It wasn’t a good day for those hoping that the market had put in a bottom on November 20th, at least from the Dow 30’s perspective, as the Dow Jones Industrials finished at the lowest level in six years.
As we discussed yesterday the indexes holding large exposure to the financial sectors continue to get hammered. The S&P 500 Financials Index retreated 5.2 percent to its lowest level since January 1995.
The Dow 30 is having a hard time overcoming its zombie bank positions in Citigroup (C) which fell to a 17-year low to $2.51 and with Bank of America (BAK), which fell for the fifth day in a row, closing at $3.93, which is a 24-year low for this company.
However, even the “Rock” Prudential Financial, the second U.S. largest life insurer, was hammered after Fitch Ratings lowered its short term debt rating, making it now ineligible for the U.S. commercial paper program.
American Express, the biggest U.S. credit-card company by purchases, lost 8.7 percent to $12.87, a 12-year low, as credit card defaults rise to a new high of 7.53% of outstanding credit card loans.
You may be wondering if now is the time to short the stock market and if so, what should you be shorting.
You have to understand that my main concern is getting you through this bear market with your capital intact and since November, the market has been in one whipsaw after another in a mostly sideways trend.
In a whipsaw market, both sides of the market are going to cut you to pieces and that has been painfully obvious over the last few months.
The Federal Reserve is a big buyer of stocks and they have been pouring money into the stock market, to hold these critical lows - desperately trying to keep the capital markets from collapsing.
While the Dow Industrials and Transportation indexes have confirmed the bear market’s primary trend, the S&P 500, the Wilshire 5000, the Nasdaq Composite, the Nasdaq 100 and the Russell 2000 are all well above their November lows, so the jury is still out on this one.
After selling down over the last few days, the stock market is now short-term oversold, as the broad market approaches its November lows, suggesting a short term rally could be in the cards. This makes shorting the stock market just above key support levels a bad timing entry point for the shorts.
Investors have been hiding out in the health care sector, biotechnology, technology and of course gold stocks, hoping these sectors will weather the financial storm.
Whether they will remain in these sectors is a question I can’t really answer. This is why we let the market answer this and from the looks of things we really don’t have to wait long to find out.
Either the broad market will hold its lows or it will violate them. If it holds its lows, the shorts are likely to run for cover and the market could stage a March/April rally, as it typically does from a seasonality perspective.
If the market violates the primary lows, as I think there is a real risk of happening, shorting the stock market only makes sense at the next short cycle high.
This is why the stock market is so tricky right now as timing is everything at such a critical juncture.
From an intra-market perspective, the markets were a boil with today’s news.
The Conference Board index of leading indicators surprised on the upside in January, jumping 0.4%, which to some suggests the pace of the economic deterioration, is starting to slow.
In any case, the US dollar which is short term overbought sank today, along with the news, that for the first time this year, U.S. crude oil inventories shrank, and imports fell by 859,000 barrels a day, according to weekly data compiled by the U.S. Energy Information Administration.
Crude oil prices, which are short-term oversold, but overbought on an intermediate term basis, jumped sharply on this news, climbing $4.86 a barrel.
Then the Federal Reserve says it’s not going to purchase U.S. securities any time now to lower consumer borrowing costs, which sent bonds down for the day.
It looks like the Fed is starting to use some psychology here.
I am starting to get a headache. Just stay out of the market until we see how this unfolds.
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