November 27, 2007
The market opened up strongly and after a few attempts by the bears to sell-off the rally, the bulls regained control to close out the day with each of the major indexes finishing up roughly 1.5% each. Those shorting the market will simply state that this was nothing more then a dead-cat bounce, while those holding on to their long positions will state that this is a sign of a rally, or even a bottom before shooting off to new highs.
But here’s what you need to know…
- Citigroup received $7.5B from Abu Dhabi to help ease their pains in the mortgage market. A couple of ways to look at this: 1) Citigroup receives much needed funding at the expense of giving their financers an 11% return. 2) Problems could be even worse then originally thought, if they are having to get funding from outside sources.
- Rally may be nothing more than a “dead-cat bounce” after yesterday’s strong sell-off. Only time will tell, and tomorrow will be a strong indicator of that.
- Don’t expect the Fed to bail out the economy at the next meeting. Dollar is continuing to weaken, and inflation still remains a huge risk to the economy, and it is unlikely that the Fed will do anything to fuel these concerns by cutting rates further. In fact to do so would probably be un-wise and create even greater problems down the road.
- As is typical in the stock market, that when investors have the night to think about the day’s action, their opinions change and the news that caused the market to rally the day prior, is the exact news that will cause the market to decline the following day. Hence, there could be a sell-off tomorrow on concerns that major banks needing foreign countries or companies to bail them out of their problems is actually a sign that we are not out of the woods yet and that the situation may still worsen
- Investors are undoubtedly trying to by the dip in the market right now, in hopes that we are in a mere correction before souring off to new highs. Individual stocks are pretty cheap right now, and there are quite a bit of bargain hunters trying to take advantage of the situation. However, if the sub-prime problems continue to worsen, the bargains will only continue to get better. And frankly, there are no apparent signs yet that the situation is getting better.
Let’s go to the Charts…
NASDAQ faired very well today, recouping yesterday’s losses. Even though the rally regained the long-term trend-line, the rally is falling short of the previous rally and each sell off is greater then the previous sell-off.
The S&P rallied strong also today but still the worries persist among investors. In order to regain the upper hand there will need to be a few more strong performances from the bulls to convince investors that the sentiment has changed.