Market Finds Reason To Fall

World markets dropped sharply as US economic news added on to fears that Greece and other European sovereign debt has become the new sub-prime debt. The Dow Industrial Average ended the day below 10,000 for the first time since November, but clawed its way above the key number during settlement. It closed at 10,002. The S&P Index also made new lows. We have been following this move since the beginning when the S&P triggered the Stop and Reverse sell signal. The news doesn't really matter. The truth is, the market has been tired for a long time. Much of the run up has been due to institutional trading, employing massive amounts of liquidity injected into the system in an attempt by the government to stabilize a plummeting economy.

That party is over now and it's sure not going to be pretty. I for one am one of those super-bears who believe that the market will at least test the previous lows and possibly break through. This, in itself, is not bad if you are prepared as we are. We have not been in the market this year except for ultra short positions in the Dow Jones (DXD) and Bonds (TBT).

That the market was poised to fall had appeared obvious for a number of days. We have pointed out how certain stocks that were the favorites last year have been dropping hard and fast. If you look at the losers on the list, you'll see that the losers are not confined to a specific industry but range across all sectors. It was inevitable that the overall market would eventually follow. With many stocks down 20% already for the year and the US Market just down 4.5%, it's very likely that more significant market downside is probable.

US STILL OUTPERFORMING

As bad as it may look here at home, the rest of the world looks even worse. A lot of it is due to a stronger dollar against other world currencies. The Japanese Yen is doing even better, having gained 4.7% thus far in 2010. As a result, losses in Japanese markets have been moderated by gains in the currency. The Japanese Market ETF (EWJ) is THE ONLY world market ETF that is up. It is still +1% on the year

Euro Collapse, China Tightening Adds to Market Fears

A sharply declining Euro currency added to an announcement by the Chinese government that they would be slowing credit activity to slow their rapidly surging economy. The combination led to stock market declines across the world with US investments in foreign markets getting hit the worst.

While a losing day is never pleasant for anyone, as the table above illustrates, the US did the best ending the day just down under 1%. Keep in mind that the instruments reflected in the tables are country ETFs, priced in dollars. Normal market losses are compounded by the strengthening of the US dollar. Most invest in international stocks to protect against a falling dollar. The US dollar however, has appeared to have reached a base and as illustrated earlier today, is showing a strong move up. One must always be careful about being too heavily invested in foreign stocks, gold and other hard assets as the US Dollar always shines in the time of any world crisis. The potential for a bankrupcy in Greece appears to have started such a move to safety.

SOME WINNERS

Despite a down day, a number of stocks showed pretty good strength included State Street Corp, discussed earlier today. Archer Daniels Midland, coming in at #9 today, was upgraded by Citigroup with a new target price of $37.

Up Up and Away in my Beautiful Balloon (bubble)

Markets continued moving higher, today on the thought that perhaps the Health Care Bill won't pass if a Republican takes office in Massachusetts. Healthcare issues were higher, as reflected by healthcare SPDR (XLV), which rose 2.4% today. XLV is up 6.2% on the year.



Overall, leading the pack in my portfolio is Sandisk, rallying sharply but just back to the trendline from oversold conditions.



In foreign markets, China rallied 3.1% but like Sandisk, only was bouncing from oversold conditions to the trendline.





RUSSIA CONTINUES TO SURGE



By far, the hottest market is Russia, up over 11% so far this year after tacking on another 2.8% today. Hot money continues to follow hot money.

World Stocks Bonds Advance

Stocks around the world have gotten off to a great start this year. Chile (ECH, +9.6%), Austria (EWO, +8.7%) and Russia (RSX, +8.6%) thus far have led the charge.

The US, overall, has gained 2.1% with MicroCap Stocks (IWC, +3%) outperforming. Value stocks, which lagged growth stocks in 2009, have outpaced Growth stocks thus far.

The Commodity Index (GSG, -0.2%) is the only laggard in the benchmark table. This is despite the fact that the dollar has continued to decline in 2010 (UUP, -1.3%).

(click on tables to view)

INDUSTY PERFORMANCE

Industrials have led thus far in 2010 propelled by Boeing (BA, +12.4%) and US Steel (X, +12.6%). Energy, Healthcare and Financials have also shown strength thus far in 2010. Overall, technology has lagged despite a 12% surge from Omnicell (OMCL, +12.1%). Profit taking in stocks that moved sharply last year, i.e., Priceline (PCLN, -4.4%), have held this sector down.

WINNERS ABOUND

All of our top ten stocks have displayed double digit growth this year with MGM-Mirage surging 32%.

Stock Market Winners and Losers for 10-30-09

Click on images to enlarge

Winners and Losers 10-23-09