The Pounding Resumes

January 15, 2008

Almost as if a perfect storm came to fruition. The day started out with Citigroup’s earnings report, and the problems found with it was that they actually didn’t write-off enough mortagages as was previously believed to be reported, leaving many to believe that these problems will continue to persist into the next quarter. Retail also provided us with dismal numbers which when the market opened and thereby started a broad based sell-off.

We warned our readers yesterday to be suspicious of yesterday’s rally and that little should be taken from it in terms of its legitimacy. However, the turnaround to the downside was more than what we thought would be seen today, and hysteria seemed to spread across the board.

Something to keep in mind is the fact that Bernanke speaks before Congress on Thursday, and what might end up happening is a surprise rate cut in the form of 50 basis points tomorrow morning. We are not guaranteeing this, but the last thing Bernanke wants is to take a grilling from “know-nothing” politicians speaking to the greatness of their own economic acumen. We are not putting any statistical possibilities behind this theory, but we are not taking anything for granted in this market either, and we have seen lately that every time we have had a sell-off in the market, policymakers of all types try to inject the markets with some type of stimulus to get it out of its rut. Therefore, we have yet to see action by any type of policy maker, and we simply would not be surprised to see in the morning, the Fed providing us with a surprise rate cut on the heels of Bernanke’s appearance before Congress. With that said, it’s business as usual if it doesn’t come to realization, just something to think about as you head into the trading session tomorrow.

Without a doubt today’s action in the NASDAQ was heinous. Volume was strong, especially in comparison to yesterday’s rally; earnings outlook in the tech suddenly isn’t so rosy after INTC reported after the bell, setting up for another sell-off tomorrow. Trying to buy the dips at this point, even though stocks look ridiculously cheap (especially so in the small caps) is ill-advised.

S&P was actually the worst performer out of the Big Three, but not by much. The damage done to the charts at this point is dreadful, and today’s action caused the index to break out of its recent consolidation.