Worries about the health of the economy and still more losses generated from bad debt walloped the equity markets today. The Dow closed down 315 points while the S&P 500 closed down 37 points , 3%, to 1330.63. The January low for the S&P 500 index is 1270. According to the charts, the S&P has bounced off weak the 50 day moving average around 1380 and is looking to retest the January lows.

So far, the market is reacting more strongly to bad news than good news. Short term, the market psychology looks grim. Weak economic data, lower corporate profits, high commodity prices and worries about the health of financial institutions are making investors net sellers of stocks.

On the contrarian side, things are looking up for market bulls. When investors are at their most pessimistic, it is the best time to buy stocks. According to many investment professionals, the markets need to retest the January lows to take out any remaining stock sellers. Once these sellers are taken out, the stock market bulls can re-assert themselves. Next week, investors will be carefully scrutinizing economic data such as construction spending, the Fed Beige Book and February payroll numbers. Hold on to your hats!!!!

Yesterday, the Democrat dominated House of Representatives voted to repeal $18 billion of tax breaks for oil and gas producers, and to use the savings to finance tax incentives for wind-power projects, solar panels and more energy-efficient cars. According to the House Democrats, renewable energy would be an alternative to high-priced oil and would take aim the oil industry, which is enjoying record profits from high prices.

What the Democrats do not understand is that because of big oil companies, Americans are enjoying a standard of living that is envy of the world. They invest billions of dollars to find and develop oil sources. They operate in hostile environments in far away places. They put their money and people at risk so that we can keep our economy running. They need their record profits to maintain their capital extensive exploration and development programs.

Countries such as Russia and Venezuela are keeping oil production under government control. This trend is rapidly expanding among nations with promising oil reserves. If American big oil companies have less funds to find new opportunities, the US will have less access to affordable reliable sources of energy.

If Nancy Pelosi and her comrades are serious, they should curtail their energy consumption. That means downsizing from their air conditioned mansions, cutting air travel and walking more. This way, there will be more oil available for less fortunate Americans.

One of the hot sectors of 2006 was the uranium sector. Ever since then, this sector has been nothing but misery for uranium bulls. Along with the financial sector, this sector got mauled by the bear as hot money evaporated. Looking at the charts of some of the major uranium companies, there might be some light at the end of the tunnel.

Looking at the charts of major uranium companies such as Cameco and Denison, they have recovered from their 2 year lows and trading slightly above their 50 day moving average. For uranium bulls, they want to see the 50 day m.a hold and eventually retest the 200 day m.a. Because of the extensive selling, it still too early to pile money into this sector. This sector needs to have a bit more base building. A prudent way to play this sector is to buy at the 50 day m.a and sell at the 200 day m.a.

Uranium supply is not as robust as expected. Practically all major producers are experiencing delays in bringing up uranium production. With high oil and gas prices and shortages of coal, the outlook remains bright for uranium. Furthermore, it was revealed that two Uranium One directors had each bought almost C$100 000 of the troubled company’s stock this week. When things are at its worst, things will get better.

When it rains, it pours. That’s how the stock market felt like so far this week. Today, the Dow closed up 115 points, a nice follow through from yesterday when the ratings agencies confirmed the credit ratings of the bond insurers. The hero for today’s market rally is IBM. IBM Corp. bumped up the low end of its 2008 earnings outlook and said its board of directors had authorized a continuation of its massive $15 billion stock buyback program.

Needless to say, it was a much needed boost for the beaten down tech sector. Many of the major tech stocks are trading well below its 200 day moving average. Worries about a tech spending slowdown, particularly by the financial services sector, are pulling down their share prices. Given the promising outlook for technology spending, the continue dominance of the American titans, a lot of these stocks look like value plays.

Unlike the 2000 tech bubble, the valuations on these stocks are actually very reasonable. These companies have also learned the brutal lessons of operating in a post bubble business environment. If there is a noticeable decrease in tech budgets by companies, these companies are prepared.

It’s time to start accumulating the big techs.

Ever since the stock markets peaked in mid October of last year, stock prices have been dragged down. Sectors suffering noticeable losses includes the financials, housing and technology on fears of a US recession. Ever since the January lows, we have seen some bright spots in the markets. It has been the commodity sector. The notable strong performers have been agriculture, base metals, energy and gold.

With the US Fed aggressively cutting rates to avoid a recession, the cheaper Greenback has been a boon for commodity demand. Economic growth in developing nations such as China and India are still continuing in the high single digits. More and more people are increasing their standards of living. They want to live the people live in the developed world.

More cars are being driven. More people are eating meat. Infrastructure spending are going strong in these countries. To keep their economies humming along, they’ll need more oil, coal, nickel and copper. Their economies are at the point of no return. For the investor looking at where the strength is, just look at the companies involved in the commodities business. Their stock charts say it all.

Despite the huge sell offs seen last month, the relief rally did not materialize as expected. Negative investor sentiment, concerns that the credit crisis has not fully played out yet and the latest economic data showing the US is in a recession are keeping the equity markets down. Because of the persistent selling in the markets, one has to become more optimistic about the stock markets. A lot of cash are on the sidelines and will have to be redeployed later on.

The S&P 500 is currently at 1336. Looking at the charts, it could retest the Jan. low of 1270. The next level of support is 1250. Resistance is at the 200 day moving average at 1400. Because of the massive selling we have seen, I’m inclined to be more bullish about the markets.  If one believes that the US will be seeing meaningful economic growth by the 4th quarter, the equity markets should be rallying by the 2nd quarter.

Stock markets tend to lead the economy by 6 months. When things are at its worst, stocks tend to be snapped up. The premise is that the situation cannot get any more pessimistic. I think the markets will continue to base out here and then retest the 1500 level. The more the markets stay down, the more bullish I will become.

This morning, the Consumer Price Index posted a gain of 0.4 percent for January, higher than the 0.3 percent rise that analysts had expected. Food costs surged by the largest amount in 11 months, led by huge gains for vegetables, fruit, poultry and pork. The costs of food and energy are undoubtedly going up. Oil has more than doubled over the two years. Wheat has tripled over the same period. What was once considered vanquished since the seventies, inflation is looking to rear its ugly head again.

Supply and demand dynamic are responsible for the higher prices. The economies of developing countries are growing. Their middle class is growing. With more people driving more cars and eating more meat, demand for commodities are surging. People in these countries want to have the same standards of living that developed countries enjoy. There is no going back for these people. Once they have experienced a better life, they do not want to go back to their old ways.

With the costs of living going up, people will be demanding higher wages. Furthermore, the world is experiencing a shortage of skilled and experienced young workers due to low birth rates in the developed world. Many of the baby boomers are entering retirement age. Companies and governments are fighting to access this shrinking labor pool. Costs are undeniably going up. Are companies, governments and central bankers sufficiently prepared for higher inflation?

The days of cheap oil are over. Unless there is a severe global depression, $50 oil is a thing of the past. Despite talks of a slowdown in global growth, dragged down by a US recession, oil is still well in the $90 range. The simple reason is supply and demand. Even with modest growth in oil consumption, supply is barely catching up with demand. Current consumption is approximately 86 million barrels per day. By 2015, it is estimated that consumption will grow to 100 million barrels per day. China and India’s economies are rapidly growing and are expected to continue growing.

The challenge for the oil industry is trying to increase oil production to meet the greater demand. Most of the cheap easy oil has already been found. The promising oil exploration opportunities are found in regions that are considered hostile to Western nations or where the political climate is considered unstable. As a result, many oil companies are searching for oil in challenging environments such as in the deep sea.

Given the rising costs for exploring and extracting oil, the price of oil needs to be high in order to support production. Most of the low cost oil is held by OPEC nations. They are not likely to boost production to lower the price of oil. Because it is a declining asset, it is in their interest to get the highest price for their products. Pretty soon, $100 oil will look cheap.

Needless to say, the equity markets were not pretty to say the least. One of the bright spots during these difficult times is the agriculture sector. Looking at the stock charts of major players in the industry show that the upward trend is still intact. Shares of John Deere, Monsonto and Terra Industries are all comfortably trading above their 200 day moving average. The major stock indexes along with most stocks are trading well below their 200 day moving average.

The perfect storm for higher agriculture prices are hitting the markets. Corn and wheat prices are trading near record high levels. Demand is coming from more bio-fuel production and higher consumption of meat from developing nations. Adverse weather conditions in the major agricultural producers are hampering supply. Adding to the momentum for higher prices is that the hot money such as hedge funds are piling into this sector.

The question is whether this bull run in the agri-sector still has legs? Fundamentally, demand for these products will continue to go up. Once people tasted the good life, they don’t want to go back. Longer term, the agriculture plays remain solid investments as long as the stock entry points are done at reasonable valuations. With all the hot money chasing the returns and the media talking up this sector, I would hold off for now.

Today, there have been plenty of news in the financial sector. One of the clouds overhanging the equity markets was the issue of the bond insurers’ credit rating being downgraded. A downgrade of this battered group could result in further billions of dollars being written down by the banks. Billionaire investor Warren Buffett said this morning that he has offered to help out troubled bond insurers by offering a second level of insurance on up to $800 billion in municipal bonds. The other significant news is that six of the nation’s largest financial institutions, which service almost 50 percent of the nation’s mortgages are putting a delay to certain foreclosures.

With today’s developments, and the recent cuts by the Feds, the big question is whether the worse is over for the beaten down financial sector. These players have already written down billions of dollars in bad loans. The markets are still worried that there could be more skeletons. The worries are centered on credit card debts and auto loans. As in most cases, you won’t have the bottom has been reached until after the fact.

Ideally, one would want to see a financial player going under. Extreme levels of pessimism are rampant. Blood letting in this sector is necessary in order to flush out the excesses built up over the years. When the shares of these companies go up despite more bad news such as more announcements of loan write downs, the bottom is likely reached.