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High Volume Reversal Day in the Stock Market 02-05-09

Posted on 05 February 2009 by Allgen Financial

Before the market opened today there was a very weak jobs report. The market initially reacted negatively to this report and to the fear of more potential bank failures. Bank of America at one point of the morning got as low as $3.77, down almost 20%! The Dow Jones Industrial Average had broken below support and it appeared that the market was ready to go into a new freefall that could of lead to huge losses. But, at around 10:30am the market decided it had gone down low enough and the market began to reverse and head higher. By the end of the day the market had rallied about 3% from it’s lows to post a decent gain on high volume. And Bank of America rallied approximately 30% from it’s lows to close up around 6% on the day. Psychologically if the market rallies on bad news it is considered positively constructive action. Because it means the market is looking forward to potential improvements while at the same time shrugging off or discounting current economic bad news. It is important to know that the market leads the economy and almost always starts to go into a new bull market before the economy improves.

The NASDAQ (pictured below) was the clear leader today. It posted the highest volume day in nearly 2 months which adds validity to today’s move. From a longer-term point of view the NASDAQ along with the other major U.S. indices have formed a potential upside-down Head & Shoulders pattern. The significance of this pattern is if the NASDAQ is able to close above the blue downward sloping trend-line that is drawn in this picture at around the level of 1600 that would significantly improve the NASDAQ and the other markets probability of a reversal in the current down trend. Some individual sectors like the Bio-Techs, Semi-Conductors and Software indices have already broken above this reversal pattern. These sectors are providing something the market has lacked for a long time…Leadership! Today’s action does not eliminate the possibility for further downside moves; it simply means that it was one positive day and a step in the right direction.

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Tags: allgen, Bank of America, cash, citigroup, commodities, commodity, community bank, fertilizer, financial news, indices, Market Commentary, nasdaq, news, technical analysis

Indices Break Below Support 01-14-09

Posted on 14 January 2009 by Allgen Financial

The Nasdaq (pictured below) along with the other major indices broke below short-term support. After a failed breakout above the 1600 level which was discussed in last week’s commentary the Nasdaq has shed 10% in one week and broke below support of 1500. If the Nasdaq is unable to bounce back above 1500 then we will probably head down to the next are of support which is at 1400. The weakest areas in the market over the last few days have been banks and commodities, which had rallied strong since the market bottomed in November. To point out some major bank names and their respective price levels; Citigroup closed at $4.53 and is closing in on its November low of $3.05, a close below $3 for Citigroup would be seen as a very negative sign for the company. Bank of America closed at $10.20, its lowest close since 1992. If Bank of America closes below $10 that would be a serious break down technically and would probably lead to further down leg.

Allgen Financial Services Investment Strategy:
Over the last few days we took some profits in a commodity, more specifically a fertilizer company and we sold a community bank which had held up over the last year until this week. Are level of cash is now higher and we will maintain the higher level of cash until the market shows some sign of holding support and turning around.