New S&P Lows in 13 Years - Negative Sentiment Remains

aig troublesAny hopes for new beginnings for the stock market this week was quickly put to rest as the markets opened down and didn't manage to get anywhere near green territory throughout the duration of trading hours. The Dow closed under 7,000 at 6,763 and the S&P closed just above the scary line of 700, being the lowest in 13 years.

Starting the week on such a bad note can not be good for traders looking for green in the markets. With unemployment news coming this Friday, starting the week on such a bad note sets a negative tone to a week with what looks to have a bad ending. No doubt, having AIG post the biggest losses ever caused for negative sentiment to last throughout the day. We knew it was coming last week, so I don't know why everyone was so surprised. However, amidst the tumultuous turmoil, my schizophrenic personality still remains. I have indeed been doing pretty well during these down trading days, just not as well as I would have a week ago, when I was still in a lot of my short positions. Even though it seems as though nothing but bad news is swimming around us, I do not feel this is the time for me to push the chips into the short side. Here are a couple reasons why:

Although we have indeed experienced deflation, we have not to the degree I think we will. A deflationary down spiral was a key factor leading markets down during the crash of the Great Depression. During the crash between 1929-1932, although a big drop happened in 1929, the greatest damage by far was between 1930-1932 following the deflationary down spiral. So, even though it seems that we are in the worst of the storm, I still feel there may be worse times ahead.

Markets Oversold
There are strong technical indicators that point to the markets being oversold. Just today, 97% of volume was down volume. This is a ridiculous number and, historically, is usually followed by a strong rebound rally. Markets did put up a fight at their strong resistance points, however, faulty government plans and strong negative commentary has helped to push markets further down. Just as markets were being over bought towards the end of the year due to these factors, we are experiencing similar trends on the selling side.

This is not to say I don't believe we could keeping selling our way into a crash. Of course that could happen. I just feel that we are not quite there yet. I try not to listen to the banter of commentators and analysts, as they waffle back and forth on positions quicker than John Kerry did. It is amazing to see how quickly they will change their position of whether we've hit bottom or we've got a ways to go. I blame them for a lot of the clouding of judgement for people to make logical, sound investments. However, some of you may feel the same of my "banter", but hopefully you know these are truly my own feelings and thoughts and that of course the market moves at its own desires. I just try to tell it how it is.

People are saying that the S&P closing over 700 todayis a big hold for technicals and shows some strength. I don't know how much I buy into that, as whether it closed at 705 and 695, it was a horrible day for the market. I do think there is potential for a rally at some point this week, but I don't feel it will have much to do with the S&P closing above 700.

Then there is unemployment. Do you remember playing the game Monopoly and approaching that part of the board that was densely owned by your opponent, in which he/she had also put a variety of hotels and houses on the different properties and just praying that you rolled that number that sailed you right through that section or at least landed you on a chance? Well, that's kind of how I feel approaching unemployment. We know it's coming. I feel it is going to bad, as it has been lately and investors are just hoping that somehow we can "roll" right past it this month and hopefully move on until the next announcement. Well, I don't know if that will be the case, but I thought I would share that metaphor. At any rate, I expect there to be negativity with the number.

So I am continuing to wait patiently for a time I am comfortable to take a more aggressive position on the short side. We saw great gains from all the shorts today and are seeing more love roll around for FXP, which is always good to see. Problems seem to be magnifying in Asia, which could bode well for FXP. Believe me, I would like nothing more but to be in a strong short position, but if indeed we are due for a bear market rally, we have seen how fierce they can be and how quickly they can kill profits from the short side. I do not wish to be the "Dump and Dump", single minded bear activist and say nothing but bad things about the market. I try to make money where the momentum is, and right now I see it on the bear side, but with some short term risk of a rally.

So, on that note, have a good night, Happy Trading and we'll see you all tomorrow.

Get your stock symbol's trend analyzed for free, Click Here


  1. Anonymous Says:

    zecco ads everywhere and now scottrade as well? make your mind up FF =)

  2. Finance Fanatic Says:

    Anon...Sorry, google decides. I choose Zecco, Google chooses scottrade.

  3. Anonymous Says:

    Hello. I've been reading your blog for a while and got couple questions. You've been saying the time is not right yet for the big crash when dow was in the 9000s. When will you feel the dow starts to show the sign of a big crash, perhaps when dow is in the 4000s? Also, many experts predicted the low is around 6500. But now it seems like it's very unlikely. What's your opinion on the low, how low do u think dow is going to drop?
    Also, if dow does drop to 4000s, many big companies would fail, and unemployment rate would be sky high. Then at that point I dont believe US is the safest place to put my money, so no real point in investing in the stock market.
    What are your thoughts?


    The standard and poors five hundred is still the main benchmark.