March 7, 2008
It was looking like we were in for another rough day in the market, and for most of the day, the market consistently made new lows throughout. Though the closing was not at all impressive, there was an underlying event that did take place, and that was the bulls were able to hold onto the lows established in January and close slightly off of them. While this is positive for the bulls, this is by no means a change in sentiment. It could only mean that for the short-term, the sellers are exhausted, and as a result, provide a relief rally. If this is a true market bottom, the confirmation of which won’t be known for some time, while the charts repair themselves overtime. The bulls were most impressive in both the NASDAQ and S&P. The Dow still has some ways to go before bouncing off of the January lows, which could be in part why the Dow dropped so much harder than the NASDAQ, in that it had not yet hit a support level in which it could rally off of.
The main driver in today’s action was the jobs report that showed employers eliminated 63,000 jobs last month. The Plunge Protection Team was also at it again with the announcement of further auctions to banks, increasing the level to $50B to be held later this month.
This market is by no means easy to navigate in. We recommend that you keep your positions hedged to some degree, whether it be by using puts and calls, or have a healthy balance of long and short positions, that work well together in mixed markets. If we break the January lows next month, we could see a wave of renewed selling that could washout the ‘weak-hands’ in the market.
Let’s review the charts…
The NASDAQ held strong at its lows from January, despite dipping below them at one point on an intraday basis. We could be poised for a relief rally next week.
S&P came close to testing its lows from January, but rallied before hitting the lows. This could be enough to convince the market that we can rally from here, but any such rally should be looked upon with great skepticism.