Hey! Another nasty sell-off in the final thirty minutes erased all of the market’s mid-afternoon gains, turning what was looking like the beginnings of a tradable reflexive rally into another day of losses on heavy volume. While this market has become extremely oversold since the bailout bill was first voted down by the House, there’s no rule against an oversold market becoming even more so.
The biggest problem we are facing right now is a lack of confidence and clarity, and that means that any action to the upside is going to be a struggle. That said, while we were looking for a strong finish to the day, the thing that we have to remember is that an essential part of a bottoming process is for market players to be continually disappointed. At some point, that will only serve to exhaust the selling pressures, but we can’t expect that to happen overnight.
Regardless, it is possible the late selling was due to the fact that the ban on shorting financials will be lifted tonight. Perhaps market players wanted to reduce their exposure ahead of a flood of new shorts, but it’s hard not to wonder how much shorting there will be if there’s no bounce to short into. Regardless, we’ll have to wait until tomorrow to see if the dip buyers are willing to give it another go.