Insights on the Current Financial Markets
January 27, 2009 | The Battle of S&P 850

Correction
The Technical Picture
Performance Update

Since the last few commentaries have been more narrative than technical, I thought it might be time for a look at the charts. While this week's comments will be brief, (as all eyes are on the Fed meeting tomorrow), there are a few observations about the start to the new year that are worth noting.

But before we dive in, there is a quick correction we need to make to our previous market comments.

Correction.

In our last commentary I introduced our newest portfolio Terras. The data presented was correct, however we incorrectly transcribed the chart labels and portfolio heading. Below is the corrected information.

Terras Portfolio Returns, Net of fees:

	2008	Inception*
Hypothetical Terras Portfolio	-1.1%	+7.8%
S&P 500 Index	-38.5%	-39.5%

*Hypothetical returns for the new Terras portfolio. Returns illustrated are derived from an equal combination of actual Stratus and Alpha High portfolios, net of all management fees and expenses.

For more detailed risk return information or to inquire about Terras, click here.

The Technical Picture: Battle for S&P 850.

January started exciting enough, with the S&P 500 gaining +3.5% in just the first 3 days of trading. The problem however was that the rally was generally a result of a "lack of sellers" rather than a rush of new buyers. The rally was short lived, and the market eventually gave way to another round of severe selling, at one point pushing the index to a decline of -10.5% for the month. Nothing like a 13.5% range in the first 3 weeks of the year. With the S&P 500 still down over -7% for the year, it seems as though we are not out of the proverbial "volatility woods" yet.

The good news is, despite breaking through the very important 850 level, so far the S&P has not declined to the 11/20 lows. It is possible that we now have a higher low, achieved on lower selling volume. That would be a positive indication that selling pressure is drying up.

One MAJOR concern I have howver, is that as of today, the S&P has now rallied 3 days in a row on DECREASING volume, not a sign that investors are increasing their commitment at these depressed levels.

The shaded area in the chart below highlights the rise in price accompanied by a decline in volume. Currently the S&P remains range bound, trapped between 800 and 850. The 800 level was tested each day of last week's holiday shortened trading, and held. The S&P is now testing the upper region of 850. The blue line on the daily S&P chart below sits at 850, illustrating well the importance of this level. A decisive break above 850 should usher in new buyers, with 900 the next target.

On the other hand, a break below the 800 level would almost certainly result in a full assault on the 2008 lows of 741, and possibly beyond.

The above chart is a clear illustration that we are once again at a moment of truth. We will know shortly whether the opportunities lie in higher prices ahead, or a plunge to new lows. I'm rooting for higher prices, but our strategy provides us the opportunity to profit from either scenario.

Anchor Performance Update

While the general market has seen another dismal start to the new year, the Anchor Capital Absolute Return portfolios continue to behave as designed. While I am pleased at our outperformance, I am equally as happy that we have achieved these results with relatively low volatility.

Here is a quick update on our recent results:

*As of 1/26/2009, net of fees. We provide these inter-month updates to keep you informed on our progress. Keep in mind however that these are only snap shots, and we may finish the month higher or lower than the above results.

All eyes will be on the Federal Reserve moves tomorrow, as they announce their current decision on interest rates. We are approaching a seasonally strong period for the markets, and I would not be surprised to see higher prices over the short term. Currently our risk models have us fairly hedged. With such a large positive advantage over the S&P in just the first 3 weeks of the year, I'm not anxious to try and second guess the next move.

We will instead remain disciplined, and allow our quant models to drive our risk management and trading decisions.

To find out how to put Anchor Capital portfolios to work for you, click here.

Until next time,

Eric Leake
Chief Investment Officer,
Anchor Capital Management Group, Inc.
http://www.anchor-capital.com

Chief Executive Officer,
Anchor Research, LLC.
http://www.anchor-research.com

Anchor Capital Management Group, Inc., is a Securities and Exchange Commission Registered Investment Advisor. Opinions expressed are not to be construed as a solicitation to buy nor sell securities. *Anchor Capital utilizes a tiered fee schedule that offers lower management fees to accounts with higher balances. Any investment returns presented are calculated gross of fees utilizing actual accounts which represent a model strategy. Individual returns may vary substantially from those presented due to differences in the timing of contributions and withdrawals, account start dates, and actual fees paid. Past performance is not a guarantee or indication of future results. Presentation is for informational purposes only and no guarantee is made as to the accuracy of this information by Anchor Capital Management Group, Inc.