November 20, 2007:

The emotions were in full throttle today as investors were fighting it out on the battle-front. The day started off as if we were going to have a repeat of last Tuesday and perhaps rally over 200 points. But in the blink of an eye the bears took the bulls “by the horns” and sold off the market. By the end of the day, when hope for the bulls were all but gone, the inevitable occurred and we got a solid rally to the upside, with the bulls showing that they weren’t quite ready to throw in the towel yet.

This has become one of the more difficult markets to navigate through in recent history, and if you are one of those who feels like giving up, you’re not alone. There are many investors out there who have made some descent gains, only to see them get wiped away in the past month. However, patience is key in a market like this. You won’t get anywhere in this market by pounding your fist on the table, or yelling at your monitor in frustration at the market. Doing such is like getting mad at your lungs because you have pneumonia. It makes no sense and adds absolutely no value to your ability to trade better. More so, let this period be a test for you as to how well you can stick to your trading plan, your stop-losses and pre-determined exit prices no matter how bad it hurts. If you can stay calm and level-headed during these times, the better off in the long run that you will be for it.

On the day, the markets finished moderately higher, fueled by minutes released by the Fed that led investors to believe that they may lower rates again at their next meeting in December. However, we urge investors to be cautious because a lot can happen between now and then and based on the FOMC statement released at the last Fed meeting, a drop in the Fed Funds rate seemed to be somewhat unlikely. Even though investors have increased optimism for a future cut, we still remain neutral on the likelihood.

We continue to wait for a solid entry point to begin opening some short positions and as those opportunities arise, we will be sure to inform our subscribers of them. We may be given that opportunity on Friday (open for a half day) or Monday.

We believe that the market is beginning to roll-over as the volatility at the top of the market is usually synonymous with a peak in a bull market. While we are not ready to say that the market is going into a bear market, we do not believe that the market will be re-testing its recent September highs anytime soon. 

Let’s look at the charts…

The NASDAQ continues to consolidate nicely at current levels, but we are not ready to say that a possible rebound is imminent. It is more likely that the consolidation at these levels is due to the oversold state of the market.

The S&P continues to hold steady the support levels even though it was broken early in the afternoon, only to rally back above the level at close. Very strong volume in the S&P and we will look for it to hold in the coming days. A break of the support level at this point is likely to lead to further selling.