Monday, March 17, 2008

Equity Market Comment 03/17/2008

Don't even get me started on the Bear Sterns garbage can that was approved today.
I cannot believe how this situation is being handled and I don't even own any of the stock.
I know if I did I would be more irritated then I already am, which right now borders on a loss
of respect for not our markets, but the blatant disregard by the Federal Reserve to even think they had some type of say in the matter. Uncle Ben's respect meter for me has just reached a new low and the size of the negative number is not even measurable.

Wait a minute. Didn't I just say don't get me started and here I am getting myself started.

So lets leave all this behind us now and get into the nuts and bolts of things.
How to make money in the markets.

Today, as noted by the chart of the S&P 500 below, brought the index into the bear market camp with the NASDAQ as we clearly have 5 waves down now with the breaking of the 1272 level. Notice also that the stochastics were unable to reach even a respectable 50 on the last push higher which is yet another sign of a very negative market.

The silver lining here, other than our very light allocation to equities, is the signs of some type of bottom forming in here. We saw a fairly nice reversal today and Tuesday is going to be the tell tale sign as to whether or not we have reached an equilibrium point in equity prices.

If we do get this indication, then we will prepare for the inevitable counter trend rally, which could be quite extensive considering it will be the first counter rally since the inception of the bear market. This potential rally will afford us one lat hurrah in our equity positions, before we put on a 100% hedged position, so make sure you stay tuned.

The Put/Call ratio has reached a point where we typically can expect some type of snap back rally. While there is always the possibility of a back and filling motion over the next few days, this indicator is telling us that for the intermediate term, the worst should be behind us and we should be looking for some signs of a bottom to take advantage of a bear market rally.
Make no mistake.
We are in a bear market and the real blood bath may still be in the offing after the first counter trend rally has run its course.
History has shown us time and time again that with bear markets, we get the initial decline that gets the masses very worried, followed by a very impressive counter trend rally that causes the masses to proclaim the bear market dead. After this proclamation is clearly wide spread we will see typically another decline that is about 162% as large as the first decline. I don't have those numbers in front of me right now, but I am sure you can get some type of mental picture here.
So, for now, remain with the extremely light asset allocation and start to prepare for a potentially strong bear market rally. Don't start buying yet as we still do not have the all clear, but keep that powder dry.

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