November 21, 2007:
Continuing the theme of recent weeks, the market close yesterday gave bulls some hope that the market would work its holiday magic. However, when it came to whether this Thanksgiving would be “Feast” or “Famine”, the latter was chosen by investors and what we saw today was nothing more then a repeat of previous sessions; namely a sell-off after a feeble attempt by bulls to rally the market. We had started out this week believing that, like most Thanksgiving weeks, we would see somewhat of a rally and that the impetus to sell and sell again would not be missing. However, contrary to our belief, the market sold and did so in an authoritative manner. With the exception of Tuesday which rallied back strong to save the day, Monday and Wednesday’s trading session involved heavy selling for a holiday week.
Today’s sell-off can be primarily attributed to the problems in the housing sector and the credit concerns tied to it within the financial sector. However, the exposure to these problems do no rest there, as even tech companies are seeing revenue and earnings impacted also. As a result, investors are very worried that we are now entering into an economic slowdown or recession, and frankly you should be too.
This is a serious problem that the market and investors are having to deal with. No one knows for certain the extent of these problems, and each day investors hold their breath hoping that another financial institution doesn’t announce further write-downs due to sub-prime exposure. On those apparent ‘good-days’ when none of the banks announce any kind of write-downs, the market still doesn’t rally, instead the market begins to worry about the next day and the next after that for possible news of a bank announcing more write-downs, which is further fueled by financial networks that pull every “Tom, Dick, and Harry” off the street to give their gloom & doom analysis of how the market is going down to “zero” (an exaggeration of course!). So, simply put, the market is in a bit of a panic mode, and while it doesn’t make any sense to predict or time a possible bottom (equate that with catching a falling knife), we will use these sell-offs to make money on the short-side.
Let’s take a look at the charts…
NASDAQ’s action broke the long-term trend-line. It desperately needs a solid performance on either Friday or Monday to regain the support of the trend-line. Further selling will confirm this break in support.
The S&P was the worst of the two indexes as it closed at the low of the day AND lower the yesterday’s low. This is very disturbing action as the S&P finished the day in the red for the year. Sound money management and capital preservation is the #1 priority at this point. Any rally should be sold to limit your exposure to the down side.