Weekend Analysis for Fri October 24th 2008

What an awful market. Yes, no question we saw a whiff of panic today with the strong move lower at the open and with the Vix going crazy reaching 89.53 intra day,  closing on a breakout at 79.13. Well off the highs but still on breakout. International markets were annihilated overnight on earnings headaches and our futures collapsed on that news. We gapped down and slowly recovered all day although there was the usual 1500 points worth of movement on the Dow. After moving all over the place and with the Dow getting within 125 points of break even with about five minutes to go, major selling kicked in and knocked it down to a loss -312 points at the close. The Nas was crushed as well, down 52 points and the Sp was an equal opportunity loser, coming in at -31. Absolutely nothing positive can be said about today's action. There can be some arguments made in defense of the bulls but I don't think they hold any water. I'll discuss that in a moment. There just aren't any buyers. Just short covering. Once that goes away the bears come right back in while the bulls aren't acting very bullish. They refuse to be buyers here. They have stepped aside. A true buyers strike and who can blame them really!!! Smart money is waiting for the right type of hammer to get involved and today was another day in which that DID NOT take place. End of story.

So what was that argument I just mentioned? It's the hollow candles that were printed across the board meaning we had a down day but on balance buyers after the gap open took place. Normally I would say that it is somewhat bullish no doubt and we can have a small rally here for a day or so. I don't think, however, that it was a bottoming hollow candle situation and here's why. When we truly bottom I think it will be clear hollow black candle meaning we will close up for the day. in addition, leaders will lead meaning stocks like Gs won't finish down 9$ for the day. In addition, we will see a huge positive on the advance decline line and once again we saw an absolutely terrible advance decline today. It was an average 3.5 losers to every 1 winner. Not going to be the way it needs to be at the end. Leaders will have huge up days after being down huge early on. You get the picture. Basically, everything we need to see was not there today. It doesn't mean those hollow candles won't offer up a little buying for a day or so but it doesn't even guarantee that. Should we go higher for a day or so, I'd be very careful about getting aggressively involved.

I will not argue with anyone who tells me that some stocks seem to be on sale here. There are so many wonderful stocks out there that have virtually no debt. Some have none at all. Those are the stocks we'll want to own and we're making a long list of those companies for when the time comes, even if it's just for a short term but significant rally higher. You need to stay away from stocks that rely on their payrolls, etc being paid by using credit from places where credit is no longer available. Those stocks are being shown no mercy here. I know no one is it seems but those stocks are being treated the worse. If you have high debt you're in big trouble with this stock market.

Folks, no one alive can understand with any reliability how low this market has to ultimately go before it reaches the bottom. It's pricing in the recession/depression. The environment is bad and seemingly getting worse as more and companies are forced to close their doors or lay people off. Unemployment is increasing rapidly and that will be felt in the months ahead. The market is trying to wrap itself around the concept of increasing unemployment and global demand destruction along with shrinking valuations for just about every corporation on planet earth due to a severe decrease in business. As things move along the market is taking it all in and pricing things out. Forget the nonsense you hear that everything is down too much. Yes, like I said, some stocks are clean and clear of debt but the majority are not and who knows what's fair value to the market. The market will tell us no matter how much those screaming heads tell us they know better than the market does. They tell us things are way over done. if they were, folks would have stepped in already. Smart money knows where to buy first and they aren't buying at this moment in time. That's all you need to know thus the market, in truth, IS ALWAYS FAIRLY VALUED. Whatever it's trading at is always fair value, regardless of what anyone else ever tells you to the contrary.

If were to be totally honest, we've had more situations where capitulation clearly took place. from the bull bear percentage to the the arms index to the put call ratio to the vix, etc. Add in new lows and high volume and the list goes on and on. None of it has worked so it is different this time. It happens. There's always that one market that says not this time. Not so easy folks. We have adjusted to that. There is one element that has NOT occurred yet. We have yet to see the market make new lows with a positive divergence on the Macd on the daily charts along with the appropriate hammer situation i have talked about to death. That combination has not happened over the past thirteen months since the bear market began and thus it's not a shock to say we haven't seen the market try to bottom. The elements are just not in place. When we get that magical combination, you can't be long enough. May live for that day. It's out there. Will it happen next week? Next year? I have no idea. I know we'll see it when it does takes place. It'll happen in the markets time, not ours.

Have a fun weekend. Play with a kid if you get the chance. Better yet, play with one and be a kid yourself.

Peace
Jack