Almost a Black Tuesday in the Markets

January 25th, 2008 · No Comments · Print This Post

So far 2008 has been horrific for the capital markets. In fact, there could have been in a full blown meltdown on the Tuesday after Martin Luther King Day. The Asian markets decided that all of a sudden the sub prime crisis coupled with the economic slowdown was probably not going to be isolated to just the United States. The Asian markets acted accordingly with huge institutional sell-off that spread panic through the markets which fed on itself and subsequently spread through the Euro markets. As all this was happening the S&P futures started to get hammered and the Federal Reserve realized that if something drastic was not done that literally the Dow Jones Industrials could have opened down 10% or worse. This would have sparked panic selling akin to the meltdown on Black Monday, October 19^th 1987. Actually the similarities were almost eerie and if anyone remembers that day or the following two weeks it was “the worst of times.” Obviously, Bernanke is a student of history and thus conferred with his inner circle at the Federal Reserve and acted quickly and decisively coming out prior to their meeting at the end of the month and cutting the rate by ¾ of a percent. I believe this was literally the only reason the US market did not go into a free fall with panic selling. The Dow Jones Industrials still opened down 310 points at the bell which was more than likely a lot of foreign institutional investors reacting to their own markets and trying to reduce their portfolio’s exposure. As the day wore on, bargain hunters came in taking advantage of the knee jerk reactions and thus driving the market to close up almost 300 points. That is a 600 point day which is remarkable. The Fed Reserve meeting is still coming up next week and the consensus is that the Fed will lower the rate ½ percent or more. If there was ever a time to be a speculative or momentum based trader, now would be that time. I think volatility will be the underlying theme in the market for the near term and those who have weak stomachs are best left watching from the sidelines. For those with a strong constitution, look for value and maybe be a student of history. Go back and look at what sectors fared the best through an economic slow down and over what time frame. If you buy make sure you have a target to sell or manage your own expectations as to the length of time you want to hold a particular stock. To be continued in another post….