The US banking system is effectively bankrupt.

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

• The S&P 500 fell a sharp 6.9% on the week following the previous week’s 4.8% decline.
• Plans to recapitalize the US banks has the market gasping for air.
• All the economic indicators continue to be gloomy with few if any signs of a recovery or
  even a bottoming.
• The stimulus package was greeted as if it was due for a Razzie rather than an Oscar.
• The banking sector (see below) is leading this market lower.
• The US banking system is effectively bankrupt.
• The plans from the US Treasury are vague and Treasury Secretary Geithner’s performance has been hugely underwhelming. He may have to go before he drags the Obama administration down with it.
• The S&P 500 broke down out of a triangle pattern and broke below 800. Negative developments.
• New lows are a clear possibility.
• Targets are 600/650.
• While the seasonals are supposed to be positive during this period our thoughts on a high
  in April are now looking like a low.
• Investors should watch their positions carefully and lighten up on any profitable positions
  acquired over the past few months.
• The DJI lows of 2002 were 7177. At lows Friday of 7226 we are within 50 points of taking them out. Expect them to fall.

TSX INDICES

It was a terrible week for the markets unless of course you are a believer in gold. The TSX Composite fell a sharp 8.4% and with the exception of the Gold Index all sub indices fell. Three hit new lows – Financials, Income Trusts and Utilities. Others are perilously close to new lows as the TSX Composite itself is a mere 200/300 points off of its November lows and it does potentially seem quite possible that we will now see new lows.

With the Gold Index being the only one gaining this week as Gold itself briefly topped US$1000 it is a reminder that this sector is now taking on the attributes of a defacto currency. Even with the Gold threatening new highs in US$ terms the TSX Gold Index remains just over 11% off of its March 2008 highs. Gold hit new highs this past week in Cdn$ at over $1250. Indeed Gold has been hitting new highs in almost any currency you can name. An exception is Yen due to Yen strength against the US$ and of course we are now just below the US$ highs. But we expect these levels to fall in the coming weeks.

The real danger now in the market is that we will see new lows in almost all the sub indices. Even the Consumer Staples who have been an area of strength weakened this week and broke down from an up pattern suggesting a move to the downside once again. The up daily signal for Consumer Staples was changed back to a down..[read more...]