5.15.09

5.15.09

            For the week, stocks were down 4 out of the 5 sessions. Losing 5% was its worst performance in two months. Weakness in the insurers and banking stocks, the Financial Sector ran into headwinds and the broader market could not find a leader to take it higher.

            One of the problems with this recent leg up in the market has been that the leadership most of the time was the Financials. Let’s take a close look at some of the Financials, Citi (C), Bank America (BAC), and AIG (AIG).

                              5/08                       10/08                            3/09                       5/15/09

C                       23.73                       23.00                                 .97                             3.48               

BAC               36.71                       38.13                             3.00                          10.67   

AIG                 49.00                          1.35                                .35                             1.72  

DOW         13,000                   10,831                          6,547                          8,268

            When we look at the various prices they reveal some interesting facts. You see that AIG led the others down. It was the catalyst. All hell broke loose between October 2008 and March 2009. Citi was down over 95% at one time in that period. Since March 2009, it is up 350%.  Wow! Sounds great if you bought it in 3/09. If you bought it in 10/08 you are still in a lot of pain, down around 75%.  You can do the math on the others, they are all similar.

            The main point I’m trying to make is this; The media keeps talking about the current day’s price as compared to the March 9^th price and putting It in % terms. They don’t very often give you a read on the year ago price. That throws most people’s thinking out of sync. If you watch CNBC you MUST remember it is ‘Show business’ first and foremost. I have it turned on with the volume muted except for a handful of guests who are worth listening to.  If you were watching and listening, you probably didn’t hear anyone say that the Banking Sector was down 15% in the first 3 days of the week but it was.  

All three of these stocks are trading like “penny stocks”.  A 17 cent move in the price of AIG is the equivalent of 10%. This creates a lot of volatility. And speaking of volatility, in the past 251 market days (1 year) 169 of them have printed triple digit moves in the Dow with 106 being down days and only 66 being up days.

            As you can easily see, it is next to impossible to make heads or tails out of this kind of market action. Most of the action is attributed to “Traders” not to “Investors”. This is likely to continue until we see a “good” sign that housing is turning around. It is going to be housing that will lead us out of the recession.

            We will be watching the Dow Transports to see if they can get back above their 21 day moving average. They broke under it this week and are usually an pre-cursor to what the rest of the market will do. If they continue going down, so will the general market.

            For now we remain in 100% CASH and wait for some indications to change our thinking.

Till next time

The MTA Staff