March 14, 2008

After the rough close on Monday, things have been mainly on the up and up, but today the bulls had the rug pulled out from underneath them. The market sold off and it sold off in an extremely heavy way. Volume was nearly a third more than what it was earlier in the week when the Dow rallied over 400 points – that’s saying something. The news driving the stocks down was concerning the bailout of Bear Stearns by the Federal Reserve and rival JPMorgan Chase. Bear Stearns was practically on the brink of disaster, and if the bailout didn’t occur we could’ve seen the end of this company. As a result, though, they now have a limited amount of time to get their act together, whether they can or can’t is anyone’s guess. Because of the BSC news, fear spread throughout the market, causing many to believe that there will be other companies that may be in the same situation as BSC, which at this point, we would tend to agree with this sentiment.

Heading into Monday, we should expect for there to be more selling pressure; whether the bulls can jump in and stop the bleeding is anyone’s guess. But for now, capital preservation is a must, and should be adhered to at all costs. Going long on stocks has really only worked at those points when the market is extremely oversold, and poised for a bounce. Shorting stocks has also been a good way of capitalizing on the problems surrounding the credit markets, but at some point, because of the amount of short interest being at all time highs, we could see a short squeeze across the market that we have never seen before. So regardless of which direction you are trading in, use your protective stops.

Let’s review the charts…

The NASDAQ situation is a bit worrisome when considering the amount of selling that took place today. The NASDAQ is edging once again close to the lows from January. It will be interesting to see whether on Monday, the market holds those lows and rallies, or whether we push through them. If we have the volume that we had today, we will almost certainly push through those lows.


S&P’s situation is no better, as it once again fell through the 1300 level, and also edges closer to the lows from January. The same reasoning with the NASDAQ applies to the S&P; Monday in particular and the week ahead in general will go a long way in determining this market’s direction.