After a promising start to the New Year our market model for small cap stocks, as represented in the Russell 2000, turned positive on Monday and remained so despite a loss of of almost 5% for the index for the week. The trend for the other indexes remains downward and perhaps the small cap stocks will reverse trend also in the near future as unemployment rises,  the outlook for earnings is getting weaker and there is increasing uncertainty about the size, content and date of a new stimulus package.

Unemployment rose to an official 7.2% but the real level of unemployment is likely much higher at 13% as the  unemployment data only counts those actively seeking work and excludes part-time workers who would like to work full time and those who have given up in discouragement. For 2008, the economy lost the most jobs since the end of the second world war. The Federal Reserve is forecasting that unemployment will continue to rise until 2010 meaning that consumer spending will continue to deteriorate as anxiety rises and saving increases.

Company earnings will continue to decline and weigh on stock prices. Bloomberg reports "Profits at S&P 500 companies probably dropped 20 percent last quarter and will slide 15 percent in the first quarter. So far, earnings at S&P 500 companies have fallen for five straight quarters, matching the longest streaks of declines on record. The slump is forecast to last until the middle of 2009. "

Finally, although the factors cited above imply that rationally the markets should continue to decline, we can expect a sudden change in sentiment when the stimulus package is finally announced which will give the market a boost. Sustaining that sentiment change will be a huge challenge for the new administration.

We added new functionality to our new watchlist format this week. The new format is under beta test for our Head and Shoulders Bottom watchlist and is accessible to all subscription levels including guests from our Mine for Candidates menu.

The new functionality includes filters which can be saved and reused when you return to the watchlist in the future and a download facility. We are working on linking these filters to email alerts and a backtest feature.

We would appreciate any and all comments you have on this new watchlist format.

New Stock and Mutual Fund Screening Tool

We have acquired the rights to use a powerful new tool from Zack's which allows you to screen for stocks and mutual funds against many technical and fundamental criteria.  

This tool is accessed from the Mine for Candidates menu and is free to all subscribers and guests. Please let us know if you find this tool useful

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