buffett once said that in the short term, the market is a voting machine. The market voted today on the bailout bill, and it was a vote of no confidence. We had a classic "sell on the news" reaction once the bill was passed, and even though there were lots of folks who very much wanted a good close and lots of talk about a "surprise" Fed interest-rate cut early next week, we were unable to bounce back and closed solidly in the red after being up big. That is a very clear message that Wall Street doesn't think that this bailout bill is going to be the magic solution to our problems. The lack of optimism really isn't that surprising, but it does make you worry about how bad this mess is going to get.
The fact that the response on Wall Street to the bailout bill was so poor is going to make many investors even more worried. The big problem we face is that sentiment is so negative, and investors have so little confidence. No one wants to invest their precious cash when the atmosphere is so negative. With the poor response today to the bailout bill, no one is going to be willing to trust this market.
What you have to keep firmly in mind is that in a downtrending market, any bounces or rallies are going to invite selling. Trapped longs want to escape the pain, traders want to flip, and shorts want to put on new positions. It is only after we start seeing a series of higher highs that you can have more confidence that maybe the trend has shifted upward. Right now, it is painfully obvious that we are buried in a very extreme downtrend. .
I'm becoming awfully nostalgic for the days when we could actually hold a long position for a few days. It feels like it was many years ago, but we'll just have to stay patient and not let our hopes and desires drive us to do foolish things in a bad market.
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