Thursday, October 02, 2008

Market Assessment, Oct 1/08


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Although short term technicals might not work very well in current market conditions, the above resistance level @mid-116's jumped out at me right away. Breaking above it for any sustained length of time may give the bulls some "bullets" to attack at the daunting number of resistance levels above that......!

BPSPX is now at around 25, which is the same level that was reached in the mid July short-term bottom. So, crazy as this may sound, I think we are close to another short-term bottom. By no means am I making any calls of the market bottom. That said however, I see some signs that the pieces are in place from which a short-term, dead cat relief rally can occur. Bearish pessimism is at a 52-week high (if you can measure such a thing), and the number of stocks making new All-time highs is at an all time low. VIX is also at levels not seen since 9/11/2001.

But really, the defeat by the House of the Bailout Plan was certainly a black swan event that no one even remotely fathomed could occur, and I think it may have caused a few of the bigger market participants to liquidate. A clearing of the slate, or flushing of the toilet, if you will.

However, caution is of utmost importance here. I would liken the Houses's second crack at the Bailout Plan to an FOMC interest rate type of market moving event. I think the House is scheduled to vote for it in the afternoon. If the House defeats the Bailout Plan again on Friday, then sell everything you have, pack your bags and hide in your bunker for the next few years. If the House passes the bill, it's still not clear how the markets will react - just like the reaction to an FOMC interest rate event.
There might be a trading opportunity, but it might be just as well to watch from the sidelines for now.

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