July 3, 2008

Well yesterday was another day that showed signs of orderly selling, but not panic dumping. It was unlikely that many investors wanted to be brave today and get on the long side. However, the markets where able to keep a positive breath throughout the day, on the back of a strengthening USD after the ECB signaled that they may be through raising interest rates. It’s going to be interesting to see how or if the dollar’s strength might affect the oil trade in the coming week.

Here is a bear market reminder to ponder over the holiday lengthened weekend. More often than not, bear markets will grind you out, not scare you out, with endless head fakes and mounting losses to the long side. When investors have pockets of strength run to every time things get dicey, like they have recently, it’s just delaying us from reaching a real bottom. The end to the bear market like we find ourselves in can come only when no one wants anything whatsoever to do with stocks, and that is just not the case when investors can still flee to energy or commodity related stocks. Look for both failures in the broader market and in these pockets of strength as a signal to looking for some buying opportunities in the most battered sectors as they will be the first to snap back.

Despite today’s rise, the bottom line is that the trend is down and it’s going to take a while for this trend play out. We may continue to see some bounces along the way, but the only assumption we can make about the market right now is that any action to the upside will almost surely be met by serious resistance. We will be watching action closely for signals that attitudes are improving before we commit large capital to the long side.