Market Talk, 25-Feb-2009

Doug Roberts

February 25, 2009 Market Talk, Doug Roberts 2

My Talk is Designed

• To Lead Discussion, NOT a Prescription

• You are responsible for your own decisions; I bear none

• I post changes often on BostonIBD – our Google Group

February 25, 2009 Market Talk, Doug Roberts 3

IBD Stance

• Market in Correction

• Import:– Generally, be in cash.– Sell long positions that are breaking down.– Avoid taking new long positions.– Short positions are for more sophisticated

investors.

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Summary

• Near term selloff – with small caps weak

• Rally afterwards – over Dow 9,000

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Why Russell 2000/Dow ratio

• Dow has:– Pro: Liquidity– Con: Legacy problems (heavy in financial sector)

• Russell 2000 has:– Pro: Positive response to low interest rates– Pro: Little to no legacy problems– Con: Poor response to financial market turmoil

• Import– Short term: despair indicator– Long term: big advantage to small caps

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Russell 2000 / Dow Ratio

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Dow / S&P 500 Ratio

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Dow/S&P 500 Channel Top, Current

• 976.15% is current channel top

• Reduce by 0.44%/day after today

• This is not hard and fast; the type of action is more important.

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Pattern Analysis

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Period 1: Russell 2000 / Dow Ratio

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Period 2: Russell 2000 / Dow Ratio

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Current Lack of TurmoilS&P 500 and NYSE Highs - Lows

-1,000

-500

0

500

1,000

1,500

5/8/08 7/27/08 10/15/08 1/3/09 3/24/09

-2,000

-1,500

-1,000

-500

0

500

1,000

S&P 500 NYSE Highs - Lows