Tuesday, January 15, 2008

State of the Market - 1/15/08

Another bad day today for the markets as a disappointing earnings report from Citigroup and weak retail numbers caused a gap down to start the down, and systematic selling kept going throughout. There was an attempt at a rally during the last thirty minutes, probably caused by some short covering, but that was also quickly sold and all indexes closed at or near their intraday lows. Both the Nasdaq and S&P 500 booked a 2.5% loss today, and about the only positive I could take from any of today’s action is that the indexes closed above the lows of last week. However, it just seems like a matter of time before they are taken out, perhaps by tomorrow.

Speaking of Citigroup, I am not in the business world or banking community so I have no idea how balance sheets and such work – I just trade stocks. But how exactly a company can lose $9.83 billion in a period of three months and still be in business at all is beyond me. I am sure I am showing my lack of knowledge about the innerworkings of the banking business, but these numbers that continue to come out from the financial giants are just staggering to me. When does it end? I personally don’t feel sorry for any of these companies – our entire society is based on financial irresponsibility(spending what you don’t have) from the government on down, and maybe now the time has finally come to pay the price for the irresponsibility. I bought back into the SKF pre-market this morning for the IRA’s – maybe all the bad news is out but for some reason I don’t think it is. I'm sure the Fed will come to the "rescue" soon, but I don't know if it will make a difference. We shall see.

As for the sentiment indicators, the T2108 moved down today, but is still at 28.5, quite a distance from the 20 level that we are looking for. The put/call ratio was above 1.0 for most of the day, so there was some fear out there, but it did not hit real extreme levels, and the VIX was barely higher today according to Telechart. The Market Monitor is still not at tradeable bounce levels. The new Investors Intelligence numbers were not out yet but I am very interested to see what they are. If the % of bulls remain high, I believe that would be even more bearish for this market. Negativity has to get higher for a true tradeable bounce to take place around here. Right now, I am expecting us to take out those lows soon and could continue lower from there.

No individual charts tonight because we are again at a point of doing nothing in the short term except sitting on our hands. I added to a few shorts at the open today, and you may be able to pile on some shorts for short-term gains if we do break the lows soon, but shorting right now is still risky with so many stocks already down so much. Dip buyers continue to get killed so that is probably not a good idea either until we get to some extremes on the sentiment indicators. With earnings season, intraday volatility will probably continue, with big volume down days followed up by a lighter volume up days. If you are already short, you are probably in good shape – I am not looking to cover right now. I missed too many big gains this year already and until we hit sentiment extremes, I plan on riding them lower(hopefully). And lest you forget what type of market we are, remember that any sort of earnings miss is not being received well right now – check out the chart of EDU when you can. Ouch! Watch yourself, and good luck tomorrow.

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