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Sterling Weekly for October 10th, 2008

In last week's edition of the Sterling Weekly I voiced my opposition to all the special interest provisions that were being placed in the financial rescue package being worked on by Congress and urged everyone to write their members of congress to oppose those provisions. Well, things moved too fast for me to be able to write my letter to congress. However since I said I would write my letter and make it available for my readers to see, and for them to send a similar letter to their congress person, I have decided that what I shall do is following the completion of the discussion on the five (5) points that I listed as weighing on the market in the July 21st edition of the Sterling Weekly, I'll put my recommendations in writing in the form of a letter to my congressional representatives and make it available for all to see. That way everyone has the chance to agree or disagree with my thoughts and opinion.

In the July 21st edition of the Sterling Weekly, I commented on five (5) factors that I felt were weighing on the market. They were 1) Political uncertainty, 2) Financial System Weakness, 3) Taxes, 4) Oil Prices, and 5) Dollar Weakness. I've written about weakness in the financial system, the price of oil, and Dollar weakness. Next week I'll take a look at the tax system and its effect on the market. In this week's edition of the Sterling Weekly, I want to take a look at where the market is at in its current downward trend, and where I think support will come into play.

The Dow Jones Industrial Average has fallen 2,563.94 points, or approximately 23% since the close of trading on Friday September 26th. Since setting a new all-time closing high of 14,164.53 on October 9th of last year, the Dow Jones has declined 5,585.34 points or approximately 39%. That is one of the steepest drops I can every remember during my career. So, let's see if we can put this in some perspective. In January of 2000, the Dow Jones Industrial Average closed at an all-time closing high of 11,722.98 and then began a decline brought on by the bursting of the dot.com bubble that took it down to a low of 9,796.03 for a decline of 1,926.95 points or approximately 16.4% before rallying back above the 11,000 level in early April of 2000. In May of 2001, the Dow Jones had climbed back to a high of 11,337.92 before reaching a low of 8,235.81 following the September 11th attacks later that year. That was a decline of 3,102.11 points or approximately 27%. From the September 10th closing level of 9,605.51 to the September 21st low of 8,235.81 we saw a decline of 1,369.70 points or approximately 14.25% in a period of 9 trading days. So if my math is correct we are experiencing of one of the largest and fastest declines in the history of the stock market, and is even greater than the stock market crash of 1987. Which for the record, saw the market peak earlier that year at 2,722.42 and reach a low of 1,738.74 for a peak to trough decline of 983.68 points or approximately 36.1%, and a single day decline of 508 points or approximately 22.6%. Another day or two a declining market and we will be experiencing the greatest market decline since the Great Depression. Now the very serious question of where is there support at comes to bear.

In looking at Dow Jones Industrial Average the market is already fairly over extended and should rally off the next level of support that it is reached. I see downside support at the following levels: 8,521.97, then 8,235.81 then 7,702.34, then 7,524.06, and then 7,286.27 My thoughts are that we would normally see the strongest level of support around the 8,521.97 and 8,235.81 should have relatively equal levels of support and the market could rally from either level. However in my opinion the market appears to be undergoing a crisis of confidence unlike any other that we have seen in a generation or two. In other words, we may a much greater over extension than we are normally used to and as a result normal levels of support may not provide the market turning points that they normally would. So, in a nut shell, I think we'll see support around the 8,900 level, then 8,500, then 8,200 and then 7,500 give or take a 100 points either side of those levels. Where the market finally finds support is anyone's guess at this point (I'll take the lower support levels) however I doubt the market will make a meaningful turn back upwards significantly above any of these support levels.


Sterling Calendars for the Week of October 6th, 2008
Economic Calendar
Date Est. Time Release For

Briefing.com

Consensus Prior
10/07 2:00pm FOMC Minutes 09/16      
10/07 3:00pm Consumer Credit Aug. N/A $5.5B $4.6B
10/08 10:00am Pending Home Sales Aug   (1.0%) (3.2%)
10/08 10:35am Crude Invent. 10/04      
10/09 8:00am Initial Claims 10/04      
10/09 10:00am Wholesale Invent. Aug.   (0.4%) 1.4%
10/10 8:30am Export Prices ex. ag Sep      
10/10 8:30am Import Prices ex. oil Sep      
10/10 8:30am Trade Balance Aug.   ($60.0B) ($62.2B)

  Misc. Calendar
Date: Comments:
10/06 IDT Corp. 'IDT' announces earnings after the close. Est. ($0.33)
10/07 Alcoa 'AA' announces earnings. Time N/A. Est. $0.54
10/07 Safeway 'SWY' announces earnings. Time N/A. Est. $0.47
10/07 Yum Brands 'YUM' announces earnings after the close. Est. $0.54
10/08 Monsanto 'MON' announces earnings. Time N/A. Est. ($0.11)
10/08 Costco 'COST' announces earnings. Time N/A. Est. $0.93
10/09 Chevron "CVX' announces earnings after the close. Est. $3.21
10/10 General Electric 'GE' announces earnings. Time N/A. Est. $0.45
  The full earnings calendar for this week can be found (here)

Prime Update:

Sterling Investment Services is an investment research and money management firm publishing the Prime Stock Newsletter. The Prime Stock Newsletter is a daily comprehensive newsletter that is useful for investors and traders alike. Whether you are looking for short term trading opportunities ranging from day trading to a couple of weeks or if you looking to acquire a long term portfolio at smart entry points. Subscriptions are $50/month. A Free 2 Week Trial is currently being offered.

Highlights from Recent editions of the Prime Stock Newsletter
Recommendation Date Entry Point Recent Close or Exit Price Profit* Note
Alcoa, Inc. 'AA' Short Sale Sep 26 $24.43 $12.46

$11.97

position open
Valero 'VLO' Short Sale Sep 30 $30.75 $24.35 $6.80 Should continue to move lower

Las Vegas Sand 'LVS' Short Sale

Oct 2

$29.85 $13.85 $16.00 Should continue to move lower.
* The per share PROFIT is a theoretical calculation based upon the opening price the day the recommendation is published and the intra day high (or low for short sales) on the exit day. The exit day is determined based upon the application of our "Rules for Trading", the implementation of "stops" within our stated policy, and may not reflect the complete or full movement of the underlying recommendation.

Dow Jones Industrial Average (INDU)

Current Opinion: Closed @ 8,579.19 Last Signal: Called Lower with the close of 11,388.44 on September 19th. Current Expectations: I am expecting the Dow Jones Industrial Average to continue to move lower and test 8,521.97 and then 8,235.81 on a closing basis.

The S&P 500

Current Opinion: Closed @ 909.52 Last Signal: Called Lower with the close of 1,207.09 on September 22nd. Current Expectations: I am expecting the S&P 500 to continue to move lower and test 895.90 and then 879.39 on a closing basis.

The NASDAQ 100 (NDX)

Current Opinion: Closed @ 1,275.10 Last Signal: Called Lower with the close of 1,665.94 on September 22nd. Current Expectations: I am expecting the NASDAQ 100 to continue to move lower and test 1,247.90 and then 1,207.28 on a closing basis.

CBOE Ten Year Treasury Index (TNX)

Current Opinion: Closed @ 3.700% Current Expectations: With the current market turmoil it is anyone's guess where interest rates are going. However, my guess is that short term debt instruments will be more sought after than longer term ones.

Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: www.sterlinginvestments.com If you would like to contact us our fax # is (404)-816-8830 Email address is: enelson@sterlinginvestments.com Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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