Market Action, September 17 2008 - Bottom Coming

The pattern as of late has been one really ugly day, followed by an up day, then another really ugly day.

Wednesday was a really ugly day.

That must mean Thursday will be an up day.

The catalyst on Thursday may be the SEC's expedited new rules for shorting.

Which sets us up for a another really bad day on Friday as investors get spooked for yet another weekend of surprises!

Frankly, I have no idea how the market will play out over the next few days other than I think a near-term bottom is approaching. 

I postulated this theory to someone today and they asked me what was my catalyst?

I have no catalyst.  I have no idea. 

Often, at the bottom there is no catalyst.   The bottom occurs in a cathartic selling episode of disgust.

And right now, the level of pessimism is high.

But maybe not high enough.  Fear and disgust seem to be the mood of investors, but the market does not seem sufficiently fearful or disgusted.

I want to see an extreme oversold condition and the technicals telling me a bounce is a no-brainer.

We are not there yet.  We are getting there but we need a few more really bad days.

A sell-off Friday and a horrible Monday might do it.

Now, I'm talking about a near-term bottom, not the bottom.  I think there is more pain to come.

And I will offer you the least helpful piece of advice you will have heard this week (at least advice that is not from Dennis Kneale) - though I think we are approaching a near-term bottom in relation to time, I have no idea what the bottom will be in terms of return.

Maybe the bottom is another 200 Dow points away.  Or maybe its 2000.

I remain very, very short, but I will be looking to cover my shorts over the next few days.

Comments

[T-Dog]

Not so sure there's any merit to the down day - up day theory...

No offense, but there's absolutely no visibility on the bottom, largely because no one (and I mean no one) understands the full extent of the problems. The consumer is next to go, you've not had any regional/commercial bank failures, and the USD is poised to plummet. Plus, the Dow closed below 10,725, a more than 50% retracement of the recent upswing from 2002-05, suggesting (technically and according to market theorists) that the 7000-8000 is not unlikely. Most importantly, however, the US retail investor (on average) still does not likely understand (or know about) the full gravity of the situation. The turmoil just hit CNN tonight, meaning that it just now became mainstream. When 'average joe' investor, loaded to the tits with mutual funds, gets his/her Q3 statement, that is when you will see the true panic selling that will mark your bottom. Until then, sucker rallies will abound...

My suggestion: Keep those shorts on a little longer. Few in the market are going to want to keep any trades on over this coming weekend.