First thing I want to say is that no one should "count" on a bounce. Suddenly
the bulls are coming out of the wood work to say that a short term bottom is in.
But, I say again…you CANNOT bet the farm on a short term bottom, if that is what
is currently forming. I can’t emphasize enough how precarious the market is at
this point. Regardless of current technical indicators, the potential for a
significant market downturn is STILL on the table. Today we advised closing the
index shorts after the action that occurred in the S&P around 1:45pm. What
was becoming a bear flag from 12:15 pm to 1:30 pm turned into a failure, and the
flag formation broke to the upside. A catalyst for this break to the upside was
the vehicle sales data from General Motors (GM). Their sales were bad, but it
was not as bad as the market had been expecting.
Additionally, GM said they expect the economy to recover in the 2nd half of
2008. It’s interesting that this is the same company that only a month ago
announced significant layoffs, plant closings, corporate wide restructuring, and
announced that "high fuel costs are here to stay." This caused them to change
their future manufacturing plan for many years into the future, but now they
think things are improving? We do not share the same view of the economy as GM
stated today. On the contrary, all indications continue to point towards a
worsening economy with long term implications. During the wild action and
volatility that began at 1:45, Lisa and I discussed our positions and current
recommendations. It was agreed by both of us that in the short term it was
better to take our profits off the table, and good profits they were indeed, and
play it safe. But, we are NOT recommending any long investments here. There may
be some short term scalps on the long side, but we are still teetering near a
cliff and we have economic data coming that could cause significant damage to
the market in an instant.
Volatility remains elevated, and in that environment the market remains
extremely bi-polar. It could snap one way or another very quickly. Contrary to a
recent comment, the US dollar is currently unstable. This is reflected by the
wild swings in the FOREX markets, as well as the rise in Gold prices.
Additionally, with the ECB rate decision coming on Thursday morning, there may
be some additional FOREX (and US dollar) volatility coming.
Nothing has changed today from yesterday. The bounce in the market witnessed
today was mostly technical with a kick in the pants by General Motors. I do
believe that if it were not for the GM sales data we would have closed
significantly in the red. Regardless, the bounce that did occur was not
convincing to us for volume levels were not as high as I would have expected to
see on a significant technical rally.
