Bigger Dip Coming
Research for Online Investors

by John Dalt

2/24/11

Go have a cup of coffee.  Save some money, don’t get in a hurry to buy this dip!  We are watching the market to see if 1300 holds on the S&P 500.  Yesterday we bounced over the noon hour, and some brave souls came into the market doing some bargain hunting.  We think they were early.

1300 on the S&P held yesterday, it may hold today, but that isn’t the support you should look to.  We are watching for 1268, that is the 23.6% Fibonacci retracement level of the bull rise since July and would represent a 6% pullback from the highs.

The problem many market spectators are having is that while the market is falling, some stocks are setting new 52-week highs.  Precious metals and energy stocks are on a tear as news out of the Middle East drives fear of shortages in oil.   There is nothing like a “hot” rebellion or war to make markets move!

There is money on the sidelines that has not been in the market.  There are investors that sold equities in 2009 out of fear and moved everything into fixed term.  There are hedge funds that have missed the rally over the last few months.  There is new money from retirement contributions.  All are waiting to jump on the bandwagon when the coast is clear.

Because of this money wanting to be put to work, we don’t think the present dip will be long lasting; we just have to find support.  We are also watching the 1287 as that is the 50-day moving average.  If 1287 and 1268 don’t hold for support, then we drop down to 1230.  That will take the air out of a lot of stocks!

According to Bloomberg, Treasury Secretary Turbo Tim Geithner said, “The core of the American financial system is in a much stronger position than it was before the (credit) crisis.”  Geithner was speaking at a breakfast with reporters.  We are reminded by that statement that you have to parse words on everything that is said by this administration.

The same day that Turbo Tim said the “core” of the banking system is strong, CBS carried a report that Troubled Banks rise to highest level in 18 years.  They can’t both be right, unless you read the fine print.  Geithner says the “core” is in great shape, I guess that means all banks except the “core” banks are in terrible shape!

According to CBS News almost 12% of U.S. banks are in danger of failing.  The FDIC now lists 884 banks on its confidential “problem” list.  Treasury must classify the “core” of the banking industry as the biggest banks.  Total profits for all 7,657 FDIC insured banks for the fourth quarter was $21.7 billion.  The biggest banks (over $10 billion in assets) made $20.6 billion, leaving $1.1 billion to be split among the remaining ‘smaller’ banks.  One-hundred fifty-seven banks failed last year, the most since 1992.

We would like to have more financial institutions in our Long-Term Portfolio, but how do you trust them?  The regulatory environment of small banks is so heavy as to make it difficult for them to make money, and the big banks are tied at the hip with the government.

To the mailbag:
Missing in everyone's analysis is a sense of disappointment that our species has become so dominant…My sense of foreboding was triggered by your remarks today about the need for more oil…Maybe it's time at least to ration cars.----subscriber J.R.

John’s reply:  Wow.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Archive

Back to Top