Tuesday, August 26, 2008

Weak Response to Monday's Sell Off

Top Line: The stock market struggled to gain any traction Tuesday. Buying could not get going after Monday's drop. Normally, we would expect at least a minor buying exercise after a day like that...in this case the relatively mild reaction seems bearish to us. Look for some more selling over the next several weeks.

Our prediction for tonight is that we Will have a complete post. Really. After that we can maybe start making some qualified statements about the stock market. Maybe not. We apologize for last night's miss on the post but let's get to tonight's...

After the big hit the market took on Monday, Tuesday was going to be a chance for the bulls to come in and bid stocks back up. There was some effort to do that during the day but prices didn't move much. This could be interpreted by us to be bearish because there are still enough sellers to keep the prices down on a day when the bulls were supposed to be back in the game.

We have mentioned the tendency of the market to have some buying going into the end of the month particularly when it coincides with a holiday weekend...like this weekend. We haven't given up on the bulls just yet but there are some signs that they are not going to be doing much buying in the near term.

Well, we should be careful about these kinds of calls but the stock market is in the free fall period following the Kiss...uh...goodbye on Friday last week. There are targets to take out on this fall that are the March and July lows. We think over the next two months that these targets will be taken out and by a significant margin. You can see our round number targets in our August 19th post:

Our Position (from our August 7th post and our August 19th post):

Bearish on US stocks, Dow target of 9000.
Bearish on Gold, target of $600. (possibly a little aggressive)
Bearish on Oil, target of $100. (possibly a little timid)
Still Bearish on US Residential Real Estate, no real target (Case-Shiller said down 15.4% this year)
Bullish on US Treasury bonds, ETF TLT target of 100 (fine tune this soon)
Bullish on US Dollar, target 90
Bullish on Volatility, VXO to 50

We'll try to post our position at least once a week and certainly when we make any changes we will let you know here. For now, we see no particular reason to change these right now.

FSI: 83.20 (strong down move Tuesday)

VXO: 21.72 -0.60 (heading up to 50)

SDS: 66.58 -0.44
QID: 41.67 +0.12

Dow Industrials: 11,412.87 +26.62

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