Recession Is Officially Here - Today's Stock Performances Prove It

Just as a crack addict must eventually come to terms with reality and "sober up", so it is with the stock market on this "Cyber Monday", directly following the Thanksgiving weekend. I am sure what many thanks people had this weekend are all but gone when they saw the close of the market today. Well, maybe not everybody. In only one day, the market is more than half way back to our recent set bottom after enjoying a whole week of gains last week. This is what I have always been preaching, when economic news isn't on your side, it's a tough battle to win.

So it seems as if not all the bad news had been factored into the market, which is what some were starting to believe. Now, most everyone is in agreement that we still have a ways to go until we reach that bottom. Of course nobody knows, but lets hope next time people are slower to jumping on this bottom band wagon again.

So why today? Well, first off we had the profit takers. In a bear market, a week long rally is more than you can ask for and if you didn't take any profits on your longs, than shame on you. Second, they're officially proclaiming that we are now in a recession, which shouldn't be that earth shattering for most of us. They say that this recession started in Dec, 2007. Still, hearing it out of the horse's mouth always hurts a bit more. China continues to have problems as their PMI (Purchasing Manager's Index) reached a record low, falling from 44.6 in October to 33.8 in November. These kind of reports are beginning to make analysts very skeptical of China's ability to maintain their 10% growth that they are constantly reinforcing. As time goes by, China is continuing to show more and more of its true colors.

As a result of today's antics, we saw huge gains from every short in the book. Financials took the lead with SKF being up almost 30% (FAZ up over 40%). SRS also finished strong as did FXP and EEV. This combined in giving me a very healthy day of gains across the board. Of course my unsold long options took a hammering, but those losses were easily outnumbered by my very large gains on the short side. It's days like today that I am very glad I sold some options last week!

Today's performance doesn't look like a 1 day fluke. This heartburn could continue throughout the week. Expect world markets to get slaughtered this evening and there is nothing but more bad news tomorrow. We could return back to that 7500 region very quickly.

More big news to consider is Governor Schwarzenegger declared California in a state of "fiscal emergency" and called a special budgeting meeting with lawmakers to discuss the next few months. Believe it or not, California risks bankruptcy and even hints of the thought will cause a very negative reaction to the market. If these troubles are taken further, watch out.

Auto sales are released tomorrow, just in time for the big GM meeting. These figures should be record breaking as no one seems to be buying cars. Also, keep your eye out for Friday, as they announce non farm payrolls. This announcement may be enough to put our recent "Rally Fridays" to an end.

In any case, as we have seen from today, clearly investors aren't ready to run yet. There is too many unknowns that remain to make people comfortable investing in today's market. We should see some strong gains from the inverse ETFs this week. The GM bailout may shake things up for a day or two, but that should be over and done with shortly. The market may still rally back in forth for a bit, with us being in this "bull season", but as I have been saying all along, I believe we still have a ways to go down before we go up again. Have a good evening everybody, Happy Trading and we'll see you tomorrow.

6 comments:

  1. tony Says:

    Everyone knows the market is crazy. However, I've been beating my head over why last week happened. There was literally no good news (except the ones that fed off itself ie: market is recovering in a rally) yet it still continued for a week. I can't figure it out, and now today it rightfully corrects itself.

    Things that don't make sense make me sad.

  2. andy Says:

    i jumped on the SRS train last week during the Turkey Euphoria...
    I contemplated selling, but i felt this week still contains some movement in the inverse dept... So i held position... I dont want to be greedy, but it would probably be a stupid idea to not work the market since im at an advantage...

    Question is, if you think the inverse funds are on their way up, wouldnt it be smart to purchase a couple more shares at the higher price to pick up some extra funds on a short sale?

  3. Bruce Says:

    I had been wondering about Tony's question as well- particularly since I got slaughtered by all the positivity. I can only guess that the market has been savagely beaten down and people really, really want to believe that good news is coming. I suspect FF has some input, but that is my 2 cents.

  4. Finance Fanatic Says:

    Tony, What Bruce said, I also feel the same. Also, remember the Citi Bailout was announced as well as the good possibility of an Auto bailout. These were big confidence boosters for the consumer and then on top of that, many people felt like the worst was over. However, we see from today, that wasn't the case. Remember this is a bullish season, so naturally this market wants to rally, with the historically retail sales being the high point. This is a unique year though. Those are my thoughts.

    Andy,
    If you aren't in inverse funds already, then yes I feel they are a good buy still (preferably SRS, EEV, FXP & possibly some SKF). I already own several shares and bought some more prior to today. But I do feel that short is still the way to go.

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