DJIM #34
Sunday, August 19, 2007 at 08:29PM If last Friday's bounce has one theme that stands out, it's that the bounce is next to unplayable. The mostly symbolic cut of the Fed discount rate, announced surprisingly, by Fed, did seem to calm the financial market down a little. Impact should be temporary, though. This unfortunately means that the announcement won't help much on the volatility of this market. Actually, we feel most of us will probably not remember the fed announcement by middle of the coming week.
Basically, we feel that we need to see this market bottoming out on its own. If we can weather a few more blowups and bad news from the financial world without some collateral damage to the overall market, at that point, we think market is able to find a strong footing and a meaningful rally can possibly ensue. Last Friday's rally is about as desperate, and as fake as it comes, in our opinion.
The good news, is that the Fed does seem to keep track of things closely and would step in in case things go out of control. At this moment, there's a favourable consensus that the Fed really wants the market to correct itself out. It means that the ones who got themselves into the trouble with the credit crunch and subprime issues will have to bail themselves out. It's either that or fold up. In a long run, this is probably a healthier solution because this market needs to weed out the weak ones from the strong players. This is a free market and if you happen to make a mistake, you ought to pay for it yourself.
Now the plays.... if we think last Friday's bounce hasn't got much meaning, then it means we need another day or two to see if any of the plays on our watchlist deserves a potential entry or not. At the mean time, we can turn our heads into some of the financials that have been hurt badly recently. Since financials seem to move in tendon with the overall market these days, it's probably easier to spot a trading opportunity when the market is bouncing for triple digit. The financial plays we are looking at are mostly big and well known ones which include GS MER MS C etc.