February was a disaster for markets to put it bluntly. Despite some resiliency at times, any hope for a rebound was dashed in the last week. It was the worst February since 1933. Major averages dropped through a series of long term lows. For the month, S&P lost 10.9% to close at 735.09, and Dow lost 11.7% to close at 7062.9. Dow has fallen steadily (- 38%) for 6 months in a row. However, Nasdaq is still holding the November 21,2008 low of 1295.5, and it closed at 1377.84. For the first two months of this year, Dow is down by 19.5%, S&P by 18.6%. Nasdaq is a little better, but still down by 12%.
It was a bad Friday, the last day of trading in February. Bad news came from all directions. Before the open, news came out that Uncle Sam would own 36% of City (C) effectively diluting current share holder value to just 26% of the company. Then came the worst GDP data (-6.2%) since 1982, indicating a deeper contraction in the economy than originally announced. And, on top later in the day, GE announced that it would slash dividend to 10 cents from 31 cents in order to preserve about 9 billion in capital and to maintain AAA credit rating. This action is the first for GE which had maintained or increased its dividend for 32 consecutive years. This spooked the market even further. 36 companies in S&P have cut their dividends in the past 6 months. Many more are likely to follow in the next few months as companies are trying whatever they can to preserve capital and survive this economic down turn.
Let the “March Madness” begin …. I believe that ‘volatility’ will be again the name of the game. There is still a lot of uncertainty about the direction of the market. Markets are in extremely oversold condition and want to bounce up with any whiff of good news. But, any good news is hard to come by. The political rhetoric in DC is not helping out a bit. It looks like ‘traders’ have revolted against the proposed policies of President Obama’s administration. Market is worried about the sweeping unprecedented changes proposed in health care, education and energy policies. Questions about the health of nation’s biggest financial institutions are still murky despite the government action with City (C) last week. Worries about toxic assets on their balance sheet still plague the markets. Many market pundits are predicting another leg down as a path of least resistance.
March will begin with a flood of economic data in the first week. Expect significant volatility and wide swings within a short period of time as the markets try to digest numbers. Some important economic data scheduled for release during the week are –
Monday – Personal income; ISM manufacturing index; Construction spending
Tuesday – Motor vehicle sales; pending home sales
Wednesday – ADP employment; ISM non-manufacturing; Beige book; crude inventory
Thursday – chain store sales; jobless claims; productivity and costs; factory orders;
Friday – Unemployment and non-farm pay roll; consumer credit.
Apart from these, also watch for Fed chief Ben Bernanke, who is scheduled to appear before senate budget committee on Tuesday morning.
On Earnings front, about 240 companies, including 8 members of S&P are scheduled to report.
I would be keeping an eye on the following companies –
Monday – ABM, DISH, EGLE, SATS, MDR, POM, SWHC,
Tuesday – AZO, ARD, SSW,
Wednesday – BJ, COST, URS, MATK, MR, PETM, AUY
Thursday – CIEN, CNQ, COO, URBN, WNR, EBS, FTEK, IPI,
Friday – HRB
TaurusTrader portfolio recap – We were very conservative in our picks, as well as in our stops and profit targets. Despite the market downturn, our portfolio had a decent week. As I said before, who cares what the overall market does … we don’t. What we care is how our ‘picks’ do!! Please check my blog entry on February 24 – Is this the bottom … I don’t care, so shouldn’t you. We pick the ‘right’ stock to trade using our research and best judgement. So, because of this philosophy within a short period of time (1 to 4 days), we booked tidy profits with our ‘swing’ picks – C (av. 30%), SWHC (30.7%), MS (11.7%) and MELI (11.3%). We were stopped out of DRI (-8.1%)and ATHN (-6.2%). We still hold UYG, CMG, PBR, and BMC, which are either up or down by 1 to 3% for the week. ADM and SVR failed to hit our target entry price, hence were not filled.
The day trade picks suggested throughout the week (BAC, UYG, WFC, MS, IPI, SYT, SU, HP, MON, HPQ) provided excellent intraday volatility to pocket any where from 2 to 13% within a day depending on ones entry and closing targets. However, two picks – WDC and AGU did not turn out well.
Picks for Monday, March 2: I’ll be on a ‘holding’ pattern. I’ll monitor my longs carefully, and follow with predetermined stops. On my day trade picks, I will be conservative and at the same time very nimble. In might even liquidate profitable positions even before they hit my profit target if the markets start to turn against me. I’ll protect my profit. If I liked a stock so much, there will be chances to reenter at a later time. If not, there are always other equities with a greater probability for a favorable outcome.
Following equities are on my watch list for Monday, March 2:
Drop ADM from ‘add’ list per my rule. It did not hit the “entry limit” of $28.50 within being on the list for 3 days.
ORBC – Buy above 2.07, stop 1.69, target 2.50 (very volatile, reports on 3/16/2009).
SWHC – will be releasing earnings on 3/2/2009. Would re-enter on a good earnings report.
Retail sector will be in focus next week. RTH had a good day on Friday. Same store data is due on 3/5/2009. I expect, some members of this group to gain some more momentum heading in to the data release. I’ll be watching ARO and BKE. These the two teen retailers have consistently reported good same store sale numbers in the past. I’ll also watch for movements in BIG and FDO, which are looking good technically.
As in last week, Ag and energy sector stocks will be the focus for day trade opportunities. The equities include – MON, AGU, SYT, MOS, IPI, SU, and HP. I would closely follow the crude price when I’m trading these stocks. They tend to move in tandem with crude, especially the ETF’s DIG or USO on intraday basis.
MELI hit our profit target of $16.80 on Friday. The stock is still riding on its earnings momentum. I may consider re-entering MELI above $17.15, to a profit target of 19.25.
As usual, if there are questions, please do post …. Let us help each other profit from good trading ideas!
Please watch out for volatility ….
Wish you a very pleasant and profitable day