Stock Market Analysis

Monday, September 08, 2008

"Possible" Start of A New Leg Down?

Some of you asked me yesterday why I used the term "Possible" start of a new leg down and not "Confirmed" new leg down. I think today's market action answered that question. There is no such thing as "Confirmed" in the stock market. Anything can happen and extraordinary things do happen from time to time. This is also what kept the old timers like myself in the stock market for so long... we are never too sure of our own conclusions and never put all our money behind anything. If I am one of those ignorant, arrogant new timers who use terms such as "Confirmed" and "Certainly", I would have been killed in the stock market long ago and not have done 12 good years of trading.

Ok, back to today's market action.

The US government's announced bailout of Freddie and Fannie caused widespread speculation that this might be the end of the financial crisis, hence the surge in the Dow today. But does a single action like this solve all the problems that have caused the correction so far? Definitely not. The water's deeper than that and requires a lot more than just one government bailout. In fact, the Dow merely reversed back into its intermediate neutral trend today and after-market futures doesn't look like investors are following up on it. A look at the Nasdaq composite tells a more dismal tale... all the profits taken back within the day itself to to nearly close flat, suggesting that pessimism still lingers. Market could continue to go sideways from here as investors digest the information and see if there's any more followup action by the government.

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