Top Line: Tuesday was not a confidence inspiring day. After a 300 point decline on Monday, the market should have had a small bounce. When the low is in, you will know it.
The buyers are definitely on strike with only moderate upside being generated in the current market. The past month of trading has yielded a massive decline in the Dow which should have produced some buyers by now.
We continue to look at Friday's jobs' report as a possible low point. The trading in front of it has been very poor indeed. Every rally gets sold and this included the after hours market. Right after the close on Tuesday, the futures and index vehicles dropped almost 2% in a heartbeat. We couldn't find any news to justify the drop which in our mind is not a good indication. However, in overnight trading, these losses have disappeared as Asia opened for business with a little bit of a bounce.
If you were paying some attention to GDX today, you may have noticed that it traded under 30 which would have been a pretty good entry point. Otherwise, today was a day that should have generated a rally but didn't. This should indicate further selling ahead. The last three trading days have dropped hard on heavy volume. This indicates some strength in the move and should mean it has some more to go, not much but more. We expect a low soon. (Yes, it is a broken record.)
This is not the post we wanted to put up tonight because we were hoping to spend some time on the Buffett letter but since we had no real rally today, the market again needs some attention. The underlying technicals are consistent with further selling. The past three trading days have generated capitulation type volume but, today at least, there were some buyers holding up the prices even on the huge selling going on. When the buying begins, there will be so many that have wanted to be bullish and had sold, that the buying will be frantic.
Just a few tidbits from Buffett's letter which we hope you found time to read. If not, please check in yesterday's post for the link.
Early on, at the bottom of the second page (page 3 in his numbering) he states that, "America's best days lie ahead."
In the following paragraph he says, "We're certain, for example, that the economy will be in shambles throughout 2009--and, for that matter, probably well beyond--but that conclusion does not tell us whether the stock market will rise or fall."
One of his lines is similar to what we have been saying for the past several months,"Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
He describes the situation in the home/mortgage market in no uncertain terms while comparing it to the "fiasco", as he calls it, one of their devisions had in 1997-2000, "...investors, government and rating agencies learned exactly nothing from the manufactured-home debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn't repay out of their incomes, and borrowers just as happily signed up tomeet those payments. Both parties counted on 'house-price appreciation' to make this otherwise impossible arrangement work. It was Scarlett O'Hara all over again: 'I'll think about it tomorrow.' The consequences of this behavior are now reverberating through every corner of our economy."
Here is the last bit of the letter that we will mention this evening. He describes back-tested models as susceptible to errors. "Nevertheless, they are frequently touted in financial markets as guides to future action. (If merely looking up past financial data would tell you what the future holds, the Forbes 400 would consist of librarians.)" Indeed...
BTW, Square root day is when the day and month equal the square root of the two digit year, as in today's 3-3-09.