The old pump and dump game continues today. As I posted yesterday, I expected a strong corrective bounce at 1410 support level. Well we got a belated bounce today, which was a day late, but not too surprising. This bounce does not change anything from the technical perspective, though, psychologically it can play some games.
The bounce came as a way to defend the support level generated from August 18th bounce, which marked the short term bottom from that terrible month. This time, that support level proved to be formidable. But I don't think it is insurmountable. You cannot discount the fact that on the daily chart, the SPX sits firmly below the 200 day moving average, and that the 50 day moving average is getting closer to the 200 day moving average, in what will eventually form the "death cross". The volume was just slightly greater than the previous day's volume, which was not impressive.
The real truth will be told when traders return tomorrow to digest the current events. Many would argue that this environment is ripe for the "Santa Rally". However, we are dealing with many harsh economic issues that was not in play in prior "Santa Rallies". Many pundits have called this the temporary bottom, but it is difficult to tell as no one really knows what the stock will do, other than to know that the trend is firmly negative to the down side.
If SPX within the next few days test and hold below the 1410 level, then the test of 1380 level will be in order. Can that happen? Yes, but equally so, the counter view point that the market may have hit temporary bottom must also be heeded. Given the current economic climate, I would bank on the fact that the selling will continue.
You see, today's bounce across the board had that feel of an artificial pump. But a key thing to remember is that despite the impressive run up today, it still failed to erase the damage done on Monday and we still sit firmly in "corrective" environment. As many know, I subscribe to the fact that we ARE IN BEAR MARKET NOW!
Bear markets can be very volatile with huge price swings. As stated before, unless you are nimble it doesn't matter if you are long or short, it is best to stay in cash. Otherwise, buying shares of QID (Ultrashort QQQQ) is recommended, and add to these shares as markets rally.
It is extremely important to realize that today's bounce was corrective and is engineered to be sold into the rallies. We still have severe economic cross currents and I would not jump the gun and start buying right now. When the time is right, I will change my bearish stance and go bullish. But right now is simply not the time. Anything other than an intra day trades is not recommended. Keep tight mental stops and take small losses whenever possible and do not be a pig. The market gods are out in full force and it is even more critical to know the bigger picture of where our market and economy is headed.
So many believe that Citibank (C) caused the rally today. At least that is what the mainstream media would lead you to believe. But when was the last time you saw any entity whether it be a human or an organization, that takes out this type of a "loan" with 11% interest just so that it can save the dividend? Did that even make sense? Are these people nuts? The action today in Citibank (C) was not a positive one. It is akin to someone taking out a payday loan knowing that they can't really pay that back so they get caught in a vicious cycle of debt. That is exactly what Citibank (C) did today. Trust me. If they had other viable options, they would not have taken these "loan shark" of a deal with the Arabs. What is this company thinking? Beneath all the hype, it reveals desperation. It doesn't signal a bottom but rather worsening of our financial system. This is not a positive event. It is further proof that Citibank's situation is more dire than usual and that the management is clueless. At least Freddie Mac (FRE) did the sensible thing and cut dividends by 50%. I just cannot stand the fact that Citibank is still concerned about the stock share price. That is why they did what they did. But I could see this stock going to the teens by next year.
Are we at the bottom? No, we are nowhere near the bottom. But enjoy the bounce, for those who are so inclined, and ride it only for a short time, lest you get whipsawed into a frenzy. The markets these days have a way of bitch slapping you in the face, just as you feel smug.
Tread carefully out there.
Comments
2 comments:
I think despite your nice little chart and rhetoric, citi will bounce back within the next 1-2 years.
Banks don't just borrow money out of desperation. They are still hugely profitable and yes, there is much more bad news to come, but when a company is $160B, write DOWNS, of 20B
is hardly enough to kill it.
Jad,
Thanks for your post. The truth of the matter is that Citibank while may be valued per market capitalization at $160B, but its liquid cash position to offset the write downs was no where near that amount. When you dissect the terms of the deal to the Saudis, you will realize that this was a bon a fide "Guido" loan, for which this company will have problems getting out from.
Additionally, this is the first in a series of problems plauging our debt obsessed culture. The free ride is over. It is now time for people to become accountable. Also, don't think that you have heard the last from Citibank.
All of these issues are smoke and mirrors for the real problem, that is the credit liquidity has dried up. Heck, if I were the Saudis, I wouldn't mind injecting some money into something that will guarantee 11% per year plus an ownership stake in the company. What a deal!
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