September 18, 2008’s 1 pm post edited:

What a turn in events! Are we finally going bullish or are we still very bearish? I honestly don’t know…what I do know is that we’re at a critical stage in the markets. If the S&P 500 closed below 1150 today, life would’ve been much easier. There would’ve been no reason not to go short the markets, instead we got news of a possible U.S. government plan to rescue banks from risky mortgage debt. This turned the markets completely around bringing hope to the worst financial crisis in decades. If this plan follows through we could see a rare bullish run/short-term market bottom, if we don’t follow through this market will come crashing down again.

What I thought we had this morning was an example of a suckers rally, a sharp upturn in stock prices that suckers traders into getting long the market.

It sure looked like it when I made my original post at 1 pm but as you can see everything changed right when news of a possible U.S. rescue package surfaced. I did however expect a suckers rally this morning though, these rallies happen all the time in a major bear market. If you studied the market last night, you would’ve expected a bounce as well…the S&P500 sat right at a major trendline.

Again, my original post was made at around 1:19 pm, at that time the S&P500 was trading at 1,154.49. This was fine for the markets, but if we closed below the 1150 mark today, this index would have no where to go but down. We were trading below 1150 for some time before 1 pm but as I had warned, we had to close below 1150 to be completely bearish again. I must admit, I acted too early because I did get into the inverse ETF (TWM) at that time, I was planning on using it to hedge some of my remaining longs…but this might hurt me in the end. I must say, things are looking much better in the markets right now. The Securities and Exchange Commission is considering taking the dramatic step of temporarily banning the routine practice of betting against company stocks. But we aren’t sure if this ban will apply to all public companies, to all financial companies or to just selected financial companies. Now other bloggers are indicating that a bull flag is forming in the weekly charts…this along with all the good news makes me wonder if we have hit a bottom. I’m not going to deny that we may have hit a short-term market bottom, but a true bottom is still hard to believe. The economy as we know is still in a rough state, any sort of bad news would tumble this market yet again. I’m not as optimistic as the others…breaking below 1150 in the S&P is not completely out of the picture folks, it could very easily happen…if we do, we’ve got no where to go but down.

Those who have followed my trading in the past know that I rarely post stock picks. I tend to focus all my energy on the overall direction of the markets. I’ve been getting several emails about this issue, so I thought I’d share a site with you instead. For some good stock picks refer to Momentum-Trader. I really look up to this blogger and think he’s a fantastic trader.

Richard
richard[at]hedgeagainstspeculation.com