Market Outlook (March 2009)

Sunday, March 22, 2009

Market Analysis:
The S&P 500 continues to be controlled by a long-term downtrend which until broken makes it difficult to be aggressively long this market. The situation may have changed in this recent rally attempt based on the financial sector participation and the possible bid coming to energy shares. Yet, until this downtrend is successfully broken the bears have the upper hand.
Financial Sector Analysis:
The financial sector has led this market lower from the October 2007 top. The situation may have changed recently as they rallied 50% off lows in 7 trading sessions. Financials will be the primary indicator of whether this move in the broader market holds. A stabilization of the financial sector is key to the market's recovery. I am looking for the XLF to hold its lows at $6 on retests and to begin forming a bottoming base between $6 and $9.
Energy Sector Analysis:
I see the market as able to gain ground in the longer-term as money rotates into the energy sector. I believe oil will find a strong bid given the falling dollar and the need to invest in inflation hedging commodities. I am looking for the OIH to clear the $88 level breaking out of its 5-month channel base after crushing the index so far this year gaining 5.5% YTD as the Dow has dropped 17.1%.
Technology Sector Analysis:
Many technology shares have formed strong bases and these stocks should be the first ones to rebound in a turnaround. I am watching the XLK to clear $16.20 after double bottoming at $13. Technology has also showed relative strength outperforming the broader indexes only falling 2.4% YTD.


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