It was an ugly week and month as the major indexes and all sectors continued their declines for the third week in a row.

In our portfolios, we took some risk off the table in the Standard Portfolio by closing our (XOP) and (IYR) position on Wednesday and then being stopped out of our (QQQQ) position on Friday.  We currently have two long positions and three in cash.

In the 2X portfolio we were stopped out of our long positions on Friday and currently are in cash.  Year to Date the Standard is -4.9%, the 2X is -9.5% and the S&P 500 is -3.9%.

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Our macro indicators have gone to red and we anticipate still lower prices ahead in the short to intermediate term.

Clearly sentiment has changed for the short term on a technical basis and fundamental basis as concerns about global debt and slow growth have come to the fore.

All major U.S. indexes remain above their 200 Day Moving Averages which indicate the long term uptrend is still in place, but the Shanghai Composite broke its 200 day moving average on Friday and that index is seen by some as a leading indicator for world markets.

The View from 35,000 Feet

January turned out to be the worst month since last February with the S&P down -3.9%, the Dow -4.0% and the NASDAQ down -5.4%. 

The losses last week came in the face of mostly positive news with Ben Bernanke being reappointed Fed chief and the FOMC saying that rates would stay low for an extended period.

4th Quarter GDP came in at 5.7%, the strongest since late 2003, and Consumer Confidence rose to the highest level in two years.  The Chicago Purchasing Managers Index rose to 61.5 from 58.7, with readings above 50 signaling expansion.

Earnings were mostly positive with Amazon showing a 71% gain in net revenue and Microsoft reporting positive results and more than 3/4 of companies reporting so far have beaten earnings estimates.

Durable goods orders grew, although at a slower rate than 3rd Quarter, and initial unemployment claims were down by 8,000.

On the negative side of the ledger, December existing and new home sales both declined from the previous month.  Greece appears to be edging closer to default and at the World Economic Summit in Davos many of the attendees polled said that a sovereign debt crisis default could cause the next world crisis.

Greece’s debt is at 12% of GDP and appears to be the most dangerous spot but S&P warned Japan about their debt and here at home the U.S. debt is 10% of GDP, the highest since World War 2.

For the week, all sectors found themselves in negative territory with Materials and Technology leading the way.

The Week Ahead

The week ahead brings more major economic and earnings reports with 3 Dow and 94 S&P 500 components reporting and economic reports from the Real Estate sector and the widely watched Non Farm Payrolls and unemployment reports.

Major Earnings Reports:

Monday: Exxon Mobil

Tuesday: Dow Chemical, Kraft, UPS

Wednesday: Pfizer, Cisco

Major Economic Reports:

Monday: December Personal Income, December Personal Spending, December Construction Spending, January ISM Index

Tuesday: December Pending Home Sales, January Auto Sales

Wednesday: ADP Employment Report

Thursday: Initial Unemployment Claims, Continuing Unemployment Claims, December Factory Orders

Friday: January Non Farm Payrolls

Sector Spotlight:

Leaders: Biotech, Bullish Dollar

Laggards: Broadband, Natural Gas, Metals

So we continue navigating our way through difficult and uncharted waters.  As always, discipline, patience and risk management will be the keys to success.

-Written By John Nyaradi From Wall Street Sector Selector

 

 

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