Financials Bring Down the Market, Again; Hoping for an Obama Bounce

It was all about the financials again last week.

Citigroup (C) reported over $8 billion in losses for the most recent quarter and announced it was splitting up into two entities: one to concentrate on core investment and banking activities, credit cards and high net worth individuals and another to hold all "non-core" businesses like real estate lending, private branded credit cards, various kinds of consumer lending (CitiFinancial, Primerica, student loan and auto lending) and most of the toxic waste currently dragging down the balance sheet. In addition, Citi did a deal to sell majority interest in its brokerage unit Smith Barney to Morgan Stanley (MS). There was a whiff of desperation there as Smith Barney was actually one of Citi's profitable businesses.

As if that wasn't exciting enough, we had Bank of America (BAC) receiving another 11th hour bailout from the Treasury. BofA claimed that without it they wouldn't be able to complete the acquisition of Merrill Lynch. BofA then announced a $1.79 billion 4th quarter loss and that didn't even include an approximately $15 billion loss at Merrill. Looks like buying both Countrywide Financial and Merrill Lynch might not have been such great ideas after all.

Before we leave the financials, which as a group fell 16% last week, we should note that JPMorgan Chase (JPM) announced disappointing earnings and downbeat guidance. This, from the strongest player in the financial sector.

There were a few other things going on this past week. Intel (INTC) reported a 90% drop in earnings, including a huge writedown on their Clearwire (CLWR) investment. Management indicated that there was no visibility for near-term revenue but that eventually things would improve. That slight wisp of hopefulness was enough to give the shares a boost.

With respect to the economic reports for the week, December retail sales were about twice as bad as expected. Initial jobless claims jumped again last week. Our trade deficit narrowed, revealing an $8.7 billion drop in exports - no wonder our manufacturing reports have been so awful lately.

In any case, stocks fell several percent last week and our TradeRadar indicators, for the most part, reflect this current fragility in the market.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7400 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following charts are based on daily data and present the state of some of our technical indicators.

This first chart presents the moving average analysis for the entire market and contrasts it with the performance of the S&P 500 SPDR (SPY). When the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) there is an expectation that you will get a change in the trend of the S&P 500.

Last week saw roughly 1000 stocks finally fall below their 50-day MA. I am a bit surprised to see that the number of stocks whose 20-day MA is above their 50-day MA has held steady; however, this may not be so bullish. If you skip down to the last chart presented, you will see that SPY is in exactly that situation but now both the 20-day MA and the 50-day MA are both pointing downward. That is not particularly encouraging. Implication: fading bullishness.

This next chart is based on Aroon Analysis and compares our trending statistics to the performance of SPY. We use Aroon to measure whether stocks are in strong up-trends or down-trends. The number of stocks in down-trends is indicated by the red line and the number of stocks in up-trends is indicated by the yellow line.

This past week's Aroon Analysis shows a clear weakening in the market. The number of stocks in up-trends has declined while the number of stocks in down-trends has increased until it is now higher than its counterpart. Interestingly, nearly one half of the stocks we evaluated indicate no trend at all. Implication: increasing bearishness.

The next chart applies some standard technical indicators to the stocks in the S&P 500 and summarizes the result by sector.

If you compare this chart to last week's chart, you will notice that pretty much all the indicators for all the sectors have receded in a big way. Though financials may have been the worst sector last week, the weakness was broad-based.

Our last chart shows SPY with a couple of annotations. The blue trend line sloping upward from left to right shows a clear violation to the downside. The horizontal blue line shows support in the area around $82.50 and, happily, SPY seems to be bouncing upward from this range.

Note also that SPY has not quite closed below its lower Bollinger Band yet. This is a positive. On the other hand, we can see that the Aroon indicator is looking rather bearish for SPY. Implication: if support doesn't hold, we will most likely see the retest of the November lows.

Conclusion --

So we've had another down week. Technical analysts might point out that SPY, for example, is a bit oversold and appears to be bouncing up from its lower Bollinger Band and the support level described above. That is all well and good but stocks now seem to be reacting to the less than bright economic situation.

It is unlikely that the economy will turn around on a dime but the government is doing what it can. The Wall Street Journal reported this weekend that the Obama team is crafting a plan to help banks by either guaranteeing or buying up their toxic assets. This will no doubt find a favorable reaction from investors when trading resumes.

On the other hand, earnings season is picking up momentum. There will be plenty of financial and tech companies reporting and the numbers for most will no doubt be bad. Investors will be straining to hear an encouraging word during conference calls.

Finally, there will be very little in the way of economic news being reported this week: building permits, housing starts, initial jobless claims and crude inventories.

With the inauguration and the leaking news of a potential solution for the toxic waste clogging up the banking system, it's quite possible we will get an Obama bounce this week. The optimism may be short-lived, however, unless earnings season turns out to be better than expected.

Comments

[Prudent Man...:]

Obama got elected in Nov. There was a one day bounce. Is his ascending to the throne a surprise.? The market has gotten slammed since then or is this admission that the market is a poor discounter?

I, personally, am not impressed with Obama's record, or shall I say, lack thereof. Especially since he is an admitted Socialist and we know how great Socialism is for investors. He does use an Teleprompter well. But, he is slow on his feet. The Left Media never asked him any questions on economics, defense, terrorism, socials security while spending their time assassinating the character of Sarah Palin. Biden who?

I see Obama attempting to install "Industrial Policy" whereby the politicians will be picking the winners and losers and the taxpayers and consumers will be the losers. I hope this goes the same way the Clinton Administration's attempt, at the direction of Robert Reich, and was slammed by Congress, one of the few things they got right.

I wish Obama the best, being a war veteran who actually did serve his country, but preparing for the worse.

Jan 19 10:59 AM

[Ishortyou:]

I aggree those socialist comunist democrats cannot continue their subsidizing policies when the nations books are already bankrupt, where are they going to come up with the money to continue subsidizing? the financial sector is not going to get better until the oversupply in housing goes down, but how is going to go down if we still have rising foreclosures and mortgages and helocs defaults, rising unemployment, resetting ARM's, new home starts of about 600k in recent reports, yeah new home starts!!! can you believe that? how? so this mess will take years to be fixed and I dont the mesiah Obama and their socialists communists friends have a clear plan to fix it.

Jan 19 01:08 PM

[HBWOW:]

The six month plus hype on Obama will soon dissolve into the reality that he and his multi and expensive advisors only have old ideas that aren't applicable nor workable today. Obama sold himself as the ultimate leader, but his brief and highly questionable bakcground, his plans for our future are as volatile and uncertain as the stock market and economy. I prefer to think of him in the sunlight as Mr. Green or Mr. Thin and certainly not worthy of all the attempts by the Democrats to compare him in anyway to President Lincoln. The tremendous build up is
only matched by the excess of monies he has already spent even before taking official office of President (He has conducted himself as such for the last two months)

Jan 19 01:09 PM

[PeteK:]

More poor people means more power to them.
If the economy was good, usually people don't
want any change. That's the game.

Jan 19 01:20 PM

[HBWOW:]

The large banks' top executives need to be removed from their lofty
and lucrative perches. Absolute step one if there is ANY hope for the entire banking system. Ken Lewis' using TARP money to invest in a Chinese bank is highly questionable as to his authority, an investigation might tell the real story why he did this, and I believe in light of the bank and the nation's difficulty, I believe such is a action of treason, ie "a violation of allegiance to one's sovereigh or state"; "the betrayal of a trust or confidence" (Webster's Dictionary).

Jan 19 01:23 PM

[Bewildered:]

I am bewildered by all these Obama bashers. How can they look at the state of the economy today, compare it to what things were like before Bush, and blame Obama? (who hasn't even been in office yet) It is this kind of political blindness that is really one of our major weaknesses. if we don't pull together as a nation we will truly become our own worst enemy and be easy prey for those who want to destroy us ALL. Wake little children before it is too late! Wake up!

Jan 19 05:29 PM

[Ishortyou:]

the major nations deficits come from MEDICARE, MEDICAID, SOCIAL SECURITY, AND BUDGET DEFICIT!, all those instruments were created by the subsidisties socialists communists democrats, and thanks to their marxists tendencies they created the GSE's i.e Fannie and Freddie to promote the 'affordable housing preaching', that gave us the shot in the head to send us to the stone age! so now you tell me how in the world the LEADERSHIP is going to undo the Frankestein that they have created for years?

Jan 19 05:46 PM

[Urbane Gori...:]

You mean 'Those socialist comunist democrats " like George Bush, Carl Rove, Paulson, Bernanke, Jaime Dimond, Rick Wagoner....etc.. etc... This kind of B.S. reminds me of Hitler's attempt at producing a true Arayan race of tall blonds, while he was of course short and dark haired. By the way, communist has two 'm's'....

At 60 years old, and a lifelong Republican, I voted for Obama. I don;t have to be slapped up against the side of my head again to realize that the GOP has nothing to do with being a Republican. They have become a 'Bible-thumping, froth-at-the-mouth bunch of whiney bull-sh*t. artists.' Anyone that would propose or vote for 'Dubya', an incoherent, dried out alcoholic with a 'Joan of Arc' complex, shouldn't be allowed to vote.

jegan


On Jan 19 01:08 PM Ishortyou wrote:

> I aggree those socialist comunist democrats cannot continue their
> subsidizing policies when the nations books are already bankrupt,
> where are they going to come up with the money to continue subsidizing?
> the financial sector is not going to get better until the oversupply
> in housing goes down, but how is going to go down if we still have
> rising foreclosures and mortgages and helocs defaults, rising unemployment,
> resetting ARM's, new home starts of about 600k in recent reports,
> yeah new home starts!!! can you believe that? how? so this mess will
> take years to be fixed and I dont the mesiah Obama and their socialists
> communists friends have a clear plan to fix it.

Jan 19 06:03 PM

[Bruce Pile:]

The financials ($SPF) provide an important clue as to whether the broad market is tanking to test the November low. They have been leading the market and they are already at their November low!

Jan 19 06:20 PM

[ETFexpert:]

JEGAN!!!!!!!

I couldn't have said (in this case written) it better!!! You go dude!

Jan 19 10:12 PM

[Rockvan:]

IT did not work with Bush. He gave us the biggest recession since the great depression. How he did it? We all know and been through it and who knows for how long this recession will continue.
Lets us give Obama a try. If anyone is saying that he is a socialist; bear in mind, that he has a team of capitalists including Warren Buffett and others. His stimulus plan includes tax cuts, and spending to increase employment and infrastructure.
Please do your research before calling him a socialist.


On Jan 19 10:59 AM PrudentMan, CFA wrote:

> Obama got elected in Nov. There was a one day bounce. Is his ascending
> to the throne a surprise.? The market has gotten slammed since then
> or is this admission that the market is a poor discounter?
>
> I, personally, am not impressed with Obama's record, or shall I say,
> lack thereof. Especially since he is an admitted Socialist and we
> know how great Socialism is for investors. He does use an Teleprompter
> well. But, he is slow on his feet. The Left Media never asked him
> any questions on economics, defense, terrorism, socials security
> while spending their time assassinating the character of Sarah Palin.
> Biden who?
>
> I see Obama attempting to install "Industrial Policy" whereby the
> politicians will be picking the winners and losers and the taxpayers
> and consumers will be the losers. I hope this goes the same way
> the Clinton Administration's attempt, at the direction of Robert
> Reich, and was slammed by Congress, one of the few things they got
> right.
>
> I wish Obama the best, being a war veteran who actually did serve
> his country, but preparing for the worse.

Jan 19 10:46 PM

[Rockvan:]

Prudent Man,

Bush brought on us the greatest recession in one century and who knows when this will end or it may end in depression or more. And we all been through this and know how it happened when Bush presidency threw billions on worthless offshore military conquests and revenge that were personal targets for his family; all in the name of security from terrorism.

Lets give Barack Obama a chance to lead us to a new tomorrow, though, he has a tough task to undo whatever wrong has done to our economy. Obamas stimulus plan includes tax cuts, spending plans for a better infrastructure and employment. And whoever calls him a socialist better know that he has a team of economists and investors including Warren Buffett.



On Jan 19 10:59 AM PrudentMan, CFA wrote:

> Obama got elected in Nov. There was a one day bounce. Is his ascending
> to the throne a surprise.? The market has gotten slammed since then
> or is this admission that the market is a poor discounter?
>
> I, personally, am not impressed with Obama's record, or shall I say,
> lack thereof. Especially since he is an admitted Socialist and we
> know how great Socialism is for investors. He does use an Teleprompter
> well. But, he is slow on his feet. The Left Media never asked him
> any questions on economics, defense, terrorism, socials security
> while spending their time assassinating the character of Sarah Palin.
> Biden who?
>
> I see Obama attempting to install "Industrial Policy" whereby the
> politicians will be picking the winners and losers and the taxpayers
> and consumers will be the losers. I hope this goes the same way
> the Clinton Administration's attempt, at the direction of Robert
> Reich, and was slammed by Congress, one of the few things they got
> right.
>
> I wish Obama the best, being a war veteran who actually did serve
> his country, but preparing for the worse.

Jan 20 12:21 AM

[Moon Kil Woong:]

Historically, the first two years of a new president are worse than the following two. As in, they rtend to do the painful task of fixing the economy at the cost of the short term negative ramifications in order to benefit the long term.

For example, Reagan did it by raising interest to kill inflation. Hopefully Obama will take the effort to increase transparency, prevent financial fraud, and fix the derivatives market even though financial institutions will claim bloody murder about it. It may hurt in the short term but it's necessary for the prosperity of our financial future.

I am hopeful but skeptical. Obama is a populist.It will be hard for him to do things that are right but deeply unpopular like telling America is should keep with an austerity program until savings and income can properly support debt.

Jan 20 01:41 AM

[bobbobwhite:]

In the past 28 years, only 8 have been under a Democrat president, so all the right wing complainers here about what damage socialism has wrought over that time have mostly their own men to blame if it has occured, so shuddup already! And, they are wrong, entirely, as usual. The most damage done has not been by socialists, but by greedy and misguided incompetants at least and criminal-led capitalists with no gov't oversight at worst.

The worst president ever in every aspect of a president is finally out of office. Let us put his moronic, abject infamy quickly behind us and seek to heal our many shared wounds together.

Jan 20 12:50 PM

[FWallace:]

Bush is gone forever, I thank him for keeping us safe after 9/11..... but it's truly wonderful, we all can now move forward with our new President.

Jan 20 07:47 PM

[Kunst:]

Thumbs up to Jegan!

Divisiveness has been Republican party policy since at least 1994. That garbage has overstayed its welcome.

Another former Republican who hopes Obama will be successful in bring this country TOGETHER.


On Jan 19 06:03 PM jegan ;-) wrote:

> You mean 'Those socialist comunist democrats " like George Bush,
> Carl Rove, Paulson, Bernanke, Jaime Dimond, Rick Wagoner....etc..
> etc... This kind of B.S. reminds me of Hitler's attempt at producing
> a true Arayan race of tall blonds, while he was of course short
> and dark haired. By the way, communist has two 'm's'....
>
> At 60 years old, and a lifelong Republican, I voted for Obama. I
> don;t have to be slapped up against the side of my head again to
> realize that the GOP has nothing to do with being a Republican. They
> have become a 'Bible-thumping, froth-at-the-mouth bunch of whiney
> bull-sh*t. artists.' Anyone that would propose or vote for 'Dubya',
> an incoherent, dried out alcoholic with a 'Joan of Arc' complex,
> shouldn't be allowed to vote.
>
> jegan

Jan 21 01:50 AM