Why Your Portfolio Could See Another 12% in 2009

by: Jonas Elmerraji

May is finally upon us, and we've managed to get there without breaking the uptrend that carried us through April. During the last couple of weeks, we've looked at short-term charts to get an idea of where the market's headed. This week, I thought it would be worthwhile to take a gander and see what the market looks like somewhat longer-term.

Here's the chart:

Click to enlarge

The chart above shows the S&P 500 over the course of the last 11 months (for a timeline of the recession, click here). From October's precipitous fall to the beginning of March, the markets were stuck in a downward trending channel that had investors wondering if value investing was even relevant anymore.

That all changed when the S&P broke out of its channel as a potentially good earnings season crept its head out. Right now, the next big stumbling point for the markets is the 200-day moving average (the market's average price over the trailing 200 days).

What's significant about that is the fact that the resistance level of the 200-day moving average is around 975 right now for the S&P 500 today – a full 12% higher than the S&P's current level. That resistance level is really the only definitive thing standing in the S&P's way right now... and that's important for one big reason: it has traders' attention right now.

As the S&P climbs nearer to the red line, you can expect technical analysts to watch intently - trading off these kinds of movements is their bread and butter. What that means for fundamentals guys is that you should be watching your portfolios very carefully right now. If you're sitting on decent sized gains, set your stop losses – a market swing could come suddenly.

The bottom line, as always, is to use common sense. A 12% gap between the S&P's current level and the next potential ceiling doesn't mean that it's time to throw out value and start buying... fundamental investors are getting nervous about the seemingly unstoppable stock market; all trends reverse eventually.

Chrysler's Crunch

The biggest news of the week was Thursday's announcement that Chrysler would enter bankruptcy protection. The floundering auto manufacturer is the first of the big three to do so. What's potentially even more significant is the way the market responded to it – investors didn't seem deterred in a big way, only letting the market slip a little from its intraday highs.

That's an important revelation for competitors like General Motors (NYSE:GM). The nation's biggest car maker could be facing a similar fate sooner rather than later.

Consumers are feeling better about the economy according to numbers released today by Reuters and the University of Michigan. April marked the biggest one-month jump in the Survey of Consumers since October 2006.

But even all that good sentiment couldn't shield big companies from feeling the burn in this environment. Chevron (NYSE:CVX) and the Washington Post (WPO) saw earnings decline by double digits in releases that came out Friday.

Position Update

The last week in April has been great for the Rhino Stock Report's portfolio. As of pre-market on Friday, our positions were up approximately 20% since inception.

Leaders in the pack include Iconix Brand Group (NASDAQ:ICON), which reports earnings on May 5. Once our worst position, we're currently up almost 40% on the stock. Molson Coors Brewing (NYSE:TAP) also reports on May 5.

SPX Corporation (SPW) and EMCOR Group (NYSE:EME) reported earnings to investors this week. Both companies beat analyst estimates and surged as a result. We're up 33% and 1% respectively on the two positions.

Disclosure: The Rhino Stock Report has positions in ICON, SPW, and EME.