Market Commentary: 10/05/09

The market reversed the four down days and closed 112 points higher. A closer look at the market and one may assume that the market may be poised to keep rallying. A closer look at both the Industrial and Transport tell me be cautiously bullish as I've been for the past weeks.

The charts below shows the Industrial acting very well to the pull back. It retraced back to the 50 day moving average line and reversed up to closed above the August high. The next level it should move to for a bullish pattern would be a close above September high (9,800 area).

The Transport on the other hand was knocked down hard last Thursday (10/1) and the index failed to rally above the August high. It's also closed below 50 day moving average and thus we'll have to see if the index can rally above that line tomorrow. As long as it stays above 3,575 range, I can stay on the bullish side but the big picture doesn't look strong.

Today's Trade

I purchased KRE today which is a trade on regional bank. Regional bank sector is one of the worse performing sector in the entire S&P500. Year-to-date, KRE is down 30% while the XLF is up 18%. This has made the regional more attractive than any other sectors. The important key ratio for this index the average price/book of 0.72. Knowing that it is 30% discounted off book allow me to feel more comfortable purchasing this ETF.

The chart showed a bullish pattern. The 150 day moving average has smoothed out showing sign of bottoming pattern. As you can see from the chart below that the index rallied up to $23 range but retraced down when 150 day MA provided a support in early September. The moving average then began moving up.

I will hold this position with a stop of 5-8% loss and ride the moving average until the trend reverse.

Art

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