Thursday, September 18, 2008

State of the Market - 9/18/08

Wow, what a day! Another crazy session on Wall Street today, as traders bid up stocks early after selling them so hard the past few days on news of a worldwide injection of liquidity by central banks. Stocks started very well but faded as the morning went on, and by lunch time, they were slightly negative. This reversal certainly did not look good. Stocks hit lows around 1:00 and slowly did bounce back from there. Around 3:00, a rumor put out on CNBC about the government talking about a Resolution-trust type solution to the current crisis caused shorts to run for cover, and the market spiked up in a powerful way. The market finished strong near its highs for the day, with all indices posting gains of at least 3.5%.

Technically, today was a very strong showing once again, much like Tuesday. Let's just remember however what happened yesterday after so many people (including me) were expecting a continuation of the bounce following Tuesday's reversal. The markets closed right near their July lows, which I guess will be heavy resistance. If we move lower tomorrow in a powerful way like Wednesday, then I still think the fear and panic that we have seen recently comes back into play and it gets very interesting. If we move higher tomorrow and follow-through, then maybe we can bottom here.

It is days like today that make me happy I have stayed out of the market the past week or so. I don't think I am arrogant enough to think that I would have traded these massive swings properly and made a ton of money in this volatile environment, especially with me not being at my computer a lot now that I am back at work. More than likely, I would have been chewed up and spit back out by the market, wrecking not only my account but also my confidence so that when it was time to start making moves, I don't know if my mindset would have been where it needed to be. Sometimes cash is the best position for lots of reasons.

I am taking the same approach to today's action as I have the rest of the week - I want Wall Street to prove itself to me. I will follow the IBD method right now in terms of looking to get long. I actually wish the fear and panic would have gotten worse (and who knows, it still may) because the further stretched we get and the more extreme the fear gets, the better the bounce will be whenever it happens. If we bottom here though, that's fine. We will probably get a nice rally, especially going into the elections. But I will wait for a follow-through day as early as next Tuesday. I may miss some of the move if we get one, but at the same time, if we get a huge reversal lower tomorrow and have a mini-crash Monday, then I will miss out on some major losses as well. I do find it amazing that a RUMOR put out by CNBC can make the market move several percent in the course of thirty minutes. That in itself tells me all I need to know about this market and how news-driven it still is.

I really don't have a good feeling either way here as to if this is the bottom or if we still have further to fall. I have been compiling a watchlist of stocks that I would look at if we do get a new rally going (unfortunately it's not that long) and plan on putting some of those up tonight - not as buys, but as stocks to watch. I also continue to look for shorts that might work out if we head lower. Just like I said last night, be prepared for anything.

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