Whipsawed capitulationOctober 14, 2008
Mark on the markets Mark Patterson
Whipsawed capitulation
Last Friday morning the Dow Jones average was down 800 points during intraday trading. The Dow went down in a swift move to about 7750 before climbing all the way back to even, only to drop 600 points again. Towards the close, around 3:30 the Dow was up 300 points, only to close down around 130 points.
As a technician and trader, this was the best scenario for what we have been looking for to put in a near term bottom.
The US equity markets needed to wash out or capitulate, which is a military term for surrender. This action is the result of much selling by institutions, mutual funds and hedge funds.
Monday the Dow was up almost 1000 points, which is a typical reaction to the move on Friday.
While the Government has designed more programs to save us all, be aware that the underlying economy is still a mess with high unemployment and reduced consumer spending. So I would expect that these markets may continue the rally for a few days or week, but then potentially go back down to test some support levels of the Dow. 10,000 is a key level, 8500 below that and 7750 below that. This action is completely normal.
Aside from the overall economy, the next hurdle will be the election. If it appears that the Democrats will gain a veto proof sweep in the House and have the presidency, I believe the equity markets will sell off again, not only because of the socialist aspect to a democrat presidential win, but having complete control by Pelosi and Reid will be unkind to a once capitalist, turning socialist nation.
The wheels of socialism have already started with the recent Government bailouts and plans to buy equity in US banks.
Take this snap back rally to gain liquidity in tour portfolio if you have not done so already. Those of you who had no liquidity did not have the opportunity to buy during this recent opportunity. Create some liquidity, because we will have more opportunity in the future.
Mark Patterson is a registered investment advisor and commodity trading advisor; he can be reached at 447-1978 or Mark@mhp-asset.com
MHP Asset Management, LLC
P.O. Box 460, Conway, NH 03818
Phone: 603-447-1979 Fax: 603-941-0904 |
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