Tuesday, March 18, 2008

No Bottom In Sight...Yet

After what may have looked like the set up to a bloodiest market open in years, we ended with the Dow UP 20 points!?!

Sunday night, real panic started to amount with headlines of Asian markets shaving 4-5%, and of course the news of Bear Stearns being taken away for a mere $2/share. The Futures prior to market open, showed a -300 pts on the Dow index. So what happened? Are we at a bottom now? Has the market sentiment changed from bearish to bullish?

Here's why I think it'd be foolish to enter long positions right now.

President Bush, Hank Paulson & Ben Bernanke had a meeting this morning. Those three men, individually and collectively, have made this credit crisis worsen. President Bush does not want to admit fault while he's in the White House. So he's decided to take on the role of showing strength in the midst of economic crisis, which is quite admirable. However, he either doesn't understand the severity of the problem or doesn't care to fix it. For the other two men, they had to make a decision of either dealing with slowing growth & credit issue or rising inflation issue. By continuously cutting interest rates and adding liquidity to the market, they've decided to tackle the slowing growth and credit issue first. However, there's a strange trend that's developing everytime we hear of Fed intervention. When the Fed act, they are referred to as the white knight that's come to save the day. To SAVE companies and people from danger. It may sound like they are doing a great job of saving the market from crashing but why not act so that they don't have to SAVE it all the time.

Take past few days for instance. Fed acted last Tuesday to make $200 billion available for companies to loan. The market popped cheering hooray! Some investors came in thinking we are either at or near bottom. But if you think about it, after Ambak deal disappeared like smoke, they had to make a move to save the market. Now Bear Stearns goes down and they make very urgent moves to prevent a catastrophy in the market today. They managed to succeed in doing that, but once again, they acted because they had to. If you've decided to tackle a problem, why not act to prevent it. It's been said on CNBC that had the Fed acted in this manner a week ago, Bear Stearns would not have gone out of business.

Why didn't they cut by larger percentages sooner if we are going to go down to possibly less than 2% lending rate anyway. Why say that you'll act 'if or as necessary' when the necessity for their action has been here all along? They have been behind the problem and continue to lag. Come Tuesday morning, the Fed may announce anywhere from a 0.50% to 1.25% cut in interest rates. I think it really doesn't matter. We've seen this before and everytime, the stock market falls. It may take a day, two days, or maybe a week. But the initial positive reaction to the news in the market will disappear until market makes a technical bottom. Look back to the 400pt move in the Dow last Tuesday, or the great reversal that happened last Thursday to end higher after being down -200pts. Where are we now? Again testing the lows of January, and again hoping for the Fed to rescue us. It is time to stop believing these rallies. If you are an aggressive trader and you know what you are getting into, then feel free to play the bounce. But for those who thinks this is time to go in and hold for next 3-5 years, your timing will most likely bring some pain.

However, the real pain isn't here yet. People talk about the overly bearish sentiment on Wallstreet and it's true. We'll have a short term recovery shortly. But hardly anyone outside of wallstreet or those who trade for living like Titans of Wallstreet worry about the market and the economy. Most people aren't aware of the significance of Bear Stearns going out of business. Most people don't know about the impact of interest rate cuts. Some people will talk about high oil and gold prices but they don't know why or how everything they purchase from a supermarket has doubled in price. It is only when the general public becomes aware of credit and inflationary issues that we'll reach a bottom in the market. The end of the Bull market came when literally everyone cared to give me their opinion on the market, some even stock recommendations, upon hearing my decision to become a trader. Everyone talked about google and apple stocks rising. Similarly, we need for everyone to feel that you can do nothing but lose money by investing in the market. The negative underlying sentiment that people have on the practice of Investing in Stocks will rise to the surface. That's when Titans of Wallstreet will prepare for the arrival of the new baby Bull as the three wise men did for baby Jesus.

Until then, this Bear is here to stay.

I have not exited from my short positions. My S&P 500 downside target remains at 1240 on the close. (currently 1276)

Rino Choi
Titans of Wallstreet
Senior Market Columnist

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