Thanks to the Fed’s stunning and surprising announcement to cut interest rates by 75 basis points, a melt-down in the domestic markets was largely avoided. After the Dow having been down some 460 points in early going, and closing down “only” 128 seemed to feel like a victory.
Yesterday, world markets got absolutely hammered and the same was about to happen on Wall Street this morning. While the Fed’s move prevented the worst, it doesn’t mean all wounds are healed. Quite the opposite! Many view today’s reduction in interest rates, only 9 days before the next Fed meeting, as a desperation move and an admission that economically we’re in worse shape than generally assumed.
While I believe that at this point the major trend is towards lower prices, I can never be 100% sure, since after this month’s drubbing a rebound is certainly a possibility. While I have added a small short position to cover some of our few sector holdings, I am also watching for any signs of trend reversal and will pull the trigger to go to all cash if market behavior dictates such action.
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Today we had a very bearish sentiment. The indicators $VIX, $VXD, and $VXN reached above 30, especially $VXN reached 40.77. I think tomorrow will have a very dramatic re-bounce since the markets are so extremely oversold. Thus the markets will have at least a staged-bottomed out. This is very similar to the situation in last August after a 0.5% rate cut. I think if anybody still have some ETF funds left in the markets, he or she could use this opportunity to sell them getting a good price. If somebody is brave enough he can benefit from short-term trading some hard-beating ETF funds, such as PGJ and INF.
Dear Ulli, am I right?
Anonymous,
I have to disagree. I think there is more to come on the downside and for most investors bottom fishing is the wrong thing to do. Let this trend play itself out and look for a reversao improved momentum numbers before jumping back in on the long side.
I am writing this on 1/23, and the markets are currently down another 300 points. As I said before, if you are uncertain, stay safely on the sidelines in U.S. treasury only money market accounts.
Ulli…
Thanks, Ulli.
You are correct. Guess a bottom in a uncertain market is like fishing in an ocean using one’s own fingers. It is much more safer after a trend is formed to go long.
Fortunately, I sold all my ETF shares before the current turmoil started except the gold and silver ETF funds. I got rid of the gold and silver ETF funds immediately after the current precious metal correction started 5 days ago. The brutal bear market correction is too dangerous for all inexperience investors.
Thanks again.
Here is how I made $2100.00 today using the idea I proposed on 1/22/2008. Solar energy sector PBW had a hard beating during this turmoil, mostly by the fear mood of investor and they have thrown baby with batch water. Because $VIX peaked the day before yesterday and yesterday, $BPCOMPQ reached 16.92 far below 20, thus today there should be a re-bounce. This morning I watched SPWR in PBW closely, it was dropped down further (it was sitting at 1/3 of its peak value). However, at 11:00 AM it bounded back and at 11:15 AM it formed an up tread. I bought 300 shares at $63.00 and immediately set a stop-loss at $61.00. After about three and half hour waiting, I sold this security at $70.00, and made a quick buck $2100.00.
Intersting short-term play. Thanks for sharing.
Ulli…