Now What?
There are no
words to describe last week’s action. The drop, the volume, the wild
action … where does one start? First off, it is going to be very important at
this juncture to drown out all noise. If you don’t, you will pay a stiff price.
What kind of noise? How about every
strategist trying to compare this tragic event to others? Frankly, it does not
matter one iota to me what happened in 1941 or 1963. How about all the talk
about all the bearish sentiment that now pervades the market? This matters to me
a little bit…but after a 2000 point drop in three weeks, it is to be expected.
How about all the talk about the
market now being undervalued? Even Barron’s ran an article about this.
Yes, I said Barron’s. How about all the talk about the Fed dropping rates
one more time … or more tax cuts … or capital gains tax cuts … or
government spending to spur on the economy.. or oversold conditions? How about
all that? Flat out...I don’t care … and you
shouldn’t either. If I have learned one thing in the past 18 months, one thing
that will stand the test of time for me…is that one needs only to listen to
the market.
For the past couple of months, I have seen several technical occurrences that
have kept me from hardly doing anything. Whenever they all hit at the same time
… it is time to head for the hills:
- when
there are no breakouts … - when there are hardly any setups
… - when the major indices break
support … - when leading sectors break down …
- when my gap-down
list hits a record high … - when the markets drop on heavy
volume and rally on light … - when insiders are selling en
masse after drops.
What is most interesting about these
occurrences is they all happened before Sept. 11.
The markets were already in bad shape. My point is if you had listened to the
markets, you would have missed most of the recent damage.
Now what? Beats the heck out of me. Anyone who thinks they have a beat on this
one has next week’s newspaper today. My best advice is to do nothing insane.
Last week’s drop was historic in both price and volume … and now volatility is
picking up and should continue. Sentiment is now off the page but that is to be
expected after such a large drop in a short period of time.
But one must remember, oversold can
become much more oversold, which is exactly what has happened. So, just because
the VIX, VXN, Put/Calls, Bulls vs. Bears and the TRIN are all flashing green, it
doesn’t mean the markets are ready to stop the carnage. I
do expect the first bounce to be a big one … but I have no idea how
long it lasts, how far it goes or from what point it starts.
Hang in there and stay tough…and God
Bless
America.