Market Breaks To New Lows

Sunday, March 01, 2009

Fundamental Take:
The market fell 119 points on Friday dropping 4.1% for the week hitting new lows for the current bear market. The market remains entirely uncertain of this country's economic future. With Geithner failing, once again, to offer a specific plan for the second half of TARP buyers continue to be wary of buying any financial companies. The government converted its preferred position in Citigroup into common equity resulting in the stock falling to $1.50 per share. The government now owns 36% of the company and equity is nearly worthless down 94% over the last year. With Citigroup collapsing 39% on Friday the financial sector lost 6.5% and now trades down 39% year-to-date. The United States' 4th quarter gross domestic product was revised downwards to a 6.2% annual decline giving more cause for pessimism among investors. Our current situation is best summarized by famed investor, Warren Buffett.
Billionaire Warren Buffett said the economy will be “in shambles” this year, and perhaps longer, before recovering from the reckless lending that caused the worst “freefall” he ever saw in the financial system.

Stocks and the economy will rebound, and the best days for the U.S. are ahead, said Buffett, chairman of Berkshire Hathaway Inc., in his annual letter to shareholders yesterday. Buffett said he’ll spend the recession shopping for new investments for Omaha, Nebraska-based Berkshire. (Bloomberg)

Technical Take:
The market gapped to new lows as the lows of 741 on the S&P broke pre-market, stops triggered and a flurry of sell orders went off. Off the open the market made a slow, concerted effort to move higher with the Dow actually touching positive by midday. But, late-day selling into the weekend took the market back to the lows of the day with the Dow closing at 7,062. The 7,000 level will likely be another psychological support level for the market. I would expect a bit of buying interest to enter the market at that level. The break to the downside is very disappointing for bullish technicians. The market continues to show nothing but weakness unable to hold the lower end of the range formed over the last four months. This breakdown is discouraging for technicians who now see further downside over time until a new range forms.


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