Check One

I discussed on the air that the volatility works both ways.  We’ve mainly been seeing volatility to the downside lately.  But, with the Dow up almost 900 points, this is the 2nd 900 point up day on the Dow during this crash.  This is why I’ve been mentioning moving slowly.  Imagine if you sold yesterday afternoon and capitulated after riding this all the way down.  You know as big as this country is that somebody did just that.  You’d be kicking yourself.  So, you have to move slowly in here.  It was dangerous to not own any stocks going into today being that we were oversold but it was more dangerous to own too many stocks for obvious reasons.

There are a few things I need to check off on my list before I commit new capital.  Today was check one.  We had a very strong up day.  Heavier volume, 900 points, and broad participation.  Now, here’s what we need to see next.  Follow through.  Remember, we have not had two consecutive up days all month.  It’s so easy to think the train is leaving the station on a day like today.  But, let’s think about the last time we had a 900 point up day.  Had you sold or shorted the next morning, you would have saved a ton of money.  Also, remember I told you in the past that 300+ up days on the Dow occur in bear markets, not bull markets.  Since 1995, there have not been any 300+ up days on the Dow during a bull market. 

Now, this doesn’t mean we can’t make money even if we’re still in a bear market.  But, navigating in a market that moves this fast is near impossible.  The best thing we can hope for is a weak pull back.  We had about a 70 point drop the Tuesday after we jumped 900 on the Dow a couple of weeks ago.  That was ok.  It was the next day when the Dow dropped over 300 points.  That’s how we knew it was just a short covering rally.  So, the bottom line is that it’s just too early to analyze the rally after one day.  I have been seeing some of my oscillators making higher bottoms even though the market had closed at lower levels.  So, that’s a positive divergence.  Also, many are saying we’ve successfully tested the intraday low of October 14th.  Perhaps.  But, I caution you as I have in the past that successful double bottoms typically don’t come this close together.  So, let’s breathe and see if we get some follow through tomorrow.

By the way, consumer confidence hit a low of 38.  It’s an index that was at 110 about a year ago.  The estimate for was around 51.  This is very correlated with the stock market and I’ve never seen this low of a number.  But, it’s more of a lagging indicator as people feel sour after the market has gone down.  But, still something to keep an eye on.


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October 2008
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