Friday, January 30, 2009

The Hope We Have Remaining Is Being Abandoned

The action this past week was a classic example of how we slide down the 'slope of hope' in a bear market. We started off the week well, with market players optimistic about the passage of a stimulus bill and a 'bad bank' solution for the credit markets. When it turned out that the stimulus bill was more pork than road building and the bad bank idea had no meat to it, the slide down the slope picked up steam.

The way the news flowed this week helped to destroy the fragile hope for a government solution that had been providing support. There are still those who want to believe that we are going to come up with some fairly painless cure for our economic ills, but it looks like there are more people who aren't so sure that is possible. The flaws in each plan just become more obvious as they become more specific.

The good news is that the major indices are still above the lows from earlier this month. I think the likelihood is that, at some point next week, the market will once again get excited over some new economic plan, which will cause another short-squeeze spike. That will keep the bears from getting too comfortable, but when it happens, we have to make sure we aren't too trusting too fast. It is going to take some time to restore some health to this market, especially after a day like this.

No comments: