If you’re like a lot of investors out there, you are about ready to throw in the towel on this market. Today was a wild ride no doubt, with a lot of news affecting its outcome. First CSCO practically took down the entire NASDAQ singlehandedly on news of weakening demand among its major customers – namely banks and other financial institutions (surprise?). Then, as if that wasn’t enough Bernanke was on Capitol Hill testifying before Congress. To summarize his thoughts – just read the FOMC Statement again if you want to know what he said! In all seriousness he stuck to the Fed Party line of expected slower growth, increased concerns with inflation, with an expected economic rebound in 2008. Finally October Retail Sales were down and below expectations, which caused many to worry about the Christmas Sales at the end of this year which drives fourth quarter profits. The market had the privilege of going against all of this today. How would it fare? For awhile the market seemed as if it would duplicate yesterday’s performance and with the NASDAQ it practically did, finishing down over 50 points on the day.
For awhile there it seemed as if NASDAQ could weather the storms in the homebuilding and financial sectors but as we know now with CSCO even the best Tech names are not immune from these problems – just look at GOOG and AAPL today. Since last Thursday the NASDAQ has dropped a whopping 160 points. At one point today the index lows made it over 210 points – 7.5% to be exact. That is quite a bit for the market to weather in just one week. The NASDAQ’s upward trend was broken yesterday and today just added insult to injury, but nonetheless settled around the 2700 level. This price level provides a somewhat descent level of support. But has not been tested enough to really call it a major support level. However it was quite impressive today to see market participants rally the NASDAQ from 100 points down so that it settled at this price level. We’ll be keeping our eye on this price level to see how well it holds up.
With the DOW and S&P neither was able to do much to improve the charts. There is some serious damage to them and believe it or not, the best looking chart still remains to be the NASDAQ. We have some short positions in the waiting to be posted in the coming days, to take advantage of the market weakness, so stay tune for those.
We expect the market to give us some kind of bounce in the coming days. Whenever there is a violent reaction in the market, the possibilities of an opposite reaction of the same magnitude can be very possible. There has been two other periods in the market where this has happened during this year alone: February/March and the retraction in August/September. Long-Term downtrends usually occur at a much less steeper level that what we have seen throughout the year. The steeper the sell-off the harder it is for the Bears to maintain the trend. Investors could use this as reason for buying the dip and help stocks rally on an interim basis. Also something worth noting is that we are nearing a 10% correction in the indexes (levels of which are around 12780 for the Dow, 2575 for the NASDAQ, and 1408 for the S&P). This would bring us pretty close to the correction we saw in mid-August.
This is a good time to stay calm in the market and not get too ahead of ourselves – Let’s look for a bounce tomorrow!
