Friday, September 12, 2008

State of the Market - 9/12/08

Today was another roller-coaster ride on Wall Street - down 100, up 100, then down 100, and finally up 100 again. All the while, the market actually went nowhere, and because of that, I am glad I didn't trade today. Stocks ended up pretty much flat, and I really don't feel like analyzing the intraday action because it was just more of the same.

I am not going to analyze the market technically right now either because I think there are going to be other things happening soon that may override any technical outlook that the market is showing us. The reasons why are stated below.

I did virtually nothing today other than get stopped out of my CREE short for a very small gain (less than 1%). I even turned off my streaming quotes. I am now back to 100% cash, and that is probably a good thing. After yesterday's bounce, I had no desire to chase the gap lower with shorts. Unfortunately, there aren't any longs to check out either, so back to the sidelines is it for me. The real reason I am sitting out is because we are at a point over the next five days (including the weekend) that a LOT can happen and I have no desire to bet on possible outcomes that I have no idea about, especially in a market that is so news-driven to begin with.

First this weekend is Hurricane Ike. It looks massive and no one knows how this will play out. Obviously, I would assume commodities will be affected, but I don't know how. I am sure many people made big bets before Hurricane Gustav, and some probably won big and some lost big. I don't like to play the betting game however. Regardless, say a prayer for those people on the Texas coast that this storm will slow down and not cause as much damage as expected.

There is also the whole Lehman/Washington Mutual mess and the possibility of another government bailout. I know that Hank Paulson said he was "adamant" (according to Yahoo Finance) that no taxpayer money would be used for any of these possible deals, but let's be honest, if you believe anything Paulson or any of his Wall Street cronies say after the past nine months, then you are either an idiot or just extremely naive. If a deal comes down, I am sure the markets will react positively, just because that's what they do. I am guessing that right before I watch my Steelers take on the Browns this weekend, we will hear some news - it is a Sunday night, and that's when the PPT likes to come in on their white horse the most.

Finally, we have a Fed meeting on Tuesday. I, like every other trader, have no way of knowing what Big Ben has up his sleeve. There is talk, however, of the Fed lowering rates, and it wouldn't surprise me at all. The dollar has rallied strongly while commodities have taken a hit, so why not throw Wall Street and the failing banks another bone? As always, it isn't even that important what the Fed does - the reaction is the important part.

All in all, it looks like a real mess out there, and with all of these news events coming to a head at the same time, I don't think I want to participate in what I would guess will be an even more volatile market than we've had the past few weeks. I may end up missing part of a big move, but there are just too many question marks out there for me to make any big bets. I just can't do it. More than likely, we will probably move sharply higher then sharply lower next week (or vice versa) and end up pretty much at where we are at now, not really going anywhere. That sounds fun, doesn't it?

I really do believe the best place to be is on the sidelines right now. I thought last Thursday was going to be a meaningful day, but the fact that it led to nowhere means this market is still not presenting a lot of good opportunities to make money. Hopefully it will someday soon. But right now, at least for me, there are way too many question marks out there about way too many things, and because of that, I recommend treading very carefully here. If I have any other thoughts or observations, I will be back this weekend. Take care.

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