FALLS IN FREDDIE MAC AND FANNIE MAE UNSETTLE MARKET -- DOWNSIDE CORRECTION CONTINUES
FREDDIE MAC TUMBLES... A high-level management shakeup at Freddie Mac sent that stock tumbling today in massive trading. The stock fell to a 52-week low before ending just above 50. While today's news clearly shocked the market, the monthly chart shows that FRE had already been deteriorating. The next major support level is near the 40 level.
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FANNIE MAE BREAKS 50-DAY LINE... Fannie Mae fell as well, but didn't suffer nearly as much chart damage. FNM did, however, close under its 50-day moving average and it did so on very heavy volume. The monthly chart shows that FNM could be completing a "right shoulder" in a "head and shoulers" top that started during 1999. Housing stocks saw profit-taking today, but the losses were small and on lighter trading volume.
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BIOTECHS CORRECTING... After an impressive run, the biotech group looks overbought and may have started a short-term correction. The 14-day RSI has "double topped" over 70 and has turned down. It now looks like the BTK Index will drop at least to its 20-day moving average. It looks like Friday's reversal day was a short-term top in the biotechs and the rest of the market.
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MOTOROLA PULLS SOX DOWN... Motorola had a bad day. The stock gapped down from its 200-day moving average on heavy volume. It's now retesting potential support at its 50-day line. The fall in MOT took a toll in the Sox Index, which fell today as well.
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WATCHING S&P 500 PULLBACK... Although declines outpaced gainers by a two-to-one margin today, volume was relatively light. That's an encouraging sign. We've drawn a "neckline" on the chart of the S&P 500 chart along the August/December highs. That line should now function as support on any subsequent pullbacks (if the upside breakout was for real). It's also possible that support will function along those two prior peaks. That would suggest a support zone ranging from 965 to 950. As long as those supports hold, we're inclined to treat any weakness as a short-term setback in an intermediate-term advance.
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MONEY MANAGEMENT UPDATE... The Decision Model that we use at MurphyMorris Money Management still rates the market as being in a "positive environment". In addition, all of our "risk" measures are still positive. And, the Nasdaq remains the dominant market. Our oscillators, however, have been overbought. That and the sharpness of the recent advance has made us reluctant to add new money to an over-extended market. A short-term setback could alleviate the overbought condition, and may provide better opportunities at lower levels.
CNBC INTERVIEW TUESDAY MORNING... I'm scheduled to do an interview on CNBC with Ted David tomorrow (Tuesday) morning at 10:20 am. Tune in if you can.
