January 9, 2008
No doubt that investors will sleep a little bit better tonight, but even though we got the kind of relief rally we were expecting, no one is brave enough to say that the worst is behind us at this point. Very little comfort should be taken away from this rally. Our opinion at this juncture, is that we basically saw the bears run out of steam today, where they were unable to short/sell any more shares. As a result, some short covering and exasperated selling power brought on a wave of buying.
Tomorrow should see some follow through especially after Alcoa gave us a good earnings report to kick off the season. Also tomorrow, Fed Chairman, Ben Bernanke, speaks and investors will look for some positive news from him in terms of what kind of rate cut we should expect to see. Specifically, investors will look for him to hint at a 50 basis point cut. Whether he will clue us in on possible rate cuts remains to be seen, but the possibility is there. So with the factors facing the market tomorrow, we are a bit hesitant to short this rally just yet. Instead we feel much more comfortable with letting the follow through to today’s action takes its course followed by what Bernanke’s comments may have on the market.
So don’t get to anxious about jumping on top of this rally, instead let tomorrow run its course. There is a chance that any type of rally could be later sold in the afternoon, but with the type of volatility that we are seeing in this market, we are willing to let that happen without taking any action. Capital preservation is the number one objective.
Let’s review the charts…
The NASDAQ had a very positive day today, after fighting for most of the day to stay in the positive it managed a late day surge to finish up 1.4%. Follow through is likely tomorrow, and should provide ample opportunity for people to rearrange their portfolios.
S&P had a solid day closing up over 1.3%. After getting off to one of its worst starts ever in a new year, this index is in major trouble even with today’s rally. It is almost certain, that the S&P will test its February/March lows. If the index is unable to hold that level, it will become very obvious at that point, that the market outlook is quite bleak.