Caution, thou are the name of the week.

Bitten by a snake once, it remains too fearful to see a snake for ten years.

The 400 points drop last Friday is just like a snake’s bite; the only unknown is how long it will take the market to heal the phobia.

No doubt, the culprit is the jobless rate, it changed public perception to recession is already here, that in turn invalidated all presumptions that the worse is over and gave the ammunition to the argument that the rally since the March is nothing but a dead cat bounce.   

The sectors reacted accordingly, the usual indicators for the economic recovery, the consumer discretion and transportation, showed the signs of reversing course, both XLY and IYT were down more than 4%.   Even though, the tech showed some resilience,   it is hard to believe that it alone could stem the tide of the negative sentiments.

So, it is the time to be a little more conservative for the coming week.

As individual stocks, there are stocks held well better than the other, the agribusiness (POT, MON, AGU, CF etc) for instance, was positive most of the time during the Friday until last 30 minutes panic time; The DBA finally crossed its 50 day MA, so, in the coming week, the sector may rebound nicely with the fear of inflation.

One sector worth looking for short is the defense.  It has been down lately, my suspect is the election of Obama as democratic candidates created some uncertainties for the sector. He, comparing with current administration or McCain, is certainly less hawkish. And if the new administration indeed begins to withdraw from Iraq, then, the money allocated to the defense will certainly be less generous.   The ETF is PPA and some of the known names are GD, RTH, LTM and COL.    Also, Chinese stock looks quite suspicious.

Anyways, the code word for the week is cautious.