March 6, 2008

As we have been saying all along, we need to see a major shakeout in the stock market to really put in a legitimate bottom. But to do this we need the Fed and the President/Congress, to be a little more laissez-faire, and try not to intervene every time there is a storm brewing. Instead, we need to let the market do what it must, shake out the weak hands, and then put in the foundation for a solid bottom that leads us to eventual higher ground.

But as we have said all along, we are not going to be able to get out of the problems currently swirling around the market until the ‘powers that be’ finally give up trying to artificially prop up the market. For instance, if we get the kind of open that we got back in January, in the near future, there is a good chance, that the Fed will do another one of their emergency rate-cuts, and the market will appreciate the gesture – but only for a time. But then we will go right back to where we were before, just like we have done now when Bernanke issued an emergency rate cut back in January. Economic stimulus packages, rates cuts and other means of economic short term fixes are only masks that cover the reality of what is underneath. Like all business cycles, we need to see some companies go out of business, we need to see some panic in the markets, and we need to see companies evaluated at levels we haven’t seen in quite some time. This is the kind of stuff that leads to healthy bottoms in markets.

Let’s review the charts…

There is a lot of fear in the market today, but in the NASDAQ as well as the other indices, the fear seemed to be lacking despite the 2.2% drop we saw today. Which leads us to believe that people are not quite convinced that the problems are as bad as they appear.


S&P continues its sell-off in the downward channel it is in, and looks to test the intraday lows established in January. If we can hold those lows, without any artificial ‘propping-up’ we could see the beginning of a bottom put in place.