Tuesday, September 16, 2008

State of the Market - 9/16/08

Quite a wild day once again on Wall Street, and another one that shows why staying on the sideline is a smart move right now. Things looked bleak once again before the open, as futures fell and stocks did open lower. However, the lows were quickly put in during the first ten or so minutes of trading, and from there stocks rose throughout the morning, although in a very choppy manner. Around 11:00, there was a sharp pullback and stocks went sideways until the Fed released their decision at 2:15. When they held rates steady, the market initially sold off hard, but as is usually the case, the first move was a fake out and stocks reversed higher quickly. They pulled back again a bit in the last hour, but recovered and finished with moderate gains at their highs for the day. Volume was very strong today.

Technically, today was certainly not a surprise given the selling from yesterday and some of the fear measurements that hit high numbers. The bullish reversal looks impressive on a daily chart, especially since the Nasdaq broke through its July lows and then recovered. So is this the bottom? Anything is possible, I guess, but I still think we are not done going down here yet. Where are the charts setting up that might tell us a move higher is on the way? Was yesterday really capitulation? Was that the best the bears could do? These are all questions I would ask myself before considering a bottom here, and unfortunately, most of the answers I come up point to more downside. Although the selling was strong yesterday, I don't know if it was panicky where people were just trying to get out of stocks at all costs. Panicky selling would not have produced a bounce ten minutes into the session that lasted for several hours like happened yesterday. There was only one reading last night (put/call) that pointed toward a possible bottom here. That's not enough in my opinion. I would expect more from a true capitulation day. That's my two cents, but maybe I am showing my inexperience here.

I would also point out that the true market reaction to a Fed decision often takes several days to reveal itself, so we'll see if tomorrow is a reversal of today's reversal.

There really isn't much else to say. I still don't know news-wise that anything was resolved with AIG, and this situation sounds eerily familiar to the Lehman and Bear Stearns events. Unless the Fed bails AIG out, then I doubt any loans they get will solve their problems. They will just delay the inevitable fall a little longer, making it even more unpleasant when it happens. And if the government does come to the rescue once again, that opens another can of worms that will affect this economy for much longer than the next week or so. My game plan from last night remains the same - I will be looking to possibly get short a few names as this market bounces as those stocks approach resistance levels, but will not force anything. If my outlook changes after going through my scans, I will let you know, but as of now, I am not expecting any. Good luck.

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