Beating the Dead Horse

November 19, 2007

Heading into the Thanksgiving Holiday, the market is not showing much to be thankful for with investors. Traditionally, this is one of the best weeks for the stock market, but you wouldn’t think that after what took place today. The media is relentless in its coverage of the credit concerns surrounding the sub-prime issues. The slightest piece of negative news brings about a new wave of selling.

Unfortunately for the bulls, the 24-hour financial networks, namely CNBC and the newly created Fox Business Channel, crave the idea of “beating the dead horse” as today’s analysis is so aptly name for. Neither network brings much in terms of value; in fact if you are one of those who trades off of what is being said, you can almost guarantee you will lose money regularly. The people reporting on the newscasts do not have a “dog in the fight”. They are not allowed to buy holdings in any publicly traded company, so when the market does go down, and when people are losing their money, they continue to pounce on the story behind the drop in the market (same is true in a rising market also). Don’t fool yourself: they are in it to make ratings not to make you money. More people tune into these stations when the market is going down, so at times like this, ratings are good, because most people trade without a plan and without direction, so they need someone to turn to, and who better then Cramer and company.

But what we are stuck with is a tough market for investing in, both to the long-side and short-side. The market is clearly broadcasting to us that it has no intentions of rallying anytime soon back to its former highs, and knowing that, we have to ask ourselves, “what are we likely to see?” The argument for us to move sideways would seem logical since we are entering into the Christmas Season which is historically a very favorable time of the year for the Bulls, but with the current trend in the market, and the clear signs that the market is trying to roll-over, the Christmas Season may not offer the support it is use to providing.

Let’s go to the charts…

The NASDAQ sold off with the rest of the market as investors are not considering Tech separate from the ongoing problems in the credit and subprime markets. Therefore we need to urge caution at current levels until a clear trend is developed. Remember more money is lost trying to get ahead of a trend before it is developed than probably any other type of trading style. Let the charts be your roadmap, and take a position when it gives a clear signal.

The S&P struggled but nonetheless held support levels. However, even though the support levels are being held, the downward pressure is very apparent on prices, and continuation of such will have no problem at all breaking those levels.