Now What?

Well, the bill passed both the House & the Senate and the next question is “now what?”.  Where do we go from here?  Over the past week, I’ve heard so many times that once this passes, the market will rally for a while.  I don’t necessarily buy into this simply because everyone was saying that.  But, let’s examine where we really will go from here.  

Credit markets are still tight.  The passage of the rescue package helps but no immediately.  To me, this is viewed as a positive and the Fed should have come out today right after the passage and dropped interest rates aggressively.  Investors need to get bombarded with positive news.  Give us more please.  As long as credit markets are frozen, it’s going to make any equity rally short-lived.  So, we need to continue to watch that as a cue for the equity markets.  

But, what’s my ultimate strategy going forward?  I am looking at making a two-tiered approach.  It will be going long very cheap long-term investments but shorting the overall market that economically makes sense.  So, if we get significant rallies in materials and my economic forecasts still look weak, I will be shorting materials & commodity stocks.  At the same time, I want to continue to buy financials slowly.  Not just the equities, but their respective bonds as well.  Healthcare stocks look attractive right now mainly because those that have to stay in stocks will flock to this area.  Also, with the passage of this bill, any spending on a socialistic healthcare plan by the Democrats will be postponed for a long time.  That gives the green light to healthcare stocks.  That’s the plan for the next several months.  Probably net short at some point but more than likely not until we get some type of rally that brings back a little confidence.

For the next few days and potentially weeks, I still believe we’ll get a meaningful rally simply due to the fact that the oscillators I watch are pinned too much to the negative side and will swing back the other direction.  Fear is still very high and we should get a rally soon.  But, I will continue to use rallies as selling opportunities and shorting opportunities.  I sold more stocks earlier in the week before the big drop yesterday.  

As I’ve mentioned before, do not make big moves in here.  The volatility will continue.  Even today, we saw a buy the rumor, sell the news.  Up 250 points before the vote and then turning negative after the vote going into the last hour of trading for the week.

1 Response to “Now What?”

  1. 1 Hedge October 3, 2008 at 1:47 pm

    I agree, Karl. They should have begun hitting the market with a sequence of goodies. Instead, we get this from Treasury:

    02:42p CST =DJ US Treasury Won’t Make First Asset Purchase For 4 Wks
    By Meena Thiruvengadam and Jessica Holzer
    WASHINGTON (Dow Jones)–The U.S. Treasury Department won’t begin buying
    soured assets from Wall Street for more than four weeks under a historic
    financial-markets rescue package enacted Friday, according to a person familiar
    with Treasury’s thinking.
    That timeline is longer than many in the industry had expected, but the
    person Friday said “it wouldn’t be possible” for Treasury to make its first
    purchase any sooner.

    And the market immediately drops again.

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