Much like last week when we had a 400-point advance, and in the following days, we saw the market sell-off of those gains, today was no different. After having over 4% days in the NASDAQ and S&P, both indices gave back about 2.5% of those gains. The driver wasn’t any significant piece of news, rather renewed fears that more banks could be in a similar situation much like Bear Stearns.

Market participants find themselves between a rock and a hard spot. Talking heads were quick to call a bottom in the market yesterday (you know who you are!) and eventually they may very well be right. But to come out and say it so quickly, given all the pressure the market has and continues to be under, is irresponsible to say the least. With that said, we at Shareplanner continue to be skeptical of any market rally, and what we saw today, shows you why we continue to be bearish on the current state of the market.

Let’s review the charts…

March 18, 2008

Those who have been waiting patiently for the market to give them a strong rally, got their wish today, and eerily similar to last Tuesday, we rallied 3.5% - 4% across the major indices. Though the market was up from the very start, the day’s rally can be attributed to the Federal Reserve’s 75 Basis Point cut in its key interest rate. The initial reaction to the announcement saw a quick sell-off, but the market soon re-gathered its footing and from there, went to the moon. Like most of these hard rallies that the market has seen as of late, it has been unable to continue with any significant follow through the next day. Today’s rally alone brought us off of oversold conditions once again, and as a result, we could see some profit taking tomorrow.

The best thing the market can do at this point is rally through the 50-day moving averages of the S&P and NASDAQ. However, you can be assured that the bears will be poised to reload at those levels, to stop the bulls from advancing further. Don’t be too quick to commit your portfolio to the long side quite yet. If we are truly turning the corner in this market, then there will be plenty of time to take advantage of this rally.   

Let’s review the charts…

March 17, 2008

Who could ever imagined that a stock, not too long ago, that had a market cap of $20B, could be taken out shortly thereafter by a rival company for $2/share or $236M? That is exactly what happened with Bear Stearns today and according to the market’s reaction to its buyer, JPMorgan Chase, got a deal. However, the major indices suffered, though the Dow finished in the green, this is primarily because JPM was up over 11% on the day. The major question that everyone is asking at this point is whether BSC is alone in this financial collapse, or are there still more to come. Because of this uncertainty, we saw a large number of banks take a beating today. Most of your banks outside of JPM got taken down on average anywhere from 5% to 15%. The likelihood of the matter is that it will probably get worse before things get better.

We have the Federal Reserve holding their regularly scheduled FOMC meeting tomorrow, in which they are expected to announce another rate cut. The Fed Funds Rate currently stands at 3%, but many are expecting a slashing of anywhere between 75 to 125 Basis Points. The Fed Futures has already priced in a 75 BP cut; how the market reacts to news of a Fed cut will be interesting. On one hand, if they cut too little (i.e. 25 or 50 BP’s) the market will be unhappy and sell-off further, but if they go to the other extreme and cut 75 to 100 BP’s then the market could panic over how aggressive the Fed is cutting, because perhaps they realize that the economy really is in major trouble. So they could be caught between a rock and a hard spot tomorrow. The key will be to find the middle ground – our expectations at Shareplanner is a 75 BP cut. How the market will react is the million dollar question. But we all shall soon see come 2:15pm tomorrow.  

Let’s review the charts…