Sellers Back for Another Week

Monday, March 09, 2009

Fundamental Take:
The market started the week with a 79-point fall today. Warren Buffett, appearing on CNBC this morning, said the US economy has "fallen off a cliff" now hitting "close to the worst case" scenario he imagined. He sees the government playing a crucial role in the economy's recovery but believes it will take time and the unprecendented liquidity injected into the system may cause "inflation higher than the 1970s" down the road. Buffett also believes that the "toxic assets held by banks have very good potential for rich returns if their current valuation is based on mark-to-market". He remains optimistic about the US stating: "Everything will be all right. We do have the greatest economic machine that man has ever created." Merck was the largest decliner in the Dow falling 7% after approving the reverse merger with Schering-Plough. SGP will be the surviving corporation but will be renamed Merck. General Electric avoided selling interest again today bucking the trend rising 5% as investors take hope that losses in the GE Capital division will be minimal and no further funding is needed.

Technical Take:

The rather feeble 160-point rally off lows Friday afternoon gave some hope to the bulls. But, that hope was quickly dashed as the market retraced nearly half the move today now just 100 points off the lows again. The market cannot sustain any move to the upside as stock trickle away every attempt to move higher. Today was an inside day on the charts trading entirely within Friday's range indicating consolidation and no change to the current trend. The market broke down out of the 4-month range in mid-February and stocks have been directional ever since. The trend is down and the trend must be respected. Until something changes, traders should stay net short and avoid the temptation to pick bottoms trying to be the first ones to a new rally. The difficultly many active traders have felt has been somewhat unwarranted in the last few weeks as the market has been fairly predictable with every rally fadeable at resistance levels. The technical picture continues to indicate lower prices and traders do not need to be the first ones to the reversal. Many traders, myself included, have just not wanted to believe it is possible to continue falling. But, traders must be willing to continue shorting even at these unbelievably low levels until the composure changes.


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