主题：10/06/2008 Market View -- 宁子

SUMMARY:

- Market gets close to capitulation with an 800 point Dow selloff, but a late rally may have allowed the bears to wiggle off the hook.

- Fed ponies up more money to try and break credit free, set to bolster Commercial Paper market with direct liquidity injections into companies.

- Technical readings lining up better with the sentiment and internal readings.

- Trying to set a bounce after this third downside leg.

Monday continues the selling then market reverses, cuts losses in half.

Foreign markets started the week weakly, getting whacked to the tune of 7.6% if you averaged them together. That didn't quite put a happy face on the US market. The US Fed entered pre-market and announced it had increased its already big $450B credit swap line (Term Auction Facility) to $900B, doubling the amount once more. It also announced it would pay interest on member banks required and depository reserve balances. Big moves, but there were bigger ones to come. That was, however, a disappointment for investors looking for an intermeeting rate cut. Futures were down and sagged more. The Fed also encouraged WFC and Citi to reach a compromise over WB, signaling they powers that be are in no mood to have legal fights slowing the wheels of recovery. Massachusetts said it was close to insolvent. No tea parties there. Europe's situation gets uglier and uglier as you look behind the curtain. The euro tanked again versus the dollar (closed at 1.351 dollars after opening at 1.3604 and closing at 1.3795 Friday); huge, huge moves. Gold rallied (860.30, +27.10) though it closed well off its high. Oil sold off though it managed to close well off its intraday low that took it closer to 85/bbl, the support before it breaks and sells down to $55ish (closed at 89.10, -4.78).

What a morning packed with news, all bad or worrisome. The market opened down and sold straight down. Bounce at the traditional midmorning point, but that bounce failed heading into lunch. New lows then more new lows. The Dow lost 800 points, NASDAQ 170, and SP500 91. That is an 8.3% loss on SP500 intraday. Blistering selling that sent the indices below the 2004 lows that tested that first strong run off the test of the 2002 double bottom. It was not good with the indices in dive mode with nothing to break the fall.

Massively oversold, looking for a trigger to cover. Rumor came out that someone in Europe was calling for an emergency G8 meeting, indicating the desire for a coordinated move against the crisis. The indices started to bounce and we issued alerts to take the DUG and SDS and any EEV and SPY you had as well. An 8+% loss in a day on top of the prior bludgeoning? It was time to reel in some downside gain. The indices continued to bounce on into the close, cutting the losses by more than half. Reversal? Maybe. Would have preferred more selling into Tuesday to get that major, cataclysmic, puking on the floor of the NYSE reversal plus some more gain on the SDS, etc. plays before that.

TECHNICAL. Intraday the action was down to worse with new lows for the year - buy a long shot - then an afternoon reversal that cut away half the losses. This is the kind of action you look for after an ugly selloff, though some puking on the NYSE trading floor would have been nice.

INTERNALS. Some more massively negative internals once more, even more so intraday. A/D hit -45:1 on NYSE right before the afternoon turn. New lows zoomed back over 1000 on both NYSE and NASDAQ as the indices hit new 2008 lows; unlike last week there was a big jump in the lows as the selling continued. 800 points on the Dow will do that. NASDAQ volume surged to rival the volume on the announcement of the bailout proposal. That is good. Like to see high volume on the reversals. NASDAQ is not the leader right now, however, and the NYSE volume, while up sharply, was not at a level commensurate with that associated with a bottom. Close but there always seems to be a missing link somewhere.

CHARTS. Well, DJ30 was about 5% below the prior low as of Friday. As of 2:30ET it was 12% below the July low, the first possible low in a double bottom. As of the close it was 8% lower. That likely means the Dow will have to make a test of this low at some point. It broke through the 2004 range of support as well on Monday. Doesn't mean this wasn't the low for this selling, but that there is more work to do in order to get a bottom in place. With the leadership dearth, that makes sense as the market needs time for leaders to develop good patterns.

The market tends to do things in rather symmetric patterns. A head and shoulders base is very symmetrical. A cup with handle. Double bottom. Double top. A trend up or down. Selloffs tend to occur in three's. From the peak in 2000 to the trough in October 2002, SP500 sold in three big and rather symmetrical legs before bottoming, the last leg being the biggest of all. This time the SP500 peaked in October 2007, sold 17% into March, bounced, then sold another 17% from May to the July low. It bounced modestly in the summer rally, then rolled over and as of the Monday low was down 23% on this leg. The last leg in 2002 was a bit more, a 35% scorcher.

Thus SP500 and indeed DJ30 have put in three legs and are in position to form a bottom here, particularly when you factor in the internal data and the sentiment readings. The question you have to ask is one we asked back in July when sizing up when a bottom could form: is this enough of a selloff to make amends for the massive problems in the housing and mortgage arena and now the credit collapse? SP500 hit 768 on the October 2002 low, falling from the same heights as hit in 2007. That was just a tech bubble. This rattles the foundations of the basics in the US and as it turns out, many foreign countries. There is still another 239 points to the October low. I don't want to go into how bad this could get; if the $700B doesn't work the 2002 lows won't hold and we go down to 610 and then if everything collapses, down to 475ish. There. I went there anyway.

The point: Maybe the $700B and what else that is coming has saved the day and put off our fateful encounter with too much easy money and free liquidity for another 6 to 8 years. If so then the sentiment and technical indicators are in position for a rally at some point starting over the next few weeks. It could be a rally that lasts on up through January and even onto May. It may be the next bull run. That will work for the short term, but it won't solve the problems that got the economy where it is today. That will be pushed off for another day. Right now, however, it is nip and tuck as to whether the market and thus the economy will make the turn.

LEADERSHIP. Still not there. Financials sold back but recovered. The short sale ban is still set to expire Thursday and no news on whether it will be extended and that suggests it won't be. If that is the case the financials will not hold up. Medical and healthcare continue taking on water. Food is about all that is going higher, but not necessarily the eateries, just the processers. There are some techs that are beaten down and trying to bounce (e.g. JNPR with a nice reversal from low to positive) as pointed out over the weekend and others are trying to set up a bounce as well. They are not necessarily in leadership position. That is the problem with most stocks: they need time to set up bases though when the market takes off to the upside as in 2002, not all are there. Most based out during the December to March pullback that ratcheted fear back up as many called it another bear market rally gone bad. We saw the solid stocks basing and the great price volume action and had a list of buys at the ready that made is a fortune on the run from March 2003 to 2004 rally. So, even a lack of patterns here is not necessarily fatal, but you need a pretty good stable just to get things started. Again, things are thin right now.