What You Need to Know About the Current Market

The November low and potential market bottom on the DOW is in sight. The index came within 330 points of its bottom in trading last Thursday and indications are that a test may be in the works. From a technical perspective, a test would be ideal, as it would indicate if the November low was a valid bottom. For traders, the key is to know where the bottom is, so you can calculate the downside risk.

Last Tuesday, the DOW recorded its worst one-day percentage loss since January 20. The DOW made another downside move last Thursday. This tells us that a test may be forthcoming. The important thing is to watch to see if buying surfaces at this potential bottom. There was a bounce on the last attempt. The investment climate continues to be vulnerable to downside moves.

Investor sentiment, which had turned neutral for a few sessions, is again bearish. And unless there is a sustained trend in bullish investor sentiment, trading could be sideways with rallies likely to be capped by selling and profit-taking.

Markets appear to have a lack of leadership despite the fact that the economic stimulus plan, pared down to $789 billion, was approved in the Senate last Thursday, and will now go back to the House for voting. It has become clear that the market is not convinced that the stimulus will be enough to turn around the massive American economic engine that has stalled.

Commodities continue to be driven by the global economic conditions. As a safe-haven play, gold is at a near-term top after a three-month uptrend. The April gold is facing selling at $925.00, and broke below $900.00 last week before rallying. The trend of gold is opposite that of stocks, which is not a surprise given the market risk and flight to safety. I would be cautious adding gold at this time.

On the energy front, oil is back below $37.00 a barrel on global demand concerns. The Organization of Petroleum Exporting Countries (OPEC) is not happy that oil is stuck in the $40.00 range. The oil cartel has been cutting production, but it has not worked. Now OPEC has said that its group will postpone 35 of 150 new oil and gas projects due to the lower prices. OPEC has made it clear that it wants oil at the $70.00-$80.00 a barrel range. But as we have commented in the past, the cartel is greedy and what it is doing could make the economic turnaround even more difficult. However, even with the capital cuts, oil will continue to languish given the declining global demand.

I still believe that the current trading will continue to be cautious and based on any success and progression towards turning the major global economies around, or at least halting the slide.

Areas that I do not like at this time include energy, financial, housing, retail, and cyclical stocks. Infrastructure stocks look good, especially those with operations in China.

I do not expect a significant and sustainable rebound at this time given the high market risk.

Profit Confidential

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