Where Does the Sell-Off Stop?

I had hoped that today’s email would be a buy recommendation for the latest addition to the Rhino Stock Report’s portfolio, but another steep day of losses for the broad market are forcing me to adjust on the fly and fill you in on what’s going on with stocks right now…

This week, investors have been experiencing an eye opening pullback at the heels of more drama in the Eurozone over Greece and its fellow PIIGS countries, Portugal, Italy, Ireland, and Spain. But when can we expect the slide to stop? Here’s a peek at what the S&P 500 looks like right now:

The index hit a top at 1220 back at the end of April, and it coming back down quickly toward a potential support level at 1150. Watch that level very closely today — if shares don’t finish at or above that rough level (the horizontal blue line above), we can expect to see the pullback continue perhaps as low as 1050 before it gets another good chance to hit the brakes. That said, with momentum veering down toward oversold right now, I think it’s likely we’ll see stocks cool their downward pressure today and tomorrow.

But the technical charts are hardly the only factor that’s moving stocks right now…

Fundamental data are going to be the real drivers for any sort of market movement we get in the next couple of weeks. Earnings are making a big impact on the numbers. Economic updates — like tomorrow’s jobs report — will have a huge effect on the numbers. And, of course, the situation over in Europe will continue to push the market to its whims.

For the past couple of weeks, investors have been concerned that the rally we’ve been enjoying for the last year and change was coming to an end and we’d be headed back for a second dip of recessionary price action.

While those fears are certainly warranted, I don’t believe that we’re seeing any strong signs of serious correction as of yet. That said, I’ll be watching the market closely over the next few days, keeping you informed if I believe it’s time to start positioning our stock portfolio for downside risk.

Like I said before, I’d hoped that today would be a buy alert. A week or two ago, I sent out a Watchlist with five potential Rhino Stock plays. Since then, I’ve narrowed it down to one stock that I’m bullish on this month, Applied Materials (NASDAQ:AMAT).

Obviously, we won’t be adding any positions to our portfolio until we have some notion of where the market’s headed in the short-term. Like I’ve said time and again, even the best fundamental plays can get shellacked in the face of an outwardly bearish market.

I’ll send you detailed analysis on the company when we’re finally ready to pull the trigger.

Until then, keep a close eye on where the S&P ends the day. A closing level below 1150 doesn’t mean you should liquidate your 401(k), but it does mean that I’ll be sending you a new alert with more details on the implications of that moment.

The S&P 500’s Next Stumbling Block and The Fed’s Foul Play

There’s no question that 2010 is already proving to be a tough year for stocks. Until this week almost all broad-based stock indexes were down close to 5% on the year, and economic fundamentals don’t seem to be improving much either. That said, not all stocks are having as rough a time of it…

We’ve added two new positions to the Rhino Stock Report’s model portfolio in 2010 – both are currently up on the year with an average of 8.6% gains. But the S&P’s next stumbling block could keep us from adding a third position until March. Here’s why:

A colossal breakdown in the S&P 500 in mid-January caused the index to fall below the 50-day moving average, a key technical support level. And although the market has staged a serious comeback in the last couple of weeks, that 50-day moving average could prove to be too tough of a resistance level right now.

With emphasis on economic numbers – like interest rates and jobs – this week, the fundamentals are driving the market. Since our economic fundamentals have been anything but bullish this year, the chances of seeing a break above the thin blue line are diminished.

That’s not to say that the S&P won’t move above the 1109 level next week – only that it’s going to take more bullish power than we’ve currently got on tap. For us, that means that we’re not going to make any new moves until we see a bounce off the 50-day or a breakout above it. (To learn why that’s significant, watch Planning Your Entries and Exits With Technical Analysis)

The Fed Fouls the Markets

Stocks are trading lower today thanks to the Federal Reserve’s decision to increase a peripheral interest rate after yesterday’s market close. To be clear, the rate (which dictates how much interest banks must pay out in emergency loans) doesn’t have much of an effect on monetary policy – but the change still has investors shaken.

That’s because a rate increase of any sort was so unexpected. The Fed slashed interest rates following 2008’s financial meltdown in order to lower the cost of capital and add liquidity to the seized-up credit market. An increase suggests that economic fundamentals are improved enough to increase the cost of borrowing – something that investors don’t see right now.

Although it’s unlikely the Fed will hike more significant rates, expect investors to continue to be anxious until the next bout of economic numbers comes out and they forget about rates once again…

Our Big Earnings Week

Next week is a significant week for a few of the companies in our Rhino Stock Report model portfolio. Three companies – NRG Energy (NYSE:NRG), J.M. Smucker (NYSE:SJM), and SPX Corporation (NYSE:SPW) – will announce their quarterly numbers to the public. I’m optimistic about all three stocks, so don’t expect a significant change-up in our portfolio positions next week. I’ll fill you in on the results in next week’s Market Recap…

The Importance of Asset Allocation

I got this question the other day from a reader who was interested in the special situation forming with shares of Bershire Hathaway (NYSE:BRK.B):

Excellent Artitcle. I am seriously considering your advice to purchase a share before the split takes place. It would replace all of my current holdings in my Roth IRA stock trading account.

Normally, an investor trying to replace an entire portfolio with one stock is the biggest red flag imaginable. After all, diversification is the name of the game when it comes to retirement accounts like IRAs and 401(k)s. But what about a conglomerate like Berkshire… Do the same rules apply?

Ultimately, while Berkshire Hathaway is a great stock with a well-diversified portfolio of subsidiaries, I’d strongly urge investors not to liquidate all of their other holdings to buy shares of the company. That’s because while Berkshire does have some good diversification, Buffett’s self-avowed strategy is to avoid stocks he doesn’t understand. That’s translated into an underrepresentation of tech names, incidentally one of the sectors that led us out of 2008’s mess the fastest.

Now that Berkshire’s B shares have split, you can pick up a position without wiping out your exposure to areas that the company doesn’t play with.

For a more in-depth explanation of diversification and asset allocation, check out this article I wrote back in 2007 for TheStreet.com.

A Special Chance to Buy into Berkshire Hathaway

A special situation forming in one of the most storied stocks in the world is just the catalyst we need to turn a behemoth stock into our next Rhino Play…

Investors’ obsession with Warren Buffett should come as no surprise. After all, the Oracle of Omaha – as he’s known to the investing world – is the wealthiest professional investor in the world, with a $39 billion net worth according to Forbes.

And around 98% of that wealth has come from his holdings in Berkshire Hathaway (NYSE: BRK.A, BRK.B), the textile firm turned conglomerate that he took over back in 1965. But why am I writing to you today about Berkshire Hathaway, a company that all the investing experts have been talking about forever? How does this play fit into the Rhino Stock mold?

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Free Report: 80 Stock Picks for 2010

screen-shot-2010-01-07-at-21932-pmSteven Halpern, of TheStockAdvisors.com, has just completed his 100-page report detailing top picks for the New Year from 80 analysts and newsletter writers. The Rhino Stock Report’s contribution can be found on page 23. (Take the other 79 recommendations with a grain of salt — I’m not going to form an opinion on any of them)

Best of all, Steven’s making his report completely free of charge for you. Just right click the link below to save a copy to your hard drive.

Click here to download the entire 100-page report right now…

Last year, the stocks and funds selected for the report returned 35.7% year-to-date, versus just 19% from the market. And the report made the #1 spot on Gainers Today’s performance ranking of 120 research firms.

I suspect that BDX, my pick for the report, will see solid growth in 2010 for the reasons detailed in the January 8, 2010 alert sent out to Rhino Stock Report subscribers. If you’re not yet a member, just enter your email address below to sign-up free.