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The Trend Is Still Down
Author: Ravi Prakash (info)
Website: http://www.optionstradinglessons.com/
Posted: January 28th, 2008 at 11:35 am EST
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Well we did get bad news and heavy selling on Monday in the World Markets that led the Feds to drop overnight rates a whole 0.75%. That provided a small relief and the Market saw a little bump up. Given the current sentiment and volatility it is difficult to take profitable positions. One sure way to decipher the trend is to follow the charts and see what they say. Right now they show a trend that is pointing down south. Any recent buying has been quickly matched by heavy selling. Traders are using every pop up to unload stocks. Based upon the charts there is no clear end to this trend right now.
The sell off on Monday around the world has been attributed in big part to the fraud trades carried out by a 31 year old rogue trader at Societe Generale (2nd largest bank in France). How a singe trader could create a loss of over $7 billion all by himself without the bank finding out sooner just had my mind spinning. The Gods surely have it out for the financial sector; they are not getting a break. I wonder if they have to make a sacrifice in order to appease the Financial God. Which firm should get taken down?
And then in a case of truly ill timing the US Government has chosen now to voice their concern over Sovereign Funds bailing out our financial institutions. The money is helping out the firms at this time when they are most desperate. What the Market is looking for is assurance and some clarity going forward, not Congressional hearings questioning their Sugar Daddies. Besides there is no guarantee that these funds will make money, they could potentially lose money on some of these deals. Just ask the Chinese Sovereign Fund about their $3 billion investment in BlackStone Group.
The Street expects the Feds to drop interest rates further next week. A 0.25% seems certain but many are looking for 0.50%. Very soon the Feds are going to run out of monetary ammunition. The latest drop in rates did not do much. The fiscal package is probably going to be made official next week. Let’s see if that helps. In the long run all these moves will eventually push the Market up. However, for now it seems any and all news is bad. I suspect we may see one more round of heavy selling before the Market finds its footing.
The one thing I have noted is that the DOW Transportation index did not move down with the DOW this past week. It may be too early to read anything from this disparity, but remember the $TRAN index is considered a leading indicator. At some stage the selling will stop and any/all news will be treated as good news. The catalyst may be a merger between two big financial institutions or a sacrifice of one of those institutions.
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Authors, Investing, Options, Ravi Prakash, Trading
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