Thursday, January 8, 2009

Early Year Trading Signal Goes Neutral

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The market had a sharp sell off yesterday where essentially every stock group got hit. The major averages moved right back to where they started the year, making the early year trading indicator neutral. Still there were important messages within the internal trading patterns that can be used as a guide for investing . While things don't look horrendously bad as they did in the beginning of 2008, there is no cause for optimism just yet. As of now, 2009 looks more likely to be a year of ups and downs in a bigger sideways trading pattern. Nevertheless, investors should look closely at the market for signs of trend change around the beginnings of each of the next three quarters.

Oil which took the lead on the way up, was the hardest hit yesterday, with the ETF dropping 12.5% on the day. Silver was second, falling 4.3%. The small-cap Russel 2000 had the biggest loss among the indices, ending down 3.4%. Nasdaq, the S&P 500 and the Dow followed with losses of 3.2%, 3.0% and 2.8% respectively. GLD was down 2.8%. The Dow ended 2008 at 8776 and ended the fourth trading day of 2009 at 8770; the S&P 500, 903 and 907; the Nasdaq 1577 and 1599; and the Russell 2000, 499 and 497. If you had slept through the first 4 days, you wouldn't have known anything had happened.

Despite energy being hard hit yesterday, energy stocks garnered the most investor interest in the beginning of the year. Agriculture performed almost as well. Mining was next and the Aerospace group was fourth. The top three groups are all inflation sensitive. On the downside, no group can compare with Savings and Loans. Not surprisingly, Banks were next to the bottom. They were followed by Computer Software, Utility stocks, and Semiconductors. Anyone tempted to bottom fish among these group should follow the highly cyclical semiconductors. While they are strongly impacted by the economy, they also tend to do well in higher inflation environments. When the economy turns (and no one right now knows when that will be), these stocks will do particularly well.

All in all, investors should be watching oil and looking to pick it up or energy related stocks on pull backs. The bottom in oil may still be a ways off, but a lot of buying interest has now been established at the prices reached in December. Mining and agricultural plays should also be kept on the radar. Keep in mind that there is always money to made in the stock market - as long as you know where to look.

NEXT: Economic Reports - From Very Bad to Even Worse

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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