[RIMM]], and [[GOOG]] underperformed.

My analysis is that the economic environment is not likely to get much better soon, and accordingly, this realization will halt the market’s advance. Once the shorts unwind their positions, and more disappointing news appears on the economic front, I expect more weakness. When and where this will happen exactly is hard to say, but in past corrections of this type, the weakness generally occurs before the indexes regain their 50 day moving averages. Therefore, the honey hole has been positioned below the 50 day average, and also beneath the lower trendline of the triangles. Should the indexes reach these levels, it will put them right at break-even on the year. This psychological barrier, coupled with trendline and moving average resistance will be hard to overcome without a significant change in the economic picture.

Note that AAPL, RIMM, and GOOG all underperformed. I believe we are seeing a changing of leadership. Some serious consideration should be given to getting into names that might be new leadership. I suggest screening for recent breakouts and 52 week highs and closely monitoring whether large cap growth or value leads v.s. small cap growth or value. Do not forget that the markets are in a downtrend. Therefore, if you go long, be prepared to take profits quickly. As most traders do not search for short opportunities in a bull market, consider the folly involved in hunting longs in a bear market, although I can fully admit I am damn tired of looking at short setups.

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Why beat a dead horse? Besides, I couldn’t really say it any better than The Fly has been saying it.

Well, I guess I could pull up quotes from my posts in November, when I was bearish while The Fly was still a bull, and when I told you to expect at least a second leg down. But that would require more effort than its worth, and I just got off the road from a visit with family and have more important things to do, like laundry.

For what its worth, I have played the bear conservatively, keeping roughly a 30% short and 70% cash position. Going in to tomorrow I have the following positions, all are short or inverse etfs:

 [[FXP]], [[XLB]], [[IFN]], [[EWZ]], [[DECK]], [[XOM]]

The only long position I have is [[GLD]].

While you may think I’m weak for keeping a large cash position and a smaller short position, this positioning has allowed me to stay short, catching a large move down, without having to lose sleep about waking up one morning to a huge reflex rally. Plus, in December I was coming out of cold spell and felt it was prudent to stay small until my mojo returned. When this type of scenario returns 5-10 years from now, maybe I’ll be more bold and go 60% short and 40% cash.

My advice to anyone out there willing to heed it is to examine your family’s long-term retirement positions. Many make the mistake of thinking they are safe from any meltdown if they are in bonds. Not true. I urge you to check the bonds you hold on Morningstar for any over-exposure to the credit industry, specifically to mortgage-backed assets and consumer-related credit.

In my opinion, a major default scenario is possible. Should that occur, bonds holding a large percentage of Treasuries will be the safest place for your life-savings.

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Many here are expecting a bounce. While I agree it would be normal and healthy for a bounce or reflex rally to occur, I’m not so sure it is time, yet. I think there is much, much more bad news coming to the markets. For example, look at [[MBI]], and some of the other bond insurers. Who wants to be long, “playing a bounce,” when those geniuses announce bankruptcy? From Barron’s Online: “The reasons behind the latest collapse are several. Worries have grown that MBIA’s statutory capital….will stand at around 8 billion — won’t be enough to make good on the subprime-securities default risks embedded in a $652 billion portfolio insured at par value.”

Still, I can understand the need to buy something, after being biased long for the last 5 years. Just beware that any bounce may be very shortlived, and it may turn out that we consolidate, more than bounce, before resuming the downtrend.

I’ve charted 3 stocks from the Healthcare sector, as this sector has showed great relative strength during the sell-off. I’m sure many of you want to buy [[AAPL]], [[RIMM]], [[MOS]], and [[MON]] on a bounce. I think that is not smart. Why? Anyone with a margin account is going to short the daylights out of those names, on a bounce. They will not lead when the market turns around for good. Instead, buy names that have shirked the sell-off and are looking to breakout, rather than buying weak names that are oversold.

[[VVUS]] is the first chart. From Yahoo: “VIVUS, Inc., a pharmaceutical company, engages in the development and commercialization of therapeutic products to treat obesity, post-menopausal, and sexual health in women and men in the United States.” Yep, this is the stock for Danny.

[[CVH]] is interesting as it appears to have broken out from a triangle formation, as well as working on a cup-with-handle. It had a 4-point intraday move 2 weeks ago, but the breakout failed. Being in this name when it tries that again would be stellar.

[[AGN]] is another one that Danny is in, or used to be in. He will correct me if I’m wrong, but I believe they make breast implants. Hey folks, nevermind a recession: Tits never go out of style. Anyway, AGN is trading at the top of its pattern and looks ready to break out of a 5-month range.

Whatever you choose to do, be careful. While the 10% reflex rally has been a reality of previous bear markets, I’m still not convinced that enough of the bad news has been released and digested for a rally of that magnitude to occur. If pressed, I argue that we consolidate here.

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