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Daily Blog -01/30/09- 3:09 P.M.


GDP Not So Bad, Stocks Sink Anyway

I think investors have reason to worry. It was widely expected that the GDP for the fourth quarter of 2008 would come in around minus 5%. As of yesterday this number was pretty much "baked in" to the market. When this morning's report only showed a contraction of -3.8% it should have been a catalyst for a relief rally in stocks. Unfortunately the early morning bounce didn't last very long and the market is seeing another widespread sell-off.

Here we are at Friday afternoon on the last trading day in January and the major averages are set to close lower for the month. The S&P 500 is nearing a 7% decline while the DJIA is off more than 8%. The NASDAQ composite is only down 5.7%. You have probably heard it a hundred times but there is an historical trend that suggests the market's performance in January predicts the market's performance for the year. The Stock Trader's Almanac states that this forecasting trend is accurate about 90% of the time. Other sources only list its success at 70%. Whatever the statistics are it is a bearish influence on investor sentiment.

With stocks down it is not a surprise to see gold futures up. Gold is typically considered a "safe haven" investment and investors are parking their money in gold. The gold futures contract rose another $22 today to close at $927.30 an ounce. This is a six-month high. Gold is up about 5% for the month. OptionInvestor.com has a bullish call play on the GLD gold ETF and it just hit our first target at $89.85 this morning. We still have a secondary target at $94.50. I think gold may have started a long-term up trend with its bullish breakout several days ago and we may be trading in and out of gold for months to come.

At the moment the only spots of strength today are gold, the U.S. dollar, and believe it not the USO oil ETF. The rest of the market is heading south. The worst performers appear to be casino stocks, insurance, cyclicals, airlines, and the banks.



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