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Huge Rally: Now What

November 13, 2008 9:36 PM

perplexed.jpgCramer was saying on his show to use strength to sell tech. Basically, he is saying this rally is complete nonsense. I am not sure how to trade this other than wait it out. Every move to the upside above today’s high increases the chance it will reverse and see another huge drop. I guess i do not have to mention that the risk in this market is extreme like we have maybe never seen before. Up and down 800 points has never been seen before, now it is the norm.

While I believe that these lows must hold going forward, this volatility still makes me very, very skeptical. I just do not think bull markets are created by this type of action. Perhaps I am wrong on this, but it just seems unlikely. How can people invest for the long term with any confidence when they are up or down 10% in a single day? These type of moves have historically been bear market rallies and eventually fail. I believe all of the largest percentage gains in the history of the market have all come in bear markets. Maybe it will be different this time, anything is always possible. But anytime I hear those words, I cringe, as generally it never is.

One thing is certain, Cramer is correct with respect to that the fundamentals clearly do not support a 900 point rally off the low. I cannot find one single positive in any sector or piece of the economy. I completely understand that the market attempts to look into the future, but what data suggests that things are not going to get far worse in the future, not better? I just do not see it.

Therefore, I obviously just made things as clear as mud. The short answer is I simply do not know here. This rally started as buying above the Dow low, which i expected at some point, and then massive short covering into the close. My guess is, if that means anything, is if we trade higher in coming days, that it will likely once again reverse and we will backfill this move higher. We saw this exact same nonsense when the Dow put in it’s low. Skyrockets, then on the third day a huge gap higher was sold, and down she goes.However, the market is clearly in a better position than it was when we saw the Dow low. The daily moving averages are just below today’s high now, where before they were far above and limited any upside. The very unclear answer is, I just do not know how this thing could go. It is possible that we could go straight up to 10,000 or so, and it is also possible that this could reverse and sell all the way back down. The risk here is obviously very great as we have exactly ONE point to be long this move - 818.

Volatility breeds volatility -so expect more in coming days as today likely created more of it.  This is the exact same volatilty that made me stop watching the market 2 months ago. it just get’s to be painful to watch. And now it is far worse than then. I may once again just forget about the market until it finally calms down. When that will be I have no idea, but it won’t happen anytime soon.

One last note. To “confirm” this low, we have to clear today’s high. That is how I view the markets. However, and here is the caveat, if we do clear this high and reverse, then we may revisit this low in short order. Sorry, but this huge move off the low has made this very complicated and risky. If we had closed up 100 points this would be very, very simple - long, long long.

Written by Tom@StockBlade.com · Filed Under General Investing/Trading Commentary 

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