Stock Market Summary for February 4th 2008

U.S. STOCKS OUTLOOK - JANUARY EFFECT, DEVISED BY YALE HIRSCH IN 1972: AS THE S&P 500 INDEX GOES IN JANUARY, SO GOES THE REST OF THE YEAR; THIS PHENOMENON HAS A 91.1% ACCURACY, REGISTERING ONLY FIVE ERRORS, SINCE 1950

If the statistics shown above hold true then our markets for 2008 will be a bad one.

Another piece of very intriguing information that we came across today is that the total short interest in all stocks on the NYSE has reached 3.7%. That is 3.7% of all the combined shares of all stocks on the NYSE. The last time the short interest was this high on the entire NYSE was in 1931. Now some would say that this is a contrarian indication and it may be. But, for there to be that much short interest there must be a reason. Is there that much fear of a severe recession? Is it that large money is betting on a substantial decline in the market? Could it be that they see more into the problems unwinding in the financial system then others see, or at least admit? The data says that the last time the short interest was this high was in 1931. In 1931 the DOW reached a high of 196.90 in February of that year. In June of 1932 the DOW dropped to 42.30. That is a decline of 78.5%! So at this time we have short interest that is on par to the short interest in 1931 before that big decline. Sometimes a high short interest is NOT a contrarian indicator, it is an indication of just how bad people expect things to get. Are we repeating 1931 and 1932? I sure hope not!

Today we saw selling in the financial’s as resistance came into play as we discussed last night on the charts and on downgrades of some financial sectors on recession expectations. The financial sector tracking ETF (XLF) actually fell back below the trend line and closed back in the negative column. Recall that old school technical analysis says that for a trend to be broken (up or down) the price needs to trade at least three sessions on the other side of the line. Today may have been an example where the old school trend confirmation came into play, so far we have had only one day where the XLF closed above the trend line. Some talking heads on TV and the print media have been saying this is a great time to be buying financial stocks because they are so cheap. Well, you all know my favorite saying from Jesse Livermore… "It is not as important to buy as cheap as possible as it is to buy at the right time". When the time is right we will step into the financial’s.

S&P futures are currently down at this time by -0.2% and are still heading lower. Earnings reported today were not very exciting. Except for a few companies here and there beating estimates the majority were either inline or were a miss, and more importantly many guided lower for the year or the next quarter.