Today's Comments (Short Term Outlook)                             Printer friendly

Bailout - Ugh! After a dismal six-hours of trading on Friday, a very strong late day rally started after CNBC announced a rumor of yet another possible bailout for bond insurers.  The market turned a triple digit loss in the Dow, into a nearly triple digit gain - all during the last half hour of trading. The fact that it happened at 3:30 PM ET on a Friday, a time when many Wall Street traders have packed it in for the week, makes this stunt rather suspicious.  Anyone looking to sell the market short over the weekend (bet against the market) were likely forced to cover their positions (buy) based on the prospects that this rumor could do some serious damage to their positions, which compounded the late trading rally.  You can see below how dramatic the move 240-point rally appears on the chart.            Our anticipation of a breakout to the downside in the S&P 500 came to fruition, but the late day surge brought the index right back into the triangle formation.  If it turns out to be be an unsubstantiated rumor, the market will likely put in a quick retreat.  If it turns out to be true, we could see more upside, but it is also possible that we could see a sell-the-news reaction (buy the rumor, sell the news.)                                     Chart provided courtesy of www.decisionpoint.com  With this speculation in the air, any predictions of the direction of the market over the short-term might only be determined by flipping a coin.  I continue to speculate that we have more work to do on the downside but we have seen dramatic rallies caused by outside influences before, such as emergency rate cuts by the Fed, or other bailout proposals, so it can go either way.  The trend remains down, but the S&P 500 could actually rally 100-points from here, which would be a gain of about 7%, and it would still remain in a longer-term downtrend.  Many of the overbought/oversold type indicators are close to neutral which doesn't give us much to go on.  One indicator that may be giving us a clue is the 10-day moving average of the ARMS index. As this indicator has moved above 1.00 (above in the chart, lower in value) during this correction, the market has tended to see any rally stall.  The current reading is 0.94                                     Chart provided courtesy of www.decisionpoint.com  Bonds (the AGG) remain in an uptrend as the Fed continues its rate cutting mission.  The recent inflationary data would have us believe that rates may have to stabilize at best here, and possibly move higher (which would cause bonds and the F-fund to move lower), but the slow down in the economy and the credit crisis makes this a tough call for the Fed.  They indicated that they will remain aggressive cutting rates for now, but may have to shoot them back up quickly once the economy appears back on track. That's all for today.  Have a great day and we'll 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.