Bulls on the Ropes
With three hours left in the trading day, it is difficult for the bulls to be thankful. This was supposed to be the week where we would get a seasonal rally and the markets heading higher. That plan needs to be put on hold.
Even though we have been lower all day, there were a few positive signs. The DJIA had bounced off 13,000 multiple times and Apple (AAPL), Research in Motion (RIMM) and a few other high beta stocks were showing resilience. In the past 20 minutes, these positive signs disappeared. The DJIA continues working lower and the high beta names are breaking down.
As the market cascades lower, we are approaching the August lows. If those levels do not hold, I expect to see the DJIA crash toward 12,000. Given the losses incurred over the past three weeks, we are staying on the sidelines. While it may be tempting to buy this dip and await a rally, we fear that downside risk far outweighs the upside potential. Until the bulls prove they can sustain a rally, we will look to short beta and resist the temptation to deploy capital on a long-term basis.
I think you’re right, but historically, the Monday before Thanksgiving is usually a day of weakness. I think we’re pretty oversold and the 300 point pop we had last week showed it. I think we’ll have a bump tomorrow. I will say that if the S&P goes below 1420, just like you suggested with the DJIA, we’re in for a bad freefall.