Financial Planning Newsletter• March 19th 2009 

Where do we go now?

This month: An update on the market action along with reminders about tax limits for 08 & 09

Last month I spelled out 3 potential catalysts that would reverse the downward momentum in the markets. Here is an update along with some things to watch for determining if this up move has potential:

Last Month's arguments for momentum change:

"1. We have just registered weekly and monthly exhaustion levels with the S&P on a widely followed technical indicator. This usually precludes a 1 to 4 month counter trend rally. Note: although the indicator means the month of March should close higher than February, it doesn't mean that we can't take a stab lower prior to recovering later in March (think V shaped bottom)"

update: This seems to be playing out as the S&P hit a low around 670 last Monday and is now sitting at 800.

2. "Mark to Market account change: The current accounting rule requires companies to mark their assets at current market prices, which is why we have so many problems with highly leveraged institutions."

update: there has been a lot of discussion recently in congress and with the fasb regarding this rule. No change as of yet, but banks are moving higher possibly in anticipation of a change.

3. "CDS backstop: I won't go into this to much but just to say that Credit Default Swaps are a derivative with nightmare proportions."

update: nothing here yet but suffice it to say that a large portion of that 170 Billion given to AIG went to counterparty institutions such as Goldman Sachs to cover the CDS losses. If we see a sweeping change in CDS contracts it will be a game changer and will propel the market higher.

Bear Market rally or something else?

There is a lot of resistance here at the 800 level on the S&P and we are due for a pause. A couple of positive factors to note: financials, transports and retailers led this move higher. These are leadership sectors that we need to sustain any move.

Another positive is a possible move above $50 a barrel in oil. While it may cost you a bit more at the pump, energy makes up a large portion of the S&P weighting and if we can move above $50/bbl then it will continue lifting the S&P.

Lastly, the Fed move yesterday to print $1 Trillion to buy up long bonds and mortgage securities is a big move. We won't debate the longer term implications but shorter term this will drop the dollar and have positive impacts on stocks / commodities.

My gut feel is that we continue to rally through early summer. There is a potential for the S&P to move up to 1000 or so. After that it is a toss up on whether we have to make another run lower or if we hold the gains.

Reminder of Tax limits for 2008 / 2009:


For those readying their 08 returns here is a reminder on last minute IRA contributions:

Roth income restrictions: $159k married filing jointly / $101k single. Over these amounts and you phase out of eligibility.

IRA limits: $5000 plus $1000 over 50 catchup


Roth income restrictions: $166k married filing jointly / $105k single. Over these amounts and you phase out of eligibility.

IRA limits: $5000 plus $1000 over 50 catchup

401k limits: $16,500 plus $5500 over 50 catchup

SIMPLE IRA: $11,500 plus $2500 over 50 catchp

SEP IRA (DC plan limit): $49,000



James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

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