No Deal Today – Short Stocks – Take Profits Before The Bell!

September 30, 2008

Yesterday, we saw the market’s reaction to a failed effort by Republicans and Democrats. Our financial system needs a bailout plan. Credit markets are starting to lock up and banks have lost faith in their counterparties.

An enormous insurance company named Fortis was bailed out in Europe yesterday. The credit crisis is spreading around the globe and financial institutions are interdependent. Foreign markets have been hit hard and we are not the only ones feeling pain at this juncture.

Over the weekend, Citigroup bought Wachovia and while that should be viewed as a positive event, it scares me. Big banks are getting even bigger and if Chase, Bank of America or Citigroup falter, a meltdown could be at hand. They have truly become too big to fail.

Legislators have committed to reaching a solution in the next few days. They realize that time is of essence and hopefully they will put their partisan issues aside. O’bama has gained momentum and the market is factoring in a victory. Higher corporate taxes and increased capital gains taxes are not sitting well.

I believe Friday’s Unemployment Report will be weak and if a bailout plan has not been approved, the market will crash heading into the weekend. Traders are impatient and they’ve waited long enough. Legislators either don’t understand the gravity of the situation or they simply can’t get beyond their differences. Neither scenario bodes well for our future.

The market is deeply oversold and a bear market rally could materialize at any time. All of the sentiment indicators (put/call ratios, implied volatility, A/D, bearish sentiment) are at extreme levels. The bailout will help to calm nerves, but I doubt that it will spark a sustained rally. Troubles still loom and the effectiveness of the plan won’t be known for quite some time.

Nothing will get done today and I believe this rally will come under pressure by afternoon. I am shorting here with stops and I am day trading this market because the overnight risk is too great. The bailout (or lack thereof) and the Unemployment Report will provide plenty of fireworks this week.
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September 26, 2008

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