Monday, October 6, 2008

How much further?

Last post was on September 25. The past 2 weeks have been rather chaotic and left little room for fundamentals or technicals as the market is driven by fear. I have incurred quite a few losses and as a result have stopped trading last week. The next few days will be key in determining the direction of the market. As everyone knows our bailout plan was passed on friday and to the surprise of most traders even the pros we turned negative after the approval - something very few expected and something that is difficult to explain. There are a few reasons for this sharp decline after the approval. Lets look back over the past 2 weeks, on Thursday the 18th when a bailout plan was announced we rallied 100 pts in less then 2 trade days, Monday last week we dropped 100 pts after the plan was declined. Many traders have taken this as a base and prepared themselves to sell into the rally upon the approval on Friday - however no one was buying yet the traders and institutions continued liuquidating into the market anticipating strong buy volume that did not occur. The pressure that was put onto this bailout plan made many come out and create even more fear into the market place - I mean the governator stated that California will run out of money by the end of october unless this plan is approved - many skeletons came out of the closet in an attempt to persude polticians to vote yes - but as a result more truths were uncovered about where our economy stands - truths that were answered with more fear. VIX remains at 45 and will continue increasing today, we should see our first 50 on the VIX - levels it has not been at in many decades.

On September 17th I changed my mid term outlook calling for 10xx on the S&P 500 in the beginning of october, well october is here and on Friday we marked our first break into the 10xx range by closing right at our low at 1099.

As global markets are reacting to the crisis more pressure will be put on the US market place. Again we will have a large gap open today - a gap that in my opinion will be filled and will clearly be shown as an exhaustion gap - we have traded on the downside and have had no attempts at any rally. I do feel that we will see a change of trend today, look for confirmation around the 10:00-10:30AM mark, if we are not to see a rally from there we will likly continue our downslide without stops - as we will remain fear based the only stops and rallys are incurred through outside interventions. I do expect the feds to cut rates before their scheduled meeting by the end of this month.

Time and Price
As we are trading on fear and are in an area we have not seen in many years support and resistance points are difficult to forecast. We are currently seeing ourselves in a sharp trend downwards and it is difficult to predict price points.

Watch for our bottom at hte 1070 today as this could be the trend changer.

Mid Term
I believe the current fear based moves will come to an end soon and will mark the lows for the year - I am glad that my call for the lows for October back in July worked out - not glad that nevertheless I lost quite a bit of money =) The key in this market at the moment is surviving the fear and getting back to fundamentals and technicals - until this is taken place I will remain very light and trade with little money. There are many great opportunities out there at prices that are very undervalued, AAPL is a good example, RIMM and many others especially in the financials and services industries - in a few months you will look back at those prices and wish you would have been able to pick some up. When everyone is running for the hills and people are selling the smart investor picks up the strong ones that have been beaten down in price and value.

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