Monday, March 17, 2008

State of the Market - 3/17/08

More of the same today in the market – volatility, fear, wild swings – you pretty much had it all. The craziness of today’s action actually started last night, when the news was announced about Bear Stearns and the Fed stepping in by lowering lending rates by a quarter point. That led to very poor action overseas and a lot of talk about a “crash” today. We obviously didn’t get that, and overall it was a decent day for the bulls. Stocks rallied in the morning, sold back off in the afternoon, and then rallied back into the close. Be careful though. If you watch CNBC (God bless you, by the way) you will hear that the Dow came off of its lows for the day and that the market rallied strongly off of its lows. However, the Nasdaq, S&P 500, and small caps still showed some poor action today with medium-size losses, even after closing off the lows. So don’t be totally deceived by what your evening news will say tonight – there was still a lot of selling going on today on Wall Street and it wasn’t a perfect day. Most of the late buying was probably coming from shorts caught the wrong way and covering before the Fed meeting tomorrow and after they realized the world wasn’t going to end today. From my perspective, things are still way too crazy right now to do much of anything on either side of the market.

Technically, these January lows continue to hold for the most part – the Nasdaq tried to get through but still closed off of them. Perhaps we are just biding time here before heading lower, but with the Fed coming in tomorrow with a big rate cut (screw the dollar!) I would expect the chances of a rally are pretty good. I don’t quite understand why, but that is what I am expecting. Negativity is certainly building and sentiment indicators are at levels that point to a bounce. If we do rally, will it last? I doubt it. We still haven’t had that huge, total washout yet, and until we do, I would guess any rally would be mostly driven by short covering. If we did selloff big time today and came back in the afternoon, I would be more bullish, but we were only down 2% or so in the morning. That is not a huge selloff.

If we get a follow-through day in the next few days that is not Fed-driven, that would be bullish, but there is still a lack of nice charts as I have been saying for quite a while now. Seriously, can anyone show me some that are not based in the commodity sector? BRKR is about the only one I am watching right now. If we were setting ourselves up for a significant run right here, we would be seeing many more stocks setting up in nice patterns.

Whatever happens tomorrow, I will be staying out of things until at least the end of the week. There are just too many things unknown variables out there for me as a trader to have any sort of an edge. Also remember that this week is options expiration as well, (I think – don’t quote me on it) so that will add to the volatility we have been seeing recently. Trading a lot right here is basically just gambling, and that’s not something I want to do. Someday things will settle and become clearer, at least I hope so. It may a week away, it may be a month away, or it may be years away. It may be on the long side, or it may be another opportunity to short the heck out of former leaders. But it will come, and until then, just be as patient as you can be. Good luck!

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