January 16, 2008

The market didn’t have the kind of day we have become used to recently. While Intel reported horrible numbers after yesterday’s closing, the market looked poised to sell off hard today. But just when you think it’s a certainty the market will act in a certain way, is when you usually get burned. All the major indexes rallied off of its lows and managed to spend a large portion of the day in the green until the bears stepped in at near the close, to pounce on the bull’s gains.

The volume seen today was high, and wasn’t without reason. The bulls will say that buyers are jumping in now that we’ve neared the lows experienced in March. The bears will claim that the smart money is raising cash knowing that rougher roads lie ahead. Which one is right? That is the million dollar question. However, it is our opinion that the true reason lies with the latter explanation given by the bears. The market shows no resolve at this point of turning things around, and to assume that we have hit a bottom in the middle of earnings season, when the earnings have been mixed at best, is hardly enough rationale to become optimistic once again. There are still plenty of cards to still be played and until everything is out on the table, we don’t believe we have seen the end of this bear market.

Let’s review the charts…

Today’s action, though was minimal in its downward action in comparison to yesterday, was nonetheless troublesome considering the amount of volume that the NASDAQ saw. The bears are still in control, and likely will be for the time being. Bernanke speaks tomorrow, and it will be interesting to see the market’s response to his words. Much of tomorrow’s action will be hinged on what he says (or doesn’t say).

While the downward movement was only half of what the NASDAQ experienced today, it still shared the high level of volume, leading us to believe that smart money is raising cash in anticipation of further deterioration in the markets. Maintaining current capital levels must be your highest priority at this point.