Monday, October 27, 2008

Unfortunately, Extreme Negativity Can Become More Extreme....

One slight positive today was that volatility slowed just a little. Unfortunately, the price action was still just plain miserable.

Once again, the big move came in the last hour and in fact was mostly contained to a major breakdown in the last five minutes of trading. Breadth ended at close to 4 to 1 negative, and an intraday bounce attempt failed badly. The weak close goes to show how little confidence there is in the idea that tradeable low is close. Everyone is nervous and skittish, and given how fast this market moves, the best thing to do is sell as soon as a bounce fails.

There was some relative strength today in chips, agriculture and base metals, but nothing very dramatic. Biotechnology was slammed. The action in biotechs was so bad that there was some chatter that maybe a big fund in that sector is liquidating. Something unusual is going on in that group, and I suspect we'll see some news about it soon.

The action today just goes to show that extreme negativity is no guarantee that we are going to be able to bounce. The sentiment is as bad as I've ever seen it, but we still can't seem to get sufficiently washed out enough to put in a low that will hold.

Forget all the arguments about why this market can't go much lower. The plain and simple fact is that the action is terrible, and we need to respect that. The best way to lose money is to fight the obviously poor action in front of us.

Don't get discouraged. If you play it safe, the opportunities will eventually come. You just have to be willing to stay in cash and wait.

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