Use any weakness to pick away at stocks you have targeted, but maintain cash reserves of 30%

Brooksie’s Daily Market blog

Monday, January 5, 2009 9:22am EST

DJIA: 9.034.69
S&P 500: 931.80
Nasdaq Comp.: 1532.21
Russell 2000: 505.84

After 2008, each and every one of us deserved a good start to the new year. I continue to expect selective strength in a generally upbeat, but not runaway market – ideal.

What is not needed now is for a sudden surge in the stock market. After getting forced out of the stock market and incurring huge losses in 2008, investors do not need to see the market leave them in the dust.

The change-over from the fear-of-owning stocks to the fear of NOT owning stocks will drive our stock market recovery early this year.

Following a correction at the open, the tempo of the market will be generally upbeat. Support for the DJIA is 8, 860 and that may be a stretch.

While it is a bit early to assume January will be in the plus column, this is a good start.

As January goes, so goes the year, according to the Stock Trader’s Almanac which was launched by Yale Hirsch in 1968 and now continued by his son, Jeffrey. Hirsch did the original study on this phenomenon, called the January Barometer (JB ), and has updated its accuracy and significance each year in the Almanac, published by John Wiley & Sons. It has long been the Street’s most complete digest of stock market seasonality and recurring patterns – Buy it.

The idea with the JB is not that every month will be a boomer if January closes with a gain, but that a good start in January bodes well for the market throughout the year, though not without corrections along the way. Annual gains were forecast by gains in January 91% of the time since 1950. What’s more, gains in the first five days of January have correctly forecast a plus January 86% of the time since 1950.

Friday’s Buys:

Amedisys (AMED: 40.72) – It did not drop to my buy limit of 39.80. No change.
Stericycle (SRCL: 52.66) – It did drop to my buy limit of 51.60.
Emergent Gp (LZR: 7.48) – Raise limit to 7.20
Stanley Inc (SXE: 34.94 – Raise limit to 34.20

I am considering a different format for individual stocks, which will enable me to give you more ideas and accommodate my last minute release of my comments here shortly before the market’s open.

George Brooks

Tons of cash on the sidelines waiting to be put to work. It will work it’s way in gradually, targeting undervalued situations and companies that can run against the adverse economic tide.

Brooksie’s Daily Market blog

Friday, January 2, 2009 9:23am EST

DJIA: 8776.39
S&P 500: 903.25
Nasdaq Comp.: 1577.03
Russell 2000: 499.45

I would not be surprised to see a decline in the market today and Monday, followed by a resumption of an upbeat market. IF we get that, use weakness to buy selectively. Support for DJIA is 8,630.

Funds with winners in late 2008, may want to nail down profits in 2009. A good number of highly rated stocks had gains in excess of 50% between October and December 31.

Bull markets have historically started 3 to 6 months ahead of economic recoveries, 2002 being an exception due to 9/11. Our problem now is the economic recovery appears to be more like 9 to 14 months out, so there does not appear to be any rush to buy.

So, what could possibly fuel a new bull market now or several months from now ?

How about close to $9 trillion in cash, bank deposits and money-market funds, equal to 74% of the market value of all listed U.S. companies, the highest ratio since 1990, according to data compiled by Leutold Group and Bloomberg.

There is only one way to recoup big losses like those incurred last year, and that is to carefully buy stocks in and around a bear market bottom. That’s what institutions which have money under management will do, that’s what individual investors will have to do.

What is the last thing anyone of sane mind (including me) could ever expect at this time when one unthinkable economic report after another pummels us ?

How about some good news.

Isn’t that how it works ? You think you have plenty of time to study which stocks you want to buy and even pick prices well below the current market where you are going to sneak in and steal them from all those dummies out there, when in all its unfairness, the market takes off !

It can happen, especially in an environment as gloomy as this one.

More than likely, I see a ratcheting, generally upbeat market going forward, which I have also referred to as “bump and grind” market.

I still urge you to take a partial position of 33% to 50% in what you want to own. This way you can buy more if it drops, even buy more at higher prices if your optimism is reinforced by positive fundamental and technical developments. If you are wrong, your losses are less by taking a partial position, if it runs away from you, you are making money, move on to another stock.

What could go wrong ?

So far the market is taking the Israeli/Hamas conflict in stride. The timing of this conflict comes at a time the stock market is tracing out a fragile bear market bottom. Should push come to shove and the hostilities extend to Iran, another plunge in stock prices, though brief, would follow with the DJIA dropping to the low 7000s, maybe even 6900 – very unlikely, but remotely possible.

Since a number of the better rated stocks have had big runs over the past two-three months, they should be bought on dips.

Technically attractive:

Amedisys (AMED: 41.34)- Buy on dip to 39.80
Stericycle (SRCL:52.08 - Buy on dip to 51.60
Emergent Gp. (LZR: $6.80) - Buy on dip to $5.90
Stanley Inc. (SXE:36.22) - Buy on dip to 33.75

I may have more suggestions during the day, depending on the market's action at which time I will post to this blog. I have a feeling that stocks which were strong in late 2008 will encounter some profit taking in 2009. Also, if they were good performers in 2008, funds may want to show them in their year-end portfolio, then sell them in 2009.

George Brooks

Wednesday, December 31, 2008 3:03am EST

Brooksie's Daily Market blog

The company hosting our website had problems Tuesday and today and I was unable to forward my analysis which I wrote for both days with four recommendations ! Too late to do anything about it today, but I will incorporate the ideas in Friday's post.

I started posting my views last February as an exercise in anticipation of EQUITIES starting to publish blogs, which it did starting in June.

I was bearish throughout 2008, resisting the temptation to jump in in April/May and August/September, not turning bullish until October 10 when the DJIA plunged to 7,773.

I see selective opportunities in 2009, as the bear market bottoming process turns to a bull market. There is an enormous amount of cash on the sidelines, which will move into equities when the fear of owning stocks yields to the fear of not owning stocks.

George Brooks

Think of it this way – you got a bull and a bear tugging on a wishbone, each hoping to come off with the longer piece. Who’s gonna win is a toss-up, but odds slightly favor the bull based on what we have seen over the past two months.

Brooksie’s Market blog

Monday, December 29, 2008 9:22am EST

DJIA: 8,515.55
S&P 500: 872.80
Nasdaq Comp.: 1530.24
Russell 2000: 476.77

There does not appear to be any rush to buy right now, the recession is deep and getting deeper. Bad news will get worse, or so any reasonable person concludes. What light at the end of the tunnel ?

That seems to be the prevailing mindset in the investment community, yet there has been buying in stocks like Autozone (AZO), Apollo Gp (APOL), Athena Health (ATHN), Shenandoah Telecom (SHEN), AECOM Technology (ACM), and Green Mountain Coffee (GMCR) just to mention a few.

The market is slightly upbeat following a correction of the 600-point surge starting in late November. I would like to see the DJIA hold above 8,460 and especially above 8,370 in order to maintain its upbeat tone. A drop below 8,100 would be bad news.

What is least expected at now and in the near future would be a sudden flow of good news. Would anyone believe it if suddenly lending started to flow, home prices stabilized, retail sales stopped plunging, and talk turned to recovery around the corner, maybe not for 9 months, but within reach. BINGO ! Suddenly, the fear of owning stocks would shift to NOT OWNING stocks.

My point here is to warn you not to fall into the tunnel vision trap, where you are overwhelmed by bearishness and unable to even consider buying until you are absolutely sure a bull market is underway. By then a lot of the bargains will have been scooped up by someone else.

George Brooks

Quiet, but upbeat, is the word for the day. Breaking 8,540 on the upside, raises the odds of a year-end rally next week, carrying into January.

Brooksie's Market blog

Friday, December 26, 2008 9:25

DJIA: 8,468.48
S&P 500: 868.15
Nasdaq Comp.: 1524.90
Russell 2000: 8416.85

Expect a quiet day with support at 8,420 and resistance 8,650. Wednesday’s shortened trading hours was upbeat and that tone should continue.

The DJIA has been contained by a down channel over the past 5 days, and really needs a break above 8,540 (+72 points) to give the upside some short-term potential. This downmove was a correction of a 600-point surge starting in late November. It was orderly and to its credit, absorbed some very bad news, that's bullish.

However, I don't see much (yet) to change my bump and grind scenario of stock trading going forward with rallies and corrections where the market gives back a lot of what it gained. A decent trading market for the nimble, a bit frustrating otherwise.

George Brooks

Still positive, but waffling. “Time-to-heal” stands in the way of a fast recovery in the economy and stock market. It doesn’t look like the recession will end for at least a year, so investing aggressively now, even at low prices, seems premature. Yes, it does seem premature to be loading up now, but that shouldn’t prevent selectively taking partial positions in stocks you think are undervalued relative to what those companies will be earning a year or two down the road.

Brooksie’s Market blog

Wednesday, December 24, 2008 9:21am EST

DJIA: 8,419.49
S&P 500: 863.16
Nasdaq Comp.: 1521.54
Russell 2000: 468.64

It boils down to this – when the fear of owning stocks is overridden by the fear of not owning stocks, we will begin to get our bull market recovery. In the interim, it will be stop and go, and primarily a traders’ market. If you have a profit – take it, quickly, or someone else will and you will be back to “go” again. Or, stay with it, just don’t get discouraged by the frustrating action.

So far, I think the stock market is still tracing out the bottoming process started on October 10 when I issued my “BUY” with the DJIA hitting 7,392.27.

Since then, I have referred to it as “probing for a bottom” and a “bump and grind” recovery, irregular and agonizing.

Additionally, I have warned that it could be a consolidation en route to another leg down to new 2008 lows. You should be aware of that risk, a lot of unprecedented things are happening, so the crash scenario is possible, JUST NOT PROBABLE.

At bear market bottoms, investors are always haunted by the fear that the market will go lower. That’s why getting in at bargain prices is so difficult – we are human..

What can go wrong ?

Ugly as the economic news is, it could get worse next year, raising the possibility that the stock market has not adequately discounted all the bad news. Bad news can get worse, new negatives like commercial lending and credit card defaults can start the dominos tumbling again for our financial institutions.

What can go right ?

It’s the Holiday Season, you didn’t think I’d part with that message, did you ? Banks and other lenders with TARP money can start lending again, greasing the gears enough to restart our nation’s economic engines. Optimism and a “can do” attitude can surface to enable the government and industry to address problems aggressively.

Finally, what could surprise Wall Street more than an abrupt turn for the better in news about housing, consumer sentiment and access to money ? The assumption now is that the news will continue to be bad, probably get worse. What if to everyone’s surprise, we have reason to start becoming bullish – a 180 degree change in perception from where we are now ?

Wishing you a Merry Christmas and the happiest of Holiday's.

George Brooks

The DJIA is playing “brinkmanship” again where its positive, but irregular, turning pattern is on the verge of a greenstick fracture with the risk of a break. We have been here several times before, and the market rallied. I think we will hold the line. The market's biggest obstacle is TIME. At what point will the risk of owning stocks be outweighed by the risk of NOT owning stocks.

Brooksie’s Market blog

Tuesday, December 23, 2008 9:23am EST

DJIA: 8,519.69
S&P 500: 871.63
Nasdaq Comp.: 1532.35
Russell 2000: 475.06

Yesterday was weak but orderly. Today stands to be more of the same, but we need some positive action soon to maintain an upbeat pattern.

While a lot of investment professionalss will be taking off early this week and not returning until Monday, I still see the possibility of an upbeat tempo before year-end, just not as robust as I anticipated last week.

Much depends on how well the market digests the flow of news in coming days, including GDP, housing numbers, consumer confidence, personal income, durable goods and weekly jobs reports.

The failure of the breakouts on December 8 and 16 suggests more than tax selling and year-end portfolio adjustments. Investors are concerned about the economy deteriorating more than previously expected. It is more nervousness than outright fear, but must be given equal weight in the decision process.

I do not want to see a drop in the DJIA below 8,100.

This lack of direction is what I have referred to a bump and grind, or probing for a bottom. It is also why I have advised that you take partial positions and retain 30% cash reserves with the willingness to lighten up if necessary to preserve capital in the event of another leg down.

Year-end markets are tough to get in sync with, because a lot of things are happening that are unrelated to the outlook for stocks.

The open will be marginally positive.

George Brooks

More subtle upbeat action is in the offing. A move across DJIA 8,690 (+112 points) could be all that is needed to launch a year-end rally.

Brooksie’s Market blog

Monday, December 22, 2008 9:23am EST

DJIA: 8,579.11
S&P 500: 887.88
Nasdaq Comp.: 1564.32
Russell 2000: 486.21

Friday’s market action was more upbeat than it appeared, increasing the possibility of higher prices by year-end. While the DJIA was down 25-points, the S&P 500, Nasdaq Comp., and Russell 2000 were up. Advancing issues on the NYSE outnumbered declining issues. Up-volume outnumbered down-volume on both the NYSE and Nasdaq.

Not a bran-burner, but promising under the circumstances. If anything, Quadruple Witching prevented a more positive outcome.

One of the restraints to a stronger market is the belief that there is no rush to own stocks, that an economic recovery is still about a year out there, and a powerhouse bull market now would quickly become fully priced relative to the economy and corporate earnings.

This is why I am seeing a bump and grind stock market recovery rather than a “V” shaped recovery. I am seeing a slight shift from fear of owning stocks to fear of not owning them. How else do you get back what you lost, but to own stocks ?

Easier said than done. Most investors have gotten clocked big-time, and don’t have the stomach for more of the same. But, they are going to have to work themselves back into the market at lower prices at some point in order to recoup losses.

My apologies for saying this for at least the fourth time – take partial positions, then wait for confirmation. If your stock drops and you are still bullish, buy more. If it rises, you are making money and can even buy more at a higher price, or move on to another stock.

Like the Grinch at Christmas, I wouldn’t be looking out for your best interests if I didn’t warn you that the basing action in stocks since early October could be no better than a consolidation on the downside, a cruel fakeout much like the February to May and July to September trading ranges were. On those occasions, I strongly warned you to "stay out" of the market. I am not doing that now, I just do not want you to get over confident after such economic and investment carnage with the hint of a turn for the better.

A drop below DJIA 8,100 would raise the odds that another leg down is likely. The market has absorbed horrendous economic news, which is to the bull’s credit. New negatives would have to surface for that. For this reason, maintain a 30% cash reserve, and an awareness that you may have to lighten up on some current positions to reduce the damage of another leg down.

George Brooks

Fed assistance to the US automakers is the news of the day, but it will compete with quadruple witching for determining the direction of the stock market.

Brooksie’s Market blog

Friday, December 19, 2008 9:23am EST

DJIA: 8,605.07
S&P 500: 885.33
Nasdaq Comp.: 1552.37
Russell 2000: 479.17

Quadruple Witching where options and futures expire will impact prices today, as well as President Bush’s announcement at 9:00 today that the Fed will provide temporary financial relief for GM and Chrysler to the tune of $13.4 bn now and another $4 bn in February, with strings attached regarding dividends, wages, golden parachutes, etc.

The unwinding of options and futures will have to run its course and there is little any one can do today to alter the impact on stock prices of this quarterly event.

The auto news on the other hand removes a huge uncertainty from the market environment for now. Taken by itself, this news should produce a surge in stock prices at the open, but early indications suggest otherwise.

Yesterday’s decline did not harpoon the upbeat pattern of trading that was set in motion on Tuesday. It would take a drop in the DJIA below 8,450 to 8,320 to do that.

We will have to look beyond Quadruple witching to get a feel for the "real" direction of stock prices. On balance, I look for buyers to outnumber sellers as the year-end reinvestment process continues to play out.

Putting the auto bailout into a different perspective, the $17.4 bn offered automakers in coming months is equivalent to seven week's spending on the Iraq War.

I may shoot out another post today if I see a big opportunity to take advantage of a market turn.

George Brooks

Yesterday, the DJIA gave back 100 of Tuesday’s 340-point gain (-1.12%), however the small company index, the Russell 2000, gained 3.74 points (+0.77%). Advancing issues on both the NYSE and Nasdaq outnumbered declining issues by a comfortable margin. Buyers are beginning to outnumber sellers.

Brooksie’s Market blog

Thursday, December 18, 2008 9:23am EST

DJIA: 8,824.34
S&P 500: 904.42
Nasdaq Comp.: 1579.31
Russell 2000: 486.63

Look for a positive open and an advance of 75 points in the DJIA by 10 o’clock. I expect a generally upbeat day. Support is now 8,690, The DJIA must first get past 8,940 to challenge resistance at 8,990. Breaking that, paves the way for a year-end move to 9,450, or a bit higher.

One more strong upmove, could trigger very aggressive buying, not a panic, but high volume, aggressive buying, as the perception creeps in that sideline sitters are missing out.

In the quarter ending September 30, 344 hedge funds were liquidated, 113 new ones started up. However, there are still a lot of hedge funds operating, since the total number of liquidations to-date comprise only 7% of the industry.

In spite of the flight for safety out of equities and a persistent flow of bad news, there is institutional cash earmarked for equities. Since the decline in stock prices has discounted most of the known negatives, this money will have to work its way back into stocks.

If we get a big year-end surge, you may be tempted to pile in with all your cash reserve, fearful that you will be left at the starting gate. Don't get caught up in the stampede. There are a lot of reasons why it won't happen, but you should be aware of the possibility IT WILL.

Under these circumstances, it is best to take a partial position in a stock you feel comfortable with. If it declines, the damage is less and you can buy more if you are still bullish. If it goes up, you are making money and can buy more if the potential justifies it, or move on to another stock.

George Brooks