johnpaulca
12,036 posts
msg #60588
- Ignore johnpaulca |
3/18/2008 12:21:46 AM
Trendwatch:
It's been quite a month of trading so far, we're only halfway through it. A lack of confidence, then a shot in the arm, then a near financial collapse...and that was only this past week! Enough thrills and chillls for an entire year. One thing is certain: reliability is nowhere to be found. Trading the market these days can be exhillerating and depressing...those emotions can be reach each day (probably multiple times). Success depends on agility and recognition of situations...and the speed for which you make your choices.
The Bullish Argument
We saw some bullish characteristics this week. Certainly the close was not inspiring, but certainly induced by the Bear Stearns news. An opening drop Thursday reversed with vigor and closed the markets marginally higher...and the CPI number inspired enough players to bring buyers back in strong at the open Friday. Confidence was shot down within the first hour of trading as the market tried to build on the previous days' reversal. Nothing erodes the bullish psyche like sharp reversals. Fear spiked to 'un-natural' levels with the VIX over 30...we don't see the VIX hang out for too long over this number. This may bode well for the bull argument, with a potential collapse of Bear Stearns averted. In the past, bottoms have seen potential disasters sidestepped by some intervention or takeover. It still doesn't fix the problem, but certainly buys some time. Price levels here have been holding solid, and with all the recent selling action the market has not taken a leg lower...yet.
The Bears Have them In Their Sight
Bears have clearly been winning the battle in 2008. The year of the Bear for the markets. With the SPX and QQQQ confirming bear market territory (down 20% or more from recent highs), this counter trade has been rather easy: buy the dips and sell the rips. This week saw the bulls step up large after Fed intervention, only to be set back a few days later....bear market characteristics. While the next leg down could start as soon as next week, we'll have to see how the overseas markets choose to game the recent developments. Breaking recent lows in the dow puts much lower levels on the radar, perhaps all the way down to 10,700 as the next stop. The credit crisis is having its affects on many areas, and the bears know this all too well.
Pigs will fly
What makes this a great trading market? One does not have to commit a great deal of capital nor stay too long with a trade to make a good score. With options, this leverage is magnified. Volatility in options is extraordinarily high in the context of the recent market...but we could see this high level stay with us for awhile. Uncertainty about the economy, jobs, credit and the dollar have created high levels of fear...any rip is sold quickly, putting resistance at multiple levels and timeframes. Those who are nimble, quick and agile will reap the most rewards in this market.
Brokers are Cockroaches?
I'm a big fan of investment banking, IPO's and marketmaking. They provide leverage and liquidity to markets on such a high scale and gives us the ultimate in free markets: trading capital. However, some may have bitten off more than they could chew...and are being given the cold shoulder. We highlight Bear Stearns, as of Friday the firm has lost billions in market value as the 85 yr old investment bank has lost 66% of its value in a few short weeks. In Jan 2007, BS was nearly $170 a share. This past Friday, it closed at a paltry $30, or 82% lower. Only a bailout program by the Feds averted a big disaster. But I ask the question: How many more are out there, and how many will be caught in the Fed's web of 'safety'. The cockroach theory says if you see one there are usually more behind there...lots more. What's the next shoe to drop? Actually, Bear Stearns is not the first cockroach seen...it's actually just gotten bigger than all the others out there. The problem lies in what the future will show, and how forthcoming others will be when it's time to step up to the confessional.
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