Today's Comments (Short Term Outlook)                             Printer friendly

Black Red Tuesday If you put the market behind you over the holiday weekend, you may be waking up to some disturbing news.  Unless the Fed steps in before you read this, we should be looking at what could be considered a market crash on Tuesday morning. We have talked a lot about emotions, particularly fear, panic and capitulation, over the last several weeks, and we are going to get a taste of each today.  Markets across the globe have been falling sharply the past two days and if the futures markets are any indication, U.S. stocks are primed to do the same today, setting up a mind set that we saw in October 1987, the fall of 1998, and September 2001, although the 2001 sell-off was event driven, and less predictable.                                     Chart provided courtesy of www.decisionpoint.com  The head and shoulders pattern we talked about on Thursday of last week gave us an ominous downside target of 1175 for the S&P 500.  The S&P futures are currently trading down 65 points, which would equate to a cash price opening of about 1260 for the S&P 500 index if nothing changes.  But we could see something change.  The Fed does seem to like to step in save the market in times of trouble.  The rate cuts are due to be announced on Wednesday January 30th, but they just may throw in the towel and act sometime this week, if not today.  Whether it's already too late for rate cuts to help, is up to the economy and investors to determine. I hope I scared a few of you out of the market with my Friday commentary.  I had no intention of trying to predict a market crash since it is such a rare event, but the environment was just too eerily similar to prior market melt-downs, that it was too much to ignore.  We will likely not see a 25% crash ala 1987, but a 5% or more gap down is significant, and rare. I don't have any indicators to show you as emotions are going to control the day.  What tends to happen during days like this, is that we get a quick snap-back rally either the same day or within a couple of days, which almost as quickly fails, so I would not recommend doing too much if you are already out of the market.  If you are already in market, it is a very frustrating time.  The reason those rallies fail is because those who did not get out are now looking to use any strength to sell.  The decision to sell now or to ride out the weakness is a tough one.  Selling strength has been the best play for weeks, if not months now.  I don't see anything that would change that at this time.  That may change after a successful test of the coming lows. The bottom line is that the market is broken and it is a dangerous game out there.  Things will eventually get better, but when, we don't know.  We are hitting levels of emotion that show up near market bottoms, but as we know, lows usually get tested so any rally here may be pulled right back down to see if we can form a double bottom.  Similar to the bottom in 1987.  Those in stocks will do one of two things:  Capitulate and sell at any cost.  Or hold on figuring it's too late to sell.  Either way, that means the selling will slow and bargain hunters will eventually jump in.  But again, where that happens, at the open today or weeks from now, we don't know.  That's all for today.  Good luck.  It should be an interesting week.  See you back here tomorrow. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us. Prior Day's Market Comments (see archives in left column menu for earlier comments) 01/18/08 The game has changed When yesterday's morning rally failed at the neckline (old support becoming resistance) I knew it was going to get ugly.  But I was hoping the pre-holiday and options week trading would keep things afloat.  Of course, they did not. We could very well see an oversold rally at any time but this convincing break of the triple bottom is not a good sign for the intermediate-term.  And the longer-term picture has also been compromised with the break in the bullish trend.                                      Chart provided courtesy of www.decisionpoint.com  You never know what will happen.  The Fed could step in and give the market some relief, but the technical damage in the charts has to be respected.  At this point we have to assume that the trend is down, and any rally will be short-lived unless some fundamental change occurs. We talked for months about the clues we were seeing with the soaring price of oil, gold, commodities in general, the sinking dollar, housing market and interest rates.  The writing was on the wall but many of us were in disbelief given the 4.5 years of a bull market with not so much as a 10% correction.  I don't want to predict what will happen next, but let's just say it will either be very good or very bad.  We will either see a strong snap back rally to at least the old support line, or we will see a complete melt down now that support is nowhere in site.  A market crash is a rare event but when they do come, they usually manifest in an environment such as this.  I am not saying the market is going to crash, but I want to illustrate my point.  In 1987 the S&P was down about 10% when it started to break through support.  By the time it moved below the 200-day moving average and a 16% decline, many thought it was a good buying opportunity.  The next day the market dropped 24% in one day.                                     Chart provided courtesy of www.decisionpoint.com  Things have changed since then but the point is that market crashes don't come from market tops.  They start after a lot of damage has already been done.  We are not out of the woods yet. The odds say we don't crash.  The market is oversold but don't you think it may be worth waiting to see if the chart improves before trying to call a bottom?  I seem to get burned every time I try.  The futures are positive as I write this, but they were strong Wednesday night as well.  Panic is near and we will eventually get a buying opportunity.  But whether that is here or another 10% lower, I don't know. That's all for today.  Have a great holiday weekend and we'll see you back here on Tuesday.                                 Chart provided courtesy of www.sentimentrader.com ------------------------------------------------------------------------------------------------------------------- ** By joining our email alert list you will receive an email each time we initiate a transfer or change our market outlook.  You may also receive an email each Monday morning reminding you that our comments are updated daily.  We will always send out these emails prior to making the transfer myself but we can not guarantee you will receive it in time to make a transfer yourself.  By joining you understand that this is what the owners of TSP Talk are doing in their own account and if you decide to follow our transfers in your own account, you do so at your own risk.  There is always a possibility for a loss in your account.  These transfers could come very often and you may have to act quickly to make the deadline.  Please consider your investment strategy before taking any advice or making any transactions.  By reading the contents of TSP Talk.com and accepting the email alerts, you must agree to the Terms of Service.  Thank you. 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