Surveying the Wreckage

Editor's note: Alan Farley will analyze his technical charts and provide his analysis on which stocks and sectors could pay off at the '09 at TheStreet.com Investment Conference on Saturday, Oct. 25. Click for details.

Let's survey the damaged landscape after the ferocious selloff and Fed-inspired recovery attempt. You might be asking yourself, why bother? After all, we all know that everything has fallen apart in recent weeks. But rather than just stating the obvious, this brief examination will get us ready for the best trading opportunities of the year.

The Buffett Factor: General Electric (GE Quote - Cramer on GE - Stock Picks) and Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) are both trading lower than the price levels they hit just before their Warren Buffett injections. Dark comparisons are being made with J.P. Morgan, who tried to single-handedly save the financial markets in 1929. I hope Warren is more successful in his not-so-noble endeavor.

Of the two stocks, Goldman Sachs looks more likely to reward investors with high-percentage profits down the road. It's holding the September low and hanging tough above big support near $100. However, now that short-selling is legal once again, this stock has to survive the brutal equity/CDS pair trade. That complicates matters greatly.

IBM (IBM Quote - Cramer on IBM - Stock Picks): The stock was a solid performer into early August, when it rallied up to its 2001 swing high, but it's been all downhill for the blue-chip giant since then. The stock cut through support at $100 like butter earlier this week and is now trading near an 18-month low despite its earnings preannouncement.

Russell 2000

Click here for larger image.

Source: eSignal

Small-Caps: The Russell 2000 index has crushed two-year support in a head-and-shoulders breakdown more insidious than the broad index selloff. It lost nearly 25% in the three sessions preceding Wednesday's Fed action, which qualifies as a crash in almost any technician's dictionary.

This breakdown follows several months of relative strength in the small-cap sector as money managers placed ill-advised bets that an economic recovery was just around the corner.

Ironically, the selloff tells us the exact opposite. In fact, I wouldn't look for this group to fully recover until 2010 or 2011.

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