November 14, 2007

Today was at best a disappointment for the bulls. The day began with a descent October retail report, indicating that inflation was moderating somewhat. With that said, it appeared that the market would gap up and run with it the rest of the day. However, what the market saw has been a very common theme as of late and that is to languish for much of the day, and then in the last hour to half-hour before closing – go on a selling-binge – which is exactly what we saw today with the market finishing moderately in the red. If you guessed that companies being overloaded with mortgage-related securities and investments were the culprit, then you guessed correctly. Today’s victims? Bear Stearns and HSBC – who between them had combined write downs of $4.6B.

Today serves as a wake-up call that just because we had a big rally across the board yesterday, doesn’t mean that the problems surrounding the market prior, are simply gone. They are still there, and will continue to cause havoc for investors until it appears that the companies involved have got the situation under control – and from the looks of it, it doesn’t appear to be happening anytime soon.

Therefore, remaining in a capital preservation mode is the best strategy. Try to chip away a few trades here and there, and take the profits where you have them. Don’t worry about missing out on a rally. Those who try to time the bottom or tops of markets are the ones who always gets burned. So wait until the market begins to moderate and the psychological underpinnings in the market itself begin to shift.

Investors are very nervous and won’t hesitate to sell-off if it appears that the profits they have made over the past year could erode. And frankly it’s important to note that, even though percentage-wise, the market has been fairly good year-to-date, it has nonetheless been a very difficult one to work with as this year has been marked with severe drops over very short periods (even though they soon thereafter rebounded to move on to new highs) and as a result, investors are probably going to be on edge to any other potential downturn.

Let’s take a look at the charts…


NASDAQ opened strong but soon sold off to finish at the lows of the day, which doesn’t mesh well with the bulls. Take a cautious approach and keep tight stops with this market.

S&P, likewise, opened above resistance levels and that was looking mighty positive for the market to continue the rally from yesterday. Nonetheless, it gave in to the bears and provided a disheartening finish to the day. The index is wedged in between overhead resistance and the long-term trend line so it is likely one of the two will break in the coming days. Because of the technical patterns presented we expect it to be to the downside.