Almanac Investor Alert
Pressure Drop 11/8/2007
Weekly Changes
DOW 13266.29 -301.58 -2.22%
S&P500 1474.77 -33.67 -2.23%
NASDAQ 2696.00 -98.83 -3.54%
Equities have come under pressure the past three weeks as oil and gold prices have surged and the U.S. dollar plummeted. Oil has reached all-time highs and looks destined for $100 per barrel. $100 may prove to be resistance but, if higher oil prices persist, we’ll likely feel it at the pump and in consumer wallets which in turn could put a damper on holiday retail sales. Gold is higher than it has been since January 1980. Elevated gold prices have generally been a harbinger of inflation. Gold also remains the ultimate safe-haven store of wealth – a sign that investors and traders are fleeing to quality.
The U.S. housing recession, related credit crunch and nascent slowing growth has persuaded the Fed to be more accommodative than it would normally be given the apparent inflation pressures. This has driven the greenback lower against nearly every major currency. Since its high of 120.68 in July 2001, the U.S. Dollar Index is down about 37.5% to 75.44 today. This has made foreign investors less inclined to buy U.S. stocks. And for that matter the major foreign market indices have not made new highs in months (according to Christopher Cadbury).
We are becoming increasingly concerned about this market and the odds are increasing that a nasty correction or bear market will transpire before we can rebound to new highs as per our recent forecast. Market action has been worrisome and we need to see improvement for the rally to resume. If we do not and this market breaks down further we may be forced to cut bait and run.
In the last three weeks we had three punishing days where the Dow was down 2.6%: October 19 (1987 Crash Anniversary), November 1 and yesterday. Internals have been negative with decliners outpacing advancers two of the last three weeks and on several occasions on a daily basis. New lows have been mounting as well.
On a technical basis the S&P 500 closed below its 200-day moving average yesterday while the Dow Transports took out their August closing low. If the other major averages breach these levels it would be cause for further concern. Depending on the level of fear on The Street at that time, this could indicate further downside action or a capitulation and new buying opportunity.
We can take some solace in today’s late-day turnaround but, it smacks of short covering – and NASDAQ was down nearly 2% and the market-leading big cap techs pushed the NASDAQ 100 down nearly 3%. We have implemented stops on most of our position to protect our portfolio against this sort of market breakdown.
Yesterday we were stopped out of Ultra Dow30 ProShares (DDM) and Ultra Russell2000 ProShares (UWM). Both are currently below our stop loss levels and we will reconsider them as conditions warrant.
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
