Sunday, March 16, 2008

It Should Be An Interesting Monday

To say the least. I'm sure you've heard by now that Bear Stearns is being bought for $2 per share, certainly an amazing figure. A company that was once trading over $150 has now lost over 98% of its value. Hopefully nobody tried to bottom-fish on Friday in BSC. The Fed also stepped in on a Sunday to lower its lending rate to banks by a quarter point. Right now, looking on most blogs, I hear a ton of talk about a crash tomorrow. Maybe we will. I don't know, and if anyone says they know, they are just guessing. No one knows how this market is going to react tomorrow, no one. Is there more bad news to come tomorrow from other brokers? Will the Fed come in with a cut early? They seem to be willing to do whatever they have to do to avoid a meltdown. Sentiment is getting to pretty extreme levels right now, so things could turn on a dime at any point. So although it certainly looks awful out there, it is hard to predict how things will turn out right here. There are too many variables out there for me to put money at risk right here. No reason to try and be a hero, at least for me.

I was listening to a radio show with Bill O'Neil from Investor's Business Daily and he compared our current market (particularly the Nasdaq) to the 1937 market. When he talks or writes something, I listen, so I am going to look at this chart in more detail over the next few days and see if I can pick up anything from it. He did say this market went down over 30%, so we are not there yet and perhaps have more down side. The two days in October, with one major loss followed up by a major bullish reversal, caught my attention. Could we see something like that again, perhaps even this week? It wouldn't surprise me.

Dow - 1937
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

I still think the best course of action here is to stay out of this mess right now, both on the short and long side. There will be opportunities to make money this year, much safer opportunities. Be patient and just wait. That doesn't mean I won't be paying attention to things tomorrow. I hope to learn something about how the market reacts when panics hit. I was only 10 years old when Black Monday happened in 1987, so all I know is what I read in books. Hopefully, if something similar happens(to be clear, I am not hoping for it), I can learn a few lessons tomorrow and this week. I will say one thing - I am glad I am completely in cash right now, although keeping some of those shorts might have been nice right now. Good luck to all tomorrow. It should be a very interesting day.

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