March 27, 2008
Everyone knew that it was bound to happen, that all good things must come to an end, or in Wall Street’s case, at least give back some of the recent gains that have been made. The culprit behind today’s rally was a severe slow down in the GDP, showing the economy progressing at a measly 0.6% during the fourth quarter. Now don’t forget last quarter we were showing a reading of 4.9%, which is quite a difference for just one quarter. The gap between the two quarters shows that the problems in the credit markets are finally showing themselves into the broader economic readings, and it is a strong likelihood that we could see negative growth next quarter. Remember that in pure economic terms, two consecutive quarters of negative GDP growth defines a recession, and while we have yet to get even one quarter of such, we are nonetheless riding on the fence at this point.
The GDP report isn’t a call to panic if you are long in this market, rather, stay disciplined, don’t let losses run out of control, and avoid putting too much capital to work all at once.
Let’s review the charts…
NASDAQ outpaced the DOW and S&P today as the disappointing earnings report from Oracle added fuel to the fire. We are still holding on to much of the gains from the past week, but the bulls will not want to wait too long before stepping up to lend buying support to this market.
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S&P continues to trade below the 50-day moving average, and is showing signs of further weakening as the selling continues to pick up in the index.