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Sunday, October 09, 2005
Market Recap
Last week was a rough week in the market with three consecutive days of heavy, broad-based selling Tuesday, Wednesday, and Thursday wreaking havoc throughout the market that left most stocks, especially the leaders staggering from the knockdown blow they got from the big sweeping bear paw. This thrashing left few stocks unscathed with the bears making it clear that they are in charge - at least for now. The Dow gained only 5 points Friday and for the week, it lost 276 points to close at 10292. The Nasdaq gained 6 points on Friday but for the week, it fell 61 points and closed the week below the 2100 support level at 2090. The S&P with a 4 point gain on Friday dropped 32 points to end the week at 1195, below its 1200 support level. Volume this week was the heaviest the market has had in 6 months, and it is never good when stocks go down on heavy volume. The bears managed to push the indices below their respective support levels mentioned above and these levels will likely become resistance if an oversold rally should occur.
The sharp declines last week were due to a combination of things. Inflation worries, interest rate fears, energy woes, sliding consumer confidence, weaker employment data in the wake of the hurricanes, increasing fears of a global Avian flu pandemic, and a new terror alert in the New York subway system. All these fears have not provided market participants any incentive to be purchasing stocks with any conviction. Besides all these factors, it was just plain old fashion profit taking after a big run-up in the market leaders. The leading stocks were some of the hardest hit and suffered the biggest declines last week. The selling was extremely broad-based with every major sector being impacted, and this is signaling relentless distribution is now underway.
Market Outlook
Remember, October is a month throughout history when many market corrections and market bottoms have occurred. Certainly we know that the indices have broken support and things look very bad on the charts these days. But market bottoms always happen when charts have broken down and look their worst so we will not want to wait for charts to set up before going long. Rallies off market bottoms are normally very quick and powerful upside moves that can make us a lot of money if we time it correctly but the timing is always the hardest part. If we get in too early, we risk being stopped out with more small losses. I believe the market will bounce soon but this will probably be a bull trap and more often than not, markets do not make the big recovery rally on the first attempt. What we should look for is a bounce off these lows soon, followed by a deeper and sharper sell off, creating fear and capitulation. This is the time to try and play a bottom. This should come sometime this month and should be the start of a year end rally. This is all just speculation right now but is something to keep an eye on and be ready for. Just when things look worst and everyone is throwing in the towel; it will be time to buy.
Earnings Season is Here Again
Earnings season starts next week, reporting for the third quarter. This will surely have an affect on the market. If earnings disappoint, then we will get the capitulation selling we are looking for. I expect that earnings will not be as good as what we have been seeing in the past few quarters. Along with all the other fears mentioned above, if earnings become worrisome for the street, then that is more fuel for the bears and stocks will certainly be headed lower to try and find that elusive bottom. Be particularly skeptical of any near-term rallies for now as we expect the first rally to be nothing more than a bull trap. Caution is still advised.
STHQ Chart Index - If you go to the chart index in the left side menu, you can review and study charts we have annotated for each stock listed in the past.
Earnings Calendar
We have added the earnings link for each stock on the bulletin. To access the link for earnings you can either use this link below or click the link on the bulletin for the corresponding ticker. Click the online bulletin in the left side menu for access to the earning calendar for each stock listed. It is not recommended to hold a position through earnings. You can always buy the stock back after the dust settles.
http://www.earnings.com
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