We hope you are enjoying the new e-newsletter and finding the bi-weekly article releases more effective. The March 2010 newsletter will be released on Thursday, February 25. These monthly newsletters will be released on the last Thursday of every month and contain a roll up of all the best articles throughout the preceding month, plus the Market At A Glance, the Monthly Almanac information for the coming month, including the Vital Stats and the Strategy Calendar. We are excited and pleased with the new system and service and as always welcome your candid feedback.

From mid-January through early February the stock market came under some heavy selling pressure. A negative January Barometer has us concerned for the coming months and the year as a whole. The Dow fell 7.6% on a closing basis from the January 19 high, piercing 10000 briefly before bouncing off support on February 8 at about 9900. As you can see in the chart below for the past two weeks the Dow has been attempting to regain the momentum it had from July through January above it’s 50-day moving average (pink line), but it has struggled the last few days and is threatening to fall below the current monthly pivot (blue dotted line) at about 10270.

Dow Jones Industrials Chart 

Two of our Four Horsemen of the Economy, Inflation and Consumer Confidence, have had disappointing readings recently. Last week the PPI and CPI numbers suggested inflation is beginning to percolate and the Fed made a surprise rate hike to the Discount Rate as it tries to tamp down the spigot a touch. Today Consumer Confidence surprised 10 points below estimates at 46, below the crucial 50-level, pushing the Dow down 100 points.

This sort of weakness is not uncommon in February, especially in the latter part of the month. If we can hold support again, the chances of further gains during the last two months of the Best Six Months increase. So far the Dow is up about 4.4% for the Best Six Months from our October 9 MACD Buy Signal. A move below DJIA 9900 would be cause for greater concern.

With January Barometer already negative, the December Low Indicator triggered and midterm election machinations heating up, our forecast for a more substantial pullback of 20-30 in the middle of 2010 looms large.

Pulse of the Market

In the Dow chart below the blue chip behemoth is trying to reclaim its 50-day moving average (black line) (1). This 50-day MA served as solid support until mid-January when it began to turn down and the Dow plunged through it. However, momentum swung back positive when the MACD Buy indicator made a bullish cross on February 11 (2). This momentum is now under pressure as the bull market grows weary and the economic recovery teeters. Jobs are still weak. Consumers are tiring again and the housing market is still on life support.

Dow Jones Industrials & MACD Chart

Internally the market has also suffered a few setbacks. On February 8 the Dow was down on the first trading day of the week for the first time since October 26 (3). This ended a streak of 14 up first days of the week in a row, the longest such streak in our database. The previous long streak of 11 ended in October 1968. This is not the most encouraging sign.

The solid rebound the last two weeks, especially in the techs (4) was accompanied by positive breadth after three troublesome weeks of decliners outpacing advancers by heavy margins (5). A continuation and increase in the advancing issue’s advantage as well as new highs (6) would be a welcome development and sign more gains are imminent.

Put/Call has turned down indicating a mild peak in negative sentiment (7) as other sentiment indicators have retreated from rather frothy levels, indicating at least a short term low. But interest rate spreads have widened again (8) to the largest margin since June 2009 as the credit markets remain right and economic expansion struggles to take hold.

We’ll be using any strength over the next two months to take profits and position ourselves defensively for the Worst Six Months May-October as the potential for a deeper correction increases.

Pulse of the Market Table