Almanac Investor Alert
Beware the Ides of March - Technically Speaking 3/6/2008
Weekly Changes
DOW 12040.39 -541.79 -4.31%
S&P500 1304.34 -63.34 -4.63%
NASDAQ 2220.50 -111.07 -4.76%
Last week we painted a rather grim picture of the economy and offered a guarded outlook for the stock market. Economic and corporate readings have come in mixed over the past week with a tilt toward the negative and stocks have languished. Recession and inflationary concerns remain elevated with prospects for the stock market bleak.
Since mid-December when the pattern of lower highs and lower lows from the October highs became apparent our view of the market has been less than sanguine. In our 2008 Annual Forecast out the following week we delved deeper into the underlying nascent breakdown of fundamentals, the technical downtrend and the deterioration of market internals.
January was nasty for stocks, despite the late-month rally, and we have expounded on those particulars sufficiently in this space and the monthly newsletter, as has most of Wall Street. Negative market performance over the past four months, during the usually favorable season for stocks, adds pessimism to our stance. When conditions began to breakdown in late 2007 we suggested in the December 13 alert that “overarching fundamental and technical conditions may trump seasonality and election-year forces.”
Early March has also been historically strong, but the market has not shown much upside potential thus far in March 2008. We warned last issue of the recent trouble the market has run into in March and that it is the worst month for NASDAQ in election years. Mid-March has been a turning point over the years as the market tends to underperform during the latter part of the month. Hence, why we frequently invoke the infamous warning to Julius Caesar to “Beware the Ides of March.”
Technically, the market continues to struggle and is currently at a crucial inflection point. The downtrend remains in place as the pattern of lower highs and lower lows continues. It looked as though the January lows could hold, but now that the Dow has taken out the February 22 low, recent support is once again under pressure. A “bearish pennant” pattern may be in play here, suggesting further declines. The pattern for the NASDAQ, S&P 500 and the rest of the major U.S. averages is quite similar. NASDAQ and the S&P 500 are now flirting with 18-month lows.
With the rally off the January lows on the verge of capitulation a continued defensive posture is recommended. If the March 4 intraday low on the Dow of about 12033 does not hold, we’d expect to see a test of the January 22 intraday low of about 11635. In our 2008 Annual Forecast we stated that “The March 2007 Low of 12050 is certain to be tested” and that Dow 11K was in play. Today's late selloff brings us closer to the brink.
Our friend, colleague and trader extraordinaire, John Person at nationalfutures.com, points out that on Thursdays before major monthly employment reports come out the next day, such as today, large selloffs indicate a bad reading is expected and that if it is in fact disappointing the market would decline further in response.
The data continues to point to an economy headed toward recession. For the April issue, out next week, we are preparing a Proving Grounds that updates the situation with the Four Horseman of the Economy, the stock market, inflation, the consumer and jobs. We will be analyzing the relationship between the economy, the stock market and the Presidential Election. For the time being the stock market should be handled with kid gloves, limiting purchases, holding cash and employing some downside protection.
STANDARD TRADING GUIDELINES!
BUY LIMITS ARE GOOD TILL CANCELLED.
ALL STOPS EFFECTIVE ONLY WHEN THE STOCK CLOSES BELOW THE STOP PRICE.
ALWAYS SELL HALF ON A DOUBLE.
Please Trade Carefully.
Jeffrey A. Hirsch, Editor
J. Taylor Brown, Director of Research
Stock Trader's Almanac® Almanac Investor Copyright © 2008 Wiley Periodicals, Inc., A Wiley Company.
111 River Street, Hoboken, NJ 07030 Tel: 800-762-2974
Available only to Stock Trader's Almanac® Almanac Investor subscribers. http://www.stocktradersalmanac.com
Pursuant to the provisions of Rule 206 (4) of the Investment Advisers Act of 1940, readers should recognize that not all recommendations made in the future will be profitable or will equal the performance of any recommendations referred to in this Email issue. The information presented in this Almanac Investor has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of the editor, its employees, or affiliated companies may, in some instances, include securities mentioned in this Almanac Investor Alert. Additional disclosures can be found at www.stocktradersalmanac.com.
