Friday, September 19, 2008

Market today - a historic day from a historic week - and it's to be determined whether the changes are good, bad or neutral...

Well, it was quite a week, no? After the roller-coaster ride we went on over the first four days, a ban on short-selling 799 financial stocks, a guarantee of certain money market funds and a massive bailout for firms holding billions in bad debt triggered a massive wave of short-covering and panic buying at the open. However, even though the market was able to hold on to its initial gains today, and we finished the day on very good breadth and heavy volume, we failed to make any progress to the upside after the first 20 minutes or so of trading this morning. Moreover, despite the fact that the major indices advanced between 7% and 8% in essentially 90 minutes (the final hour yesterday and the first 30 minutes today), they are each in the red for the week.

Regardless, the bulls are quite encouraged right now, and are convinced that we reached a major turning point. The bears, however, will counter that there are still many unresolved problems out there, and the government’s actions will not only likely bring those to light, but will also create a few of their own. We’ll never know if we were saved from a financial disaster, but even if we were, that doesn’t mean we will automatically start going up from here.

The market will be the final arbiter, and the big question right now is if investors now have the confidence to start buying again. Like we said earlier, the charts are a mess right now, but if buyers do start coming back into the market, then we’ll start to see better set-ups. That said, we can’t forget that we are still in a primary downtrend and there is heavy overhead resistance looming. This two-day move was strong, but there are plenty of folks who are sitting on huge losses and looking for a way out.

The bottom line here is that, while we have to be mindful of signs that conditions may improve from here, huge bailouts and bans on short selling are symptoms of problems, not indications of strength.

No comments: