4.3.09

4.3.09

            Despite a brief pullback Monday, stocks marched higher again this week on heavy volume. General Motors' Chief Executive Rick Wagoner was forced to resign over the week-end and that put stocks under pressure Monday resulting in a 3.5% daily loss for the S&P 500. The main indices reversed course on Tuesday and managed to close in the green despite late-day weakness that gave back most of the strong earlier intraday gains. Stocks opened lower Wednesday, but then turned around to close with solid gains. The reversal was triggered by a better-than-expected ISM manufacturing index and news that pending home sales increased 2.1% in March instead of declining as most analysts had projected. On Thursday, the Financial Accounting Standards Board decided to relax “mark to market”   accounting rules, a move that directly benefits troubled financial institutions. This was welcome news to investors, who also learned that factory orders rose 1.8% in February, more than expected. Optimism surrounding the G-20 meeting of world leaders in London also provided a boost. The combination of good news helped the market surge on heavy trade, with the Nasdaq Composite jumping 3.3%. The announcement Friday that 663,000 jobs were lost last month and that the unemployment rate jumped to 8.5%. Just weeks ago, such bad news would have resulted in huge losses for the market, but it proved not to be the case this time around, as stocks instead tacked on more gains, sending the Dow Jones Industrial Average above the 8,000 mark for the first time in two months.

          The big question today is “Will this rally continue?”

As you know, we predicted that the market was extremely oversold and that we were looking for a rally to happen in here somewhere. It did happen and now the question is will it continue and give us a chance to make some profits?  The American Association of Individual Investors (AAII) has been a good guiding light in the past and we feel that it will still be so going forward. At present the poll is showing a bullish percentage of 42.7%.That leaves us some room to the up side before it reaches the 55+% and the market starts to lose its upward momentum. This would indicate that the overhead resistance (its 200 day moving average) is 1006, that is about 20% higher than present. If you look at the improvement in economic reports, you find that the housing industry is starting to show some rebounds, and that is where it needs to happen for all other sectors to get a jump start. Durable Goods Orders, and Factory Orders both showed improvement in February. Autos, unemployment, and mortgage foreclosures are still putting out poor reports, but they are lagging indicators and take more time to turn around. The Banks are the wild card in this equation. They still have mucho problems with toxic holdings still on their books and their Credit Card side of their business also has some hidden problems that need to be dealt with.

          Remember, the market never goes straight up or straight down and on a short term basis, it is currently somewhat overbought. It is due for a minor correction but it will be a brief pullback before continuing its climb upward.

          We have our finger on the trigger, but are not quite ready to fire yet. It won’t be long, but for now, we remain 100% in cash.

Till next time

The MTA Staff