Monday, August 27, 2007

Fear Will Be the Name of the Game

Our position on the market remains the same, bearish. We should probably say extremely bearish for those of you who read us often. The stock market has shown some ability to get out from the cloud of being oversold and is now in neutral ground. This rally phase has moved the Dow up about 800 points from its low and that advance is now starting to show signs of slowing.

The light volume of the past two trading days is one of the strongest indications that the rally has lost some participation. The bulls are now waiting for someone else to come along and buy stocks higher.

As we write this evening, the world believes that the central bankers have saved the day and their precious stock holdings will be safe from harm. The major players are whining about how the Fed should support the stock market and now these players are basking in the warmth of the Fed's cash. Well, the Fed's cash is going to be removed from the playground fairly soon as they take their proverbial ball and go home. The Fed has stayed long enough at the party and they will be wanting their loans to be paid back.

As the market continues to drop over the next few months, what will be the recourse of the banking system or the Fed. The Fed has taken a huge gamble that it would be stronger to prevent a major crisis. Now, we wait to see if the world will believe what they say and do on the next time down.

We believe the confidence of the players will be shaken hard by any decline in the stock market and this will precipitate more selling. The hard truth of the stock market is that it can create an avalanche of fear in a hurry. On the move down that occurred a couple of weeks ago, the Fed seemed to ride to the rescue. With a failure by the Fed, there will be no rumors that the Fed can do anything. This will create a whole lot of fear.

Reconsider your portfolios this week and see what you can do. Next week will probably be troublesome. We say next week optimistically due to the position the market has created over the past couple of trading sessions. The weak volume doesn't give much credibility to the rally continuation so we are on high alert for a big decline in the stock market. Be prepared.

And, check out the new True Contrarian post in the links to the left.

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