Random Thoughts On The Current US Stock Market Situation

Matthew McCall
updated | Author's Website

- The Dow (^DJI) closed at a new multi-year low yesterday and is not too far from testing the 2002 low of 7197. I look for the 2002 low to be at least intermediate-term support for a short-term bounce in the coming weeks.

- A rally of 15% from the 7200 level would push the Dow to 8280, the level we were at last week. The reason I bring up the potential for a rally is because the crowded trade right now is on the short side and a snapback rally is likely in the coming days or week ahead. That being said, I do not recommend jumping in front of the bears just yet and buying – but aggressive traders should be prepared.

- I was interviewed by Reuters this morning on the market condition and Ellis asked me why we have had a sell-off the last few weeks. In my honest opinion I have him a few reasons I felt the market was falling: 1) lack of confidence in the new administration (many felt with Obama in office the American investor would gain back the lost confidence and the exact opposite has occurred); 2) dislike for the stimulus plan and the “mortgage” bailout; 3) uncertainty as to whether anything the government is doing will help in the long run; 4) no reason to buy – with uncertainty running amuck, investors would rather sit on their hands until the fog rises; 5) lack of catalysts to buy stocks – with a large portion of our clients portfolios in cash there has not been any major changes in the landscape to have me rushing into equities.

- Technically it appears the S&P 500 (^GSPC) will also at least test the November low of 741, a 4.8% drop from yesterday’s close. Keep in mind the futures are down 2% this morning.

- Gold continues its surge towards $1000/ounce. We own gold, BUT I feel the yellow metal could hit stiff resistance at the $1000 level and do not be surprised of a short-term pullback.

- I do not believe nationalization of Bank of America (NYSE:BAC) and/or Citi (NYSE:C) is the answer, but a portion of the market believes it is a reality as both stocks fall to new lows today.

You may also like: