Thursday, October 16, 2008

Follow Through Day, Warts and All

Today we got what may have been a successful retest of last Friday's lows. The markets rallied and finished up on decent volume, so the big boys may have been spending some money today.

My big concerns are that the markets started rallying off the lows on the back of a rumor (Microsoft is looking at buying Yahoo again...). My other big concern is that tomorrow is options expiration and the Fed has been very active in goosing the markets on the Thrusday and Friday of options expiration week.

In 1929, the markets rallied for 2 days, then cracked for a few days, then rallied for a day of two and then tanked hard for a few more days. The action after the market crash in 1987 was similar. So we may just bounce tomorrow and sell off again.

I think whatever rally we get is not the end of the Bear Market. Stocks will need a lot of time to repair. It normally takes about 9 months of test and retesting a low before a new Bull Market starts.

I am most interested in the areas which benefit most from a rapid decline in systemic risk as the Lehman CDS drama settles next week. The safe havens during this panic has been the US Dollar, the Japanese Yen and short-term US Treasuries. They have benefitted as investors have sold the Euro, Commodities, Emerging Markets and Corporate Bonds.

I am not sure that a tradable low is in, but I now have definable levels of risk here. I may get stopped out of what I buy as early as tomorrow. But I will try and start to scale into positions tomorrow. I am looking to trade only. I do not expect to take any positions that I buy in October into 2009.

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