It Has Been 14 Months

At critical market junctures like we are in right at this moment it always seems important to review: 1)  what the market knows and how long it has known it, 2) how it has reacted to what it has known, and 3) what it doesn’t know.  In the current case, the market heard first about the mortgage mess in late July 2007 although there was plenty of warning by some before that time.  And what did the market do, went on to make new highs in October 2007.  The market then declined for many months but until July 11th 2008 many did not acknowledge that we were in a bear market.  And lastly we have seen two real panic sell days recently as the bear market imprint has reared it’s ugly head on September 17th and this past Monday September 29th.  Now we have the first attempted fix of the mortgage crisis half done, the House still has to approve it. And to finish things off there is a general consensus that we are entering a recession.

With this information, what are the talking heads talking about? First there will be a relief rally, second it’s a bear market, and three, sell the rally.  In this kind of environment with the two recent panic sell days behind us it may be a good idea to wait and watch for two to three days.  While day traders can probably make a little money trading stocks from the short side today and tomorrow it may be more important to see how the market reacts.  If the market takes out yesterday’s lows and holds last Monday’s low you could have a situation where new news will be the catalyst. The area to watch on the S&P for possible support is 1122-1127. 

We remain long 38 percent in stocks and short 7 percent in bonds as we watch the situation play out. 

 As to new news on the political front, we will stick our head out and say if Palin does not do well at the debate tonight, Romney will replace her by Monday night.

8:29 AM CDT

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