The market ended the first month of 2009 with substantial losses. And while I do not subscribe to the January effect (ie., as January goes, so does the rest of the year), most sectors do look ready to resume their extended down trend.
We all know about the black hole that is the banking sector, but Friday’s drop was caused by the deepening recession. The GDP number was better than expected, but corporate earnings have been terrible and thousands of jobs are being shredded everyday. The market also appears to dislike the current stimulus package that is in the works. I bring your attention to to the steel makers as evidence. NUE, X, and STLD are three stocks to examine. Each surged after reporting earnings recently. Yet each stock immediately faltered and are beginning to trend lower again.
I’ve also been mentioning the new weakness in the so called recession proof stocks. JNJ, WMT, MCD, KMB, and PG. These companies are not immune to large drops.
We are seeing some real strength in two if the technology leaders from 2007 and parts of 2008. RIMM and GOOG are performing well despite a poor market. The agriculture stocks are also performing relatively well. And the remaining investment banks are trading much higher than the rest of the banking sector. GS and MS can be owned as long as you they are paired with ample shorts from the likes of STI, ZION and other banks.
This market appears destined to retrace all the way back down to the November lows. Once it does, I expect this support to break.
