Friday’s panic low came against the backdrop of the Freddie and Fannie crisis

S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

Our earlier thoughts that we might be in the area of a low last week has thus far proven premature. We are now in panic mode and we do know that panic modes always bring us “panic reversals” even if they are temporary. Think of the extremes seen around September 11, 2001 or October 19,1987 or most recently March 17, 2008. That we have yet to see a sign of that does not mean it is about to occur. But the collapse of Bear Stearns in March brought us a temporary respite and this time we have another collapse in the making with big news in the background.

This time it is Fannie Mae (FNM-NYSE) and Freddie Mac (FRE-NYSE) the world’s largest
mortgage behemoths with $5.6 trillion in debt and holding over half of the mortgages in the USA.
The entire airline industry is also in the throes of going under. Huge bankruptcies are nothing new. Think Chrysler, Penn West, and more recently Enron. [read more…]

TSX INDICES

It was a very bad week for the TSX (down 2.1 per cent). Except for Gold and Materials everything else was down. Consumer Discretionary and Healthcare hit new lows for the move down. Metals and Mining continue in a topping pattern as does the TSX 60. But here once again Materials and Gold are holding the Index up.

While the temptation is to say as we did in our broader report we may be hitting a temporary “panic” low. But that doesn’t mean one rushes out to buy everything. Instead you stick with the area that are rising and that is the Gold and Materials sector. In the Materials sector it includes the agriculture picks such as Potash and Agrium. You want to be long these stocks. No need to chase the falling zones. The TSX Energy once again had problems but still remains a hold even if we have out the caution sign. We see no sign of a long term topping pattern unlike the mining and metals sector which we don’t mind owning but there are more
distribution patterns there. [read more…]