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*
Market
Call: So Bad It's Good?
* Op-Ed:
What
Global Bailouts Really Mean To Investors
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Market
Call: So Bad It's Good? |
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The great part
about a Jekyll and Hyde market is how there's little ambiguity to it -
it's an all-or-nothing proposition. That's actually a good thing for
short-term traders. For long-term investments it may not mean much,
but
for short-term swings, yeah, this is the kind of environment you can make
some fast money in ... if it's handled right.
Anyway, based
on what we see in the market's underlying dynamics, the right ingredients
for an upside bounce are in place. Those ingredients are (1) exhausted
selling, and (2) over-inflated fear.
 By
exhausted selling, we just mean there's not likely to be much left to sell,
or any willing sellers to shed what they've got. Most all of them already
dumped their holdings, if Monday's and Wednesday's new NYSE lows
are any clue.
On Monday, 1113
NYSE-listed stocks hit new 52-week lows, and on Wednesday, 1142 of them
did the same. That's a massive number, and may well indicate a short-term
capitulation. Of course, this sets up a rebound.
We're feeding
off of July 15th's 1304 new NYSE lows, which was also a huge number, yet
occurred at a short-term bottom. In fact, the 1000+ level seems to be the
market's current limit for new NYSE lows; any reading higher than that
since July of last year has coincided with a major bottom.
As far as
fear is concerned, we're keying in on the CBOE Volatility Index,
or VIX. Much like the NYSE's new lows, we've seen fear at its highest
(i.e. the VIX at its highest) right as major market bottoms have been
made. And, with the VIX hitting multi-year highs today, you can certainly
make a strong argument that fear is boiling over. It's a good thing rampant
fear is almost always temporary, and usually leads to a strong buyback.
Oh, and
the S&P 500 finally touched a long-standing support line with today's
low.
That's just
a lot of big things all coming together at the same time ... too many
to ignore.
A guarantee?
Never - there's no such thing. From an odds perspective though, the scenario
favors short-term bullishness despite how poorly stocks were doing until
late today. In fact, late today may well have been the beginning of
the rebound.
Even so, if
there's one thing we've learned this week it's to not assume things
can't happen overnight. The Lehman, Merrill, and AIG deals were all
struck overnight. Point being, we're not going to dive in blindly until
we can see exactly what we're getting into. More specifically, we're not
interested in making a decision about tomorrow until we see tomorrow's
action.
Bottom line
- If the market can just get a slightly firmer upside nudge, it
could be enough to get a bullish snowball rolling. If that support line
breaks though, look out below. Stay tuned ... something's brewing either
way.
Side Note:
This week is not only an option expiration week, but also a triple-witching
week. Monthly equity and index options expire on Friday, yet so too
do quarterly options. That's a lot of decision-making going on in a short
period of time, and may skew the market until Monday. That's why we're
hesitant to immediately act on our VIX and new low data. If this opportunity
is for real, it will still be around on Monday.
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Op-Ed:
What Global Bailouts Really Mean To Investors |
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What a week.
When some of Wall Street's oldest and biggest names suddenly vanish -
at least in spirit if not in name - you know things are getting rough.
And, that's what we saw; Merrill Lynch and the banking side of Lehman are
now someone else's, and the Federal government essentially owns AIG as
part of their bailout deal. WaMu is expected to be the next bank to put
itself up for sale.
 The
reaction to all the news and the anticipated echoes of these rearrangements
has been, shall we say 'interesting'? And by interesting, we mean
'less
than positive'.
Unfortunately,
one of the questions we've not heard investors ask lately is if
these actions will ultimately be good for the stocks involved in the financial
cakewalk. Instead, most of the market seems to be focused on the mistakes,
the frustration, and the cost to taxpayers. That's certainly understandable,
but fruitless at this point.
Or to say it
another way, investors are getting bogged down by history. Figuring
out who blew it, and how they blew it, won't put one penny back in your
pocket.
One of the few-but-important
core beliefs of our editorial staff is this - you buy stocks for their
future potential, not for their past. True, the past can often suggest
where a company or stock is headed in the future. We don't believe this
is one of those times though. We feel the measures being taken this
week - as painful as they may be - are a dose of much-needed medicine.
More importantly,
we suspect this medicine will start to cure the symptoms within a few weeks.
Within a few months, we expect the underlying illness to largely be gone.
With that in
mind, our message is simple ... this isn't necessarily a time to sell
with extreme prejudice. The time to be a seller was months ago.
Now with the cat totally out of the bag, the industry can start picking
up all the broken pieces. It may be an ugly picture, but this is ultimately
a long-term buying opportunity.
Don't misunderstand
- there are still credit crisis woes on the horizon. We know abut them
though, and can handle them when they get thrown our direction.
 Even
so, it's important to note that the economy and the equity market are not
synchronized
in the way the media would have you believe. By and large, the market is
pretty perceptive - and preemptive - when it comes to the big picture.
Translation: We expect stocks to start a recovery
before
it becomes clear the economy is starting a recovery. If 2009 is indeed
going to be a year for economic healing, then now is likely to be the beginning
of the market's healing.
Prudence, due
diligence, and common sense still prevail. They always will. We'll
also add faith to the list ... faith in the market's (and the economy's)
cyclical nature. The world's financial engine has survived worse than
this, and will undoubtedly face worse than this in the future. It's managed
to come out better each time so far.
However, if
prudence, due diligence, common sense, and faith take a back seat in the
middle of a crisis, it's easy to miss opportunities. Remain defensive,
but don't shut your eyes.
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Updated: 9:18 am PST (17:18 GMT), January 5, 2009
