Preparing for This Week After the Debt Downgrade

The data never lies: Most of the major ETFs I track on Scott's Investments are below their 10 month moving average and 200 day moving average. The exception is bonds and some commodities (see the right hand side of the page for data on a variety of ETFs). Trading below a long-term moving average is a bearish sign and any purchases of these vehicles or stocks which exhibit the same characteristic should be done with caution, regardless of the US debt rating.

I regularly post a Stocks I'm Watching This Week article. Last week I featured 21 stocks including MDF and TGI, which both finished down for the week. This week only 3 instruments made the list. Caribou (CBOU) and 2 ETFs, FXF (Swiss Franc Trust) and TFI (Nuveen Barclays Capital Muni Bond). This is by far the smallest number that made the cut since I began tracking the list. This does not mean we are inevitably headed for another down week, it is simply a reflection of how we finished last week.

Given that Caribou is exhibiting so much strength, I am adding it to my watch list. Stocks that can withstand a strong market sell-off are ones to watch for they could exhibit even further strength if we get a bounce in the overall market. It announced earnings August 3rd and increased guidance for 2011, expecting sales growth of 11-13% and diluted EPS between $.39 and $.41.

I am also watching PriceSmart (PSMT) and currently hold a position in it. It has exhibited fairly good resiliency and it announced on Friday that its July revenues increased 21% versus last year. The stock has been in a range between $55 and $61 since earnings in early July. If it can hold support around $55 if we get a further sell off this week, I expect it to rally on any overall equity rebound.

The bottom line is I'm keeping stops tight on any long position, watching stocks that buck the bearish trend, and remembering that cash is a viable position to hold during periods of uncertainty.