In A Bear Market, The Bear Prevails

gm crashWell, already we are seeing a change in speech and sentiment from news anchors and analysts, who are now considering that indeed we may not have seen the worst for the stock market and that we are still vulnerable to some more downside. This is why it is so dangerous to go long during a bear market rally and why I try to avoid it as much as possible. This is because most influencing forces are pushing stock prices down, when, usually, only technicals and speculation cause for stocks to rise. No matter what the government announces and how much money they spend, there is still going to be bad news reports after bad news reports that cause for a lack of confidence in the equity markets.

Today it was the autos, GM and Chrysler specifically, causing much of the problems with the market. The market was doomed at opening, when the Dow opened down over 200 points. At one point during the day, the market was down almost 350 points until the market started pulling back the last hour of trading. Today was definitely not the way bulls wanted to start the week, especially already seeing a slow in their recent aggressive rally.

The bad news came when GM's CEO was asked to step down and President Obama rejected the auto's turnaround plans and said that he wanted the US autos to be able to compete internationally and that the auto industry was not currently heading in the right direction. He also gave Chrysler a 30 day ultimatum to get their debts in order, which would take a miracle if they could pull that off. Obama tried to reassure everyone that the government has no intention or desire to run the companies internally, however I don't know if anyone bought that.

The new GM CEO later said in an interview that due to the recent demands of the government, GM is considering bankruptcy, which was not discussed as an option previously. They would still prefer a restructure outside of court, however due to the most recent demands from the government, a controlled bankruptcy may be the road they choose to go.

This is just one of the many problems the market is vulnerable to. In this type of economic environment, everyday is a new day of risk of something very significant being released to negatively influence the market. The more devastating fact of the auto bankruptcy threat is when you consider the massive amount of bailout dollars that was spent the first round to try and keep them a float. This result is not very encouraging, especially when you consider how much money we just spent on commercial banks and AIG. This is why too much government intervention can, ultimately, be worse for the market than if they had let nature takes its course.

The shorts soared today. My SRS and FAZ call options in my account both saw big gains throughout the entire day. Due to a family emergency I was unable to make any moves toward the end of trading, which I may regret, if we see a rebound tomorrow. I personally don't feel this is necessarily the beginning of the long road down, as there is still some potential positive news coming soon, but continual problems with the autos could very easily send the market down another 3-400 points. This is a very critical time to watch how the market reacts and what the charts look like. I will make sure to keep you all posted if I personally feel something is coming. I have enough gains in my SRS at this point (buying it at under $50) that I can afford to sell tomorrow if I do begin to give back some profits.

At any rate, this is a good sign for bears. Not only does it prove the significant downside risk we are still vulnerable to, but that indeed even with great help from the government, many programs and companies will still fail, all while increasing our national debt more. So, tomorrow acts as an important day for bulls to see if they can stop this path downward. One or two more days of strong selling could cause for a change of winds for the market. So keep on your guard. Happy Trading.

PS - I apologize for the current problems for new people wanting to subscribe to the podcast. There is a logistical problem at Paypal at the moment that I have been assured should be fixed ASAP. For those already subscribed, you should not have any problems hearing the new podcasts. I'll keep you updated.


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