Top Gun FP Client Note: The Correction Is Not Over
NOTE: Every week or two I write a Client Note for my clients. For a limited time, I am allowing non-clients to sign up and receive it at the same time as my clients. You can sign up at the top right hand corner of the website. I will also be posting the notes on my blog with a time delay from time to time.
Originally sent to clients Wednesday March 16.
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The tsunami that hit Japan last Friday – including the damage done to a nuclear facility – is dominating markets this week. I pray that the worst is past and wish the Japanese people a speedy recovery.
All of the stock market’s 2011 gains have been wiped out. What took 34 trading days to build have been erased in 17:
CLOSING PRICE
Index 12/31/10 3/16/11 % Change
S&P 1257.64 1256.88 -0.06%
Dow 11,577.51 11,613.30 +0.31%
Nasdaq 2652.87 2616.82 -1.36%
Russell 783.65 781.90 -0.22%
Many will attribute the market selloff entirely to the natural disaster in Japan. But the correction began before the tsunami hit. Last Thursday, the S&P dropped 25 points (1.89%) to 1295 – almost 50 points below its February 18th closing high. The catastrophe in Japan has accelerated things but the market was already overextended and beginning to break down (“Top Gun FP Client Note: Get Ready For A Nasty Correction”, February 15, 2011 and “Top Gun FP Client Note: Beware The Ides Of March”, March 1, 2011).
In addition to worries about Japan’s nuclear facility, two major analyst downgrades played a role in today’s selloff. JPM Securities analyst Alex Guana downgraded Apple from Buy to Hold based on a deceleration in data he tracks. Apple lost more than $15 (4.5%) on strong volume today. Bernstein analyst Tony Sacconaghi downgraded IBM from Buy to Hold saying that the stock is “approaching fair value”. IBM lost $6 (3.8%) also on strong volume.
Both of these stocks are market leaders and have an outsized impact on their respective indexes. With a market cap over $300 billion, Apple leads the market-cap weighted Nasdaq. At $153, IBM leads the price-weighted Dow. In fact, IBM accounted for 45 of the Dow’s 242 point drop today (19% of the total).
Charts of both stocks show topping formations and about 10% downside before any real support at their 200 DMAs. A chart of the S&P 500 looks similar with room to run down to its 200 DMA rising towards 1200.
NOW IS THE TIME TO INVEST WITH TOP GUN: If you have been thinking about investing with Top Gun, now is a good time to give me a call or shoot me an e-mail. Current client references are available.
Greg Feirman
Founder & CEO
Top Gun Financial (www.topgunfp.com)
A Registered Investment Advisor
9700 Village Center Dr. #50H
Granite Bay CA 95746
(916) 224-0113
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