The Markets are likely to test their tops.
Dow Industrials may have reached its destination area; is currently correcting before probably testing its high area again.
Dow Transports are like the Industrials; they may have corrected and are starting up to test the highs.
S&P 500: Same as the Industrials.
NASADAQ: Same as the other indexes.
Russell 2000: Same as above.
The indexes have crossed above their declining trend lines. Most are now below their rising trend lines. The rising trend lines are resistance now and will limit how much higher the market can go. Some have more room than others before they hit resistance. The markets remain distorted because of government intervention. It’s still too early to judge the market’s direction or leadership for 2010.
A Market index is made up of stocks representing different parts of the economy. The major parts are frequently called sectors. The overall market can be down but different parts, sectors, could be doing well. This is what we think will be happening over the next few years. This section will follow different major sectors (Made up of stocks in the S&P500) and international areas as well. The year to date (YTD) percentages show 2010 as a time when people took some of their profits from last year. The areas most down this year were the ones that were up the most last year.
Value Investment Thoughts:
Healthcare is the best sector so far this year and is likely to be a good place to invest while the uncertainties of the economy resolve themselves. All industries in the sector are up. Technology: all industries in tech are now correcting. Materials: all industries are correcting. Energy: all industries are correcting. Utilities and Telcom: Gas distribution is the only industry positive. Industrials: Aerospace, defense, diversified, delivery and industrial services are the only industries up. Consumer Goods and Services have a number of industries going up. Financials are an area we limit because of too many uncertain loan and asset values.
Morningstar Comments:
Large Cap Value has gone down the least so far this year. It doesn’t have the excesses to correct that other areas did. Value of all sizes is doing better than growth so far this year. That could starting a trend.
Investment Notes:
The Dow Industrials have rallied to its destination area of around 10,700 and fell then 700 points. It has completed its destination area trip. It appears that it wants to test it one more time. We suspect it will test the10,700 area and fail to follow through based on other indicators that we have. That’s the working plan. We’ll have to see what happens at the top. If it can stay above its declining trend line for awhile, it could go higher but we would think it would be a dangerous rally. Remember to allow for surprises on the downside. We still give the benefit of the doubt to upside until the are more 52 week lows for 3 consecutive days and then 3 weeks of new lows over new highs. We’re also watching trend lines and the 200 day moving average as exit points. We still look to preserve portfolio values because of the substantial lack of concern for or appreciation of risk by Washington, Wall Street and the banks. Make a list of good quality dividend paying stocks and be ready to buy.
