[Editor's note: The market was down hard on Thursday with the Dow down nearly 400 points so we should have more to say but we apologize in advance for tonight's post. The market can speak for itself today, there is not much left to say.]
Just as we were sitting down to write a post we happened to take a fresh look at the overnight futures trading where there has been a little more selling this evening. We have to think that the reason for the decline is the Asian markets opening but we can’t be sure. With the very tough day Wall Street endured there would naturally be some that would think that the “worst” is behind us…Again. There should be some recognition that the market is in a downturn after the big selloff on Thursday; but, we know there are those who think this is just another buying opportunity.
At the opening bell the futures were suggesting a large selloff for the early going and that’s exactly what we got. Immediately, the Dow was down well over 200 points. So, the big rally we saw in the indexes in the final few minutes of trade on Wednesday was mostly erased at the open, but, guess what, you guessed it, buyers came in and bought what they could. At least they bought as long as they could. To demonstrate the strength of buying efforts, take a look at one of our favorite indexes, the NDX, NASDAQ 100. At the open, the NDX was down 25 points but went green within an hour. We consider this evening how those buyers are feeling about their purchase this evening with the index closing down 50.
The stock market is now paying attention to the credit market where the carnage continues unabated. The mess does not just affect US players, it is an international phenomenon. We direct your attention to the Friday edition of the WSJ, again on the front page, How Subprime Mess Ensnared German Bank; IKB Gets a Bailout.
Back to the stock market, we think the market is now in position to show us what it can do on the downside. Thursday’s break was very important to the pattern giving us much more information about what it wants to do. The important pieces to remember are that the rallies will be sharp but most likely will fail to better prior rallies, just like Wednesday’s which didn’t even come close to 14K in the Dow.
The primary direction of the market is now down and we have no way of communicating this to anyone who has bullish thoughts. These will be the people that will help push the market to the lows of this fall. Right now, they are convinced that the market can only go up and when it goes down it is a buying opportunity. Unfortunately, just the opposite is true, rallies should be sold.