Tuesday, March 4, 2008

State of the Market - 3/4/08

Another weak open today in the markets caused by a poor earnings outlooks by Citigroup and Intel, as well as comments by Fed head Ben Bernanke that the housing market will likely see more weakness in the coming months. This weakness was sold harder in the morning, taking us below the February lows in mentioned yesterday on the S&P, Nasdaq and Russell 2000. The markets continued to sell-off into the afternoon, and it certainly looked like we were finally going to close below those lows and perhaps confirm the start of another down move from here. Thankfully, however, CNBC saved us all once again with another bailout rumor or update (who cares – it’s all B.S. anyway) about Ambac that was coincidentally put out just as the market was really breaking down. As can be expected with the manipulation play, the markets then rallied throughout the rest of the session and finished well off their lows, and once again above the lows I mentioned yesterday that would give some confirmation to those of us waiting on another move lower. Both of the shorts I have (CMI and WFR) looked good as of 2:00 and now look completely different. This market sucks.

I guess there are two ways to look at this current situation. One is to be bullish and respect how the market is putting up such a fight at these lows and really does want to go higher, regardless of how high oil gets and how high inflation gets and how many billions banks are going to write off in the next quarter. I would like to think this, but I can’t. The only stocks that are rallying are commodities. The three stocks I went long last week with were promptly sold, albeit with small losses, but losses nonetheless. If you can be truly bullish here, more power to you. I am just too cynical to be.

The other way to look at things is that these markets are being completely manipulated, and it is reaching almost a comical level. Since when does a supposedly reputable news outlet go around reporting rumors every two or three days. The timing of these “updates” are just too obvious. I don’t know who is pulling the strings – if the government is involved or some big-time hedge funds are controlling this or it is CNBC just having some fun at the expense of all shorts out there. Bottom line, however, is that it is ridiculous, unfair, and downright dishonest. I don’t know how the SEC can allow this sort of crap to continually occur. The past two weeks have made me lose much faith in my ability to make money in the stock market, not because of mistakes I have made or bad trades I have executed, but because as a small-time investor, there is no way I can compete if the entire game is going to be completely rigged. I am also losing any trust I had in the general system – it basically makes me want to pull my money out of the market and find a different way to earn a return on it. Unfortunately, thanks to all of the government rate cuts, putting it in a money market account is pointless because I will actually lose money as inflation continues on its upward spiral. Things are not good right now and without some integrity being established in this market, it is not going to get better. Nothing we can really do about it however – that is what really sucks. As traders, we have to find a way to adjust.

The only good I can take out of this week is that I am refraining from making any trades until the very end of the day, which is probably a good habit to get into. A trader I read and learned a lot from a few years ago, Josh Hayes, made no trades during the day – only at the close or after-hours. He made all decisions based on the closing action and never watched the market during the day. I never understood why he did this, but I am starting to understand why. Eliminating the noise and preventing myself from getting caught up in all of the intraday swings is something I need to improve on as a trader.

On a somewhat different note, I just got done reading an interesting book called “Financial Armageddon”. It describes in detail the many, many problems that seem to be converging right now in our economy – the sub-prime mess, irresponsible fiscal policy, out of control spending, both by the government and consumer, and the use of derivatives and leverage by banks and hedge funds, among others. I read this book in a total of two days because I found it hard to put down. Although I think the book is likely a little over-the-top in terms of describing what could happen to our country when all of these problems finally play out (most “prophet-type” books that try to predict the future are), I would recommend it to anyone that wants to get a better understanding of what the problems we are experiencing now are, where they came from, why they are such big problems, and why every American taxpayer should have a strong understanding of these issues and how they will affect them in the coming years. The most bothersome part of the whole book to me was that as I watch our country get closer and closer to electing its next president, I have yet to hear any of the candidates discuss these issues at all, other than Ron Paul. I agree that terrorism and Iraq and health care and education are important issues, but if we don’t watch ourselves here, they will all pale in comparison to problems such as unemployment, inflation, and tremendous loss of personal wealth over the next few decades.

Overall, I really have no clue where we go from here. The market continues to put in bullish tails and closed above support, but how much of that is based on this stupid Ambac rumor being played up again? How many times can the same story, which by all accounts still won’t solve the problems that are out there, cause the market to rally? I will manage my shorts here and see what happens. I will go through my long scans just as I always do just in case we have a legitimate rally. But again, I think this whole thing just stinks, literally, and if you are not invested at all here, you’re probably smarter than me. A market that is boosted by rumors is not healthy, and if we are indeed just postponing the inevitable like I feel we are, then these games may make that inevitable move lower that much stronger. That would be poetic justice. Good luck tomorrow!


bmbull said...


You're probably right to be skeptical - and careful, considering where the market is right now.

The only asset that has provided consistent performance for me has been the precious metals, and it looks like they have probably entered another pullback phase today.

Mac said...

A pullback in the gold and silver stocks would be welcome to me - I would like to enter some of them, probably in my IRA. We'll see how serious the Fed is in terms of fighting inflation with their next rate cut, and I am guessing they aren't very serious at all. They don't care at all.

bmbull said...

No, I think you're right. They don't care. It's about growth at any cost, and right now, that 'growth' is in serious danger. So any concerns about inflation get thrown out the window.

It's sad, and totally irresponsible, but it's the way it is.