MARKET COMMENT
October 13, 2008, by Dave Fry at ETF Digest.
Yeah, they’re tossing everything they’ve we’ve got at markets. Lloyd Bridges line from the movie Airplane may be what we all need right now eh?
With markets deeply oversold we rallied mightily on the backs of coordinated efforts from global monetary authorities. So that’s the bottom then right? Well, one day doesn’t make a trend. But, it’s enough to get out of their way. There’s no sense rope-a-doping unless you’re really stubborn. We’re flat thankfully but then tomorrow’s another day.
From the headline you might think this was a 90/10 positive day as shorts were squeezed, but I can’t confirm that based on the data I’m seeing. The only flaw is that volume isn’t as heavy as previous sell-offs. But, no matter how you slice it an 11% plus up day is spectacular and that will be the headline. I believe the day after Black Monday 1929 was up 12.24% and the next day up 5.82%. But it’s different this time, right? The media will headline the points gained which is understandable.
On all the following “weekly” charts please note that the RSI [Relative Strength Index] had been below 30 which is just one indication of the severity of oversold conditions. But, as of today anyway, that condition has been relieved in most market sectors. Now why didn’t I highlight that? I forgot and am not going to redo them all because I’m lazy.
With so much money being thrown at the markets, and with conditions deeply oversold, it was just a question of time before we got a snapback rally of great proportion. This certainly qualified and the magnitude of it took most by surprise. Thankfully, whatever short positions we still had left were eliminated shortly after the open. We made money and now are flat.
What next? That’s the big question. Bear market rallies are usually the strongest and today would make a believer of any skeptic.
Government printing presses are running overtime and all this is very inflationary. But that’s always the choice politicians make and authorities succumb to every time. Ultimately gold and commodities should respond but that’s not the name of the game today. It shouldn’t surprise anyone if central banks were selling the precious metal to pay for all this fiat printing.
We still have plenty of problems and not much was changed today except psychology. But that’s always an important component of investing. We still have unsold homes, foreclosures, derivative unwinding, crummy earnings coming and so forth.
Volatility is not removed from markets yet and it’s as likely as not that the markets will retest their recent lows. That’s the way it generally plays out.
Some investors were encouraged to buy like famed but failed dotcom trader Julian Robertson who was delighted to announce that decision from the comfort of his digs in New Zealand. It wouldn’t surprise if he was selling his recent buys to you.
So, there will be plenty of table pounding and those calling today the sign of a bottom. Perhaps it is. But the way I see it, we’re just not as oversold as we were coming into today.
I’m content to lay in the weeds for a bit and enjoy the show before joining the crowd whether to reshort or go long.
Have a pleasant evening.
Disclaimer: The ETF Digest holds no positions.
