Customer Service 1 (888) 261-2693
Advanced Search

Can This One Stock Save the Market?

By Jeff Clark
Thursday, December 13, 2007

The most important, market-moving news this week isn't coming from the Fed... and it's not coming from the White House either.
 
The most important news is coming from one of Wall Street's largest investment banks, Lehman Brothers (LEH).
 
LEH reports earnings this morning. In fact, the news should be out even before you read this.
 
It doesn't matter so much whether Lehman's earnings are good or bad. What matters is how the market reacts to it.
 
You see, the market's next move is all up to the financial stocks.
 
Finance stocks led the market lower in November, and they've led the market higher so far in December. The S&P 500 has gone from severely oversold to severely overbought, and it's now stuck in neutral. In fact, at 1,480 the S&P 500 is smack dab in the middle of its recent trading range between 1,400 and 1,560.
 
Financial stocks are neutral as well.
 
Take a look at this chart of the financial sector bullish percent index...
 
A bullish percent index is a momentum indicator. It illustrates the percentage of stocks in a sector that are in an uptrend. Readings near 80 indicate overbought conditions, and readings below 30 are oversold.
 
You can see the overbought condition in October that foreshadowed the market's decline in November. And you can see the severe oversold condition in late November that led to the recent sharp rally.
 
Right now, though, this indicator offers little direction. Financial stocks are neither overbought nor oversold. The bullish percent index is smack dab at 50.
 
It doesn't get any less decisive than that.
 
News out of Lehman this morning, however, could get this indicator moving again...
 
If LEH reports better than expected earnings – or less of a disaster than expected – and the market reacts favorably, then we're off to the races again, and we could challenge new highs by the end of the year. Likewise, if LEH announces horrible results and the market shrugs it off anyway.
 
On the other hand, if Lehman disappoints the Street and investors pummel the stock, it's going to be tough for the overall market to catch a bid. Stocks will probably languish for the rest of the year.
 
The worst scenario, by far, would be for LEH to beat expectations and see investors crush the stock anyway. Wall Street has no tolerance for depressed stocks that can't rally on good news. If this scenario unfolds, then the S&P 500 may be headed for a retest of the recent lows around 1,400.
 
Pay attention to how Lehman acts today. It will give you a good clue as to what to expect for the rest of the year.
 
Best regards and good trading,
 
Jeff Clark




Recent Articles
Market Notes

Health care leads the market... Respironics (devices), Haemonetics (devices), Covance (CRO), Merck (Big Pharma), Sanofi-Aventis (Big Pharma), and health care ETFs make new highs.
 
Beverages up... Coca-Cola and Pepsi at new highs.
 
Airlines down... American, JetBlue, and US Air hit new lows.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%