Weekly Recap, January 16, 2009

Rocky Trading Week!

Last week marked the second straight down week as the market fell sharply 4.5%. It could have been worse if not for the Friday rebound. We have not gotten the start to the New Year like we hoped as the S&P is down -5.9% and the NASDAQ -3%. It was a rocky week of trading as prices fell sharply before recovering somewhat by week end. The market remains well above November lows, but recent declines are spooking already nervous investors. News has been predominately bad and in a good light has not carried the shock value we saw in 2008. Nonetheless, the news appears bad enough to pressure stocks and to keep investors on the sidelines. Market movements will likely remain rocky for some time.

Market Beating Foresight

About the only good news last week were reports of lower inflation, levels that have not been seen for many years. Of course, some argue that low inflation is just another sign of how bad the economy really is. Inflation is so low that concerns are circulating that we may enter a painful period of severe deflation. Fourth quarter earnings season is in full swing, and to date, has provided only downward pressure on stocks. Investors will begin receiving year end reports on retirement accounts, which will cause more angst as investment losses will be significant. That will be just one more challenge to overcome before investors return to the market in large numbers. Obama takes office next week and no doubt will enact massive spending programs. Those initiatives may help consumer confidence, but material impacts to jobs and the economy will not happen for months. We believe the market will remain rocky over the next several months as the economy finds better footing and searches for bottoms in housing and jobs. Last week, oil dropped to $33 dollars, a level we view as a good long term buy. For stocks, we remain concerned over the next three months as the market will likely remain very rocky as the full weight of poor earnings, bankruptcies, and bailouts reach critical mass. Even those consumers that have jobs are fearful, hoarding cash, and restricting spending. Consumer spending will need to return before the economy can gain momentum and start growing, a prospect not likely over the very near term.

Option Tips For Investors

We expect the market to swing between a trading range of 825 and 950 over the near term. With that in mind, we may look to buy a call on the market index at the floor 825 or above if the market swings sharply down and we can get in with a good price. We are also looking at writing a February put and call option on the market index (SPX) at 825 and 950 respectively, if we can get good prices. In addition, we have started to look for straight call options on individual stocks, but will invest only selectively as the short term direction of the stock market is still volatile and difficult to predict. We are now 90% cash, but will continue to look for short term trading opportunities.

Remember, our complete list of options is Available Online At: http://www.marketbeatingstocks.com