S&P 500 Index
Tuesday, October 14th, 2008

Yesterday the index moved higher by 11.5%. When you look at the number you think WOW! But, reality set in for me when I looked at last week the index opened at 1099 and closed at 899 or a mere 200 point drop. That equated to 18.2% for the week. While the gain of 11.5% is nice it was off a lower number 899 remember or a close at 1003. That leaves us 96 points away from breakeven. I don’t make this point to belittle the move on the index, but to simply put in perspective what has happened. There is plenty of work left to be done.

So, let’s start with a look at the chart below to see how we are doing and what if any opportunities exist with the index. The first positive technical move would be a break above 1021 and the 10 day moving average. That would at least show some positive short term movement. In early trading today we were above that number, the key will be holding that level for now. The challenge with the move on Monday is simply it was the first positive day in the last eight. Nice move, but not trending changing yet.



Fundamentally earnings have been declining and the third quarter numbers are not expected to be good. Watch earnings as they come out. They will give you a glimpse into the future on what to expect near term.

Sector of the index continue to come under pressure from selling. The move lower in energy over the last three months took away the last positive sector. In 2007 the sector was up 32.4% and YTD is down 43.8% and losing 44.2% over the last 13 weeks. The best performing sector YTD is Consumer Staples down 20.5%. The next is Healthcare down 31%. This is not a pretty picture, but it does leave room for some upside improvement. The sectors to watch short term are: financials, energy, technology, and basic materials. That is where the most damage was done of late and should be the first to recover. How sustainable the moves are will be the question from my view.

Strategy for playing the index is to track SPY along with the index. Any plays can be done through the ETF directly. Let this run up pullback before jumping in. I don’t expect a ‘V’ bottom off this move. There is too much news surrounding the financial crisis yet to come and that will keep the market in check for now.