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October 2 Activity Report

October 3, 2008
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Hello All,
Kathy has decided she’s put in her time with the tending to the group paper trading account.  Indeed she has.  And did a good job with it too!  Thanks, Kathy!  I trust that it was a valuable experience.  I think we can all agree that discipline and consistency is one of the biggest challenges in trading.  Keeping this routine is surely good practice.
Apparently no one volunteered to take over at the recent meeting.  Against my better judgment, I’ve agreed to take on the task.  I seem to be running in three different directions at once lately, so you’ll have to extend a bit of patience with the daily reports.  Nevertheless, I’ll do my best to keep them coming.

As for the current account, we’re still in ABT and it was actually UP today!  Holding up nicely in this sideways range.  I have a resistance line at 60 from the high area back in January and the stock has been consolidating just below there for the last two months.

(Click on images to see them a bit bigger and in better resolution.)

I’d recommend setting an alert for 59.75 or so to let you know when the breakout is attempted.  However, make sure to use that as an alert and not an automatic buy signal.  Remember that on breakouts, we want BIG volume and it’s also probably safer to wait for a successful close above the line.  Note that earnings are coming up on Oct. 15.
It’s also noteworthy that the healthcare sector failed to hold the bullish reversal pattern from when it broke above the double bottom pattern in the very beginning of August.  It has traded right back down to the bottom.  We can use this to see that ABT has held up well not only against the market, but also against the healthcare sector.  Also, there is a clear line here on XLV for anyone looking to get long here with a nicely defined, tight stop.  On the other hand, if the market gets hammered in the coming days and this moves lower, you’ll have a real nice short entry with well defined stop.

For a bit of long, long term perspective as the whole world is preparing for the sky to fall, here is the SPX on a twenty year view.  Though this month is only a few trading days old and too soon to officially call it broken on a monthy view, we’ve officially dipped below the 50% retracement from the rally from bottom of the last bear market to the top of the following bull market.
We’re clearly in a bear market.  But even if there is more to the downside, with the recent panic selling, it seems like some kind of bear rally could be in order.  Who knows what will come of this “rescue” package.  But I’ve got to think that if it passes, that will bring at least a bit of likely relief from the very extreme uncertainty about what the markets can expect to work with.
Here is the all time chart of the VIX.  We’re right at the high.  “When the VIX is high (and starts to turn lower!), it’s time to buy.”  So goes the saying.  As Jim as mentioned, we could be looking for a spike higher for the final gasp.  Then again, it may just turn lower for the signaling of a bear rally.  I’d think that whatever the result of the rescue package, good or bad, at least the market will have this giant question market behind it.  I would have to think this would lead to a easing of the fear factor.
The Market Forecast is giving a bearish reading simply based on the green intermediate line.  Along with the index, it has moved lower since mid August and is currently headed lower still.  It now tests it’s former swing low from mid September.  Notice that the Blue near-term line has formed a bullish divergence with a higher low against a lower low in the index.  However, it also has lower highs during that time, so I’m not putting too much thought into that one.  The Sentiment line is basically flat.
To sum it all up, I read it all as Bearish/Neutral with some expectation of a relief rally and the VIX finding a top.
For a bit of rough and dirty relative performance, here is a comparison chart for the 9 sector spiders over the last 6 months.  Holding up the best, consumer staples and healthcare.  Worst performance: Financials have obviously been in the dog house for quite a while, but they have rallied lately out of last place.  Energy, Basic Materials, and Industrials have dropped hard recently to claim the leadership position to the downside.  Strength in the dollar is seemingly putting the squeeze on commodities, oil, and the Industrials, long touted for their “advantage” of foreign buying their products on a weak dollar.  It seems that story doesn’t work anymore.
Abedy..abedy..abedy…….That’s all folks.
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