It’s a Bird; No, It’s a Plane; No It’s Ben Bernanke

January 22, 2008

Though the markets were closed on Monday, there was major tension in the air as global markets took a pounding in the range of 5% and as high as 11%. Most of it was due to the pessimism surrounding the US economy and what the “powers-that-be” were doing to fix it. The Fed was forced to react this morning in the form of a 75 basis point cut to interest rates before the market opened. While the markets seemed unimpressed at first, it nevertheless rallied off of its lows of the day to see the markets only finish down 1% with the NASDAQ finishing down 2%.

As will be stated throughout this market analysis, we are very skeptical of this market rally off of its extreme lows as we believe it was a combination of strong oversold conditions across the board, and short-covering on behalf of the bears. The bears have been in control of this market as of late, and will not, all of a sudden, start letting the market rally again without giving a good fight to keep prices down. So, expect the bears to continue to continue their aggressive selling or at the very least, short the rallies in the days ahead. Let it also be noted that where buyers stepped in today, and started buying up cheap shares of companies, that their tolerance for risk will be minimal and will sell at the first sign of trouble. The bulls are very skittish at this point in this juncture of the sell-off and won’t take on any more losses than then they have too, and the bears of course will continue to be extremely aggressive with selling opportunities as they arise.

One more news piece to cover: AAPL guided lower for next quarter’s earnings and as a result saw a significant drop in their share price after hours. This is not good for the NASDAQ heading into tomorrow’s open as AAPL tends to be the pace-setter for the index often times. AAPL has been an incredible stock to own for quite some time now, and could lead the way to another sell-off in the NASDAQ.

Let’s review the charts…

What started off as a serious headache turned into a much rosier picture on the day. With the markets opening over 400 points down, short sellers took this as a major opportunity to cover their positions and they did so in masse. However, be very suspicious of this rally, as the bear community will use today’s rally off of the lows to create new short positions with their new-found cash that is on hand. Capital Preservation is of highest priority.

S&P sold off at the beginning but once the Fed announced its rate cut, it was able to rally very hard for the remainder of the day and closed down only 1%. As stated with the NASDAQ, be very suspicious of this rally as the market was already oversold heading into today; so, even though today’s rally was impressive, don’t believe we are out of the woods yet.