Wednesday, January 7, 2009

Seesaw Market Action Continues on Day Three of 2009

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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After rising on the first and falling on the second trading day of the year, U.S. markets rallied on the third. The seesaw action indicates that the big money is still ambivalent about whether or not to put money into the stock market. Nevertheless, certain sectors of the market are seeing major buying committments, with energy being the top performer by far. Mining and Agricultural stocks have also done quite well. All three groups are inflation plays. On the flip side, industry groups strongly impacted by recession and the Credit Crisis remain investing pariahs. Market players lack of interest in these stocks indicate they do not forsee that the current recession will be over soon, nor that the financial system is yet on its way to recovery.

While the market rallied yesterday, it was nothing to write home about. The Dow was up 0.7% and the S&P500 0.8%. Nasdaq did much better, rising 1.5% and small caps did the best of all with the Russell 2000 rising 1.9%. While trading volume rose on the day, it was still below average for the Dow (trading volume below average indicates lack of enthusiasm for the move). For a third consecutive day, the only really outstanding volume was in oil.

While energy stocks once again did well, they were only the second best perfoming group yesterday. Mining stocks moved to the number one position. Double digit gains have been seen in the big international miners so far this year making them some of the biggest winners in the market. Overall, a higher percentage of energy related stocks have done well though. Joining these group toward the top of the list were Agriculture, Tranportation, and Chemicals.

As usual, the bottom position was held by Savings and Loans. There seems to be absolutely no buying interest in this group . Next to the bottom were the safe-haven Utilities, which are apparently not considered so safe at the moment (this group is usually held up by their high dividends, although these could become insignificant during a period of high inflation). Just above Utilities were Consumer, Food/Beverage, Retail and Medical stocks. Consumer and Retail stocks are deeply impacted by recession so it makes sense for them to be on this list. Food/Beverage and Medical stocks are usually safe-havens in a recession. The big money doesn't seem interested in putting any more money into these sectors however.

As of this writing the fourth trading day of the year looks like it will be down. If so, it will only add to the apparent lack of interest on trader's part in putting money into stocks in 2009. Without that, the fuel needed for an overall sustainable rally will just not be there.

NEXT: Early Year Trading Signal Goes Neutral

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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