The market continues to search for a bottom. This is becoming serious and the odd thing is that it feels stealthy. We need a huge washout on the downside and then a reversal with volume to call a short term bottom. It ain’t happening. This is capital preserve time for traders and investors alike. The curve really didn’t strengthen on today’s sell off which is giving me some hope. The curve feels tired and might be ready for some flattening in the days ahead.

A curious point: What is the deal with the bond insurer’s? They are trading like they are bankrupt with the stocks falling like lead balloons and their bonds trading like junk. But yet, they are triple A rated with the rating agencies? Something is severely out of whack here.

One glimmer of hope: Dow futures are up about 30 after-hours.

- BA

Nobody won today’s battle. The S&P 500 was on the verge (1 point) of breaking through the intraday support last seen in March 2007 when the bargain hunters came to the rescue. While the Dow and the Nasdaq have not made it this far south, certainly because they have a lower percentage of financial components, this is an important line of demarcation between the bulls and the bears. We, like the markets themselves, are currently staying in our holding pattern. - JD

With the Dow down 100 pre-market, the good feeling that we got from Ben Bernacke yesterday is long gone. In short, he said the fed will be lowering rates for the foreseeable future. Of late, the market seems to jump when the fed moves but soon starts falling again. Conspiracy theorists gather around. Why would Bank of America(BAC) buy Countrywide Financial(CFC) unless the Fed is behind the deal? BAC is already the senior creditor in any bankruptcy. They could pick and choose the assets then. The problem is that letting the largest originator of home loans declare bankruptcy would only add fuel to the flames of the burning credit markets.

Another worry is that the New York Times is reporting of a possible 10-15 billion write-down at Merrill Lynch(MER), double the original estimates.

- BA

We finally got a sliver of good news this morning! IBM raised their guidance and the stock is trading up about 7 pre-market. This has the Dow futures up 100 pre-open. It should be an interesting week for the market because of a deluge of news. We will get inflation and retail sales figures delivered this week along with the Fed’s Beige Book.

With a sell signal in all of the major averages on the daily charts, all rallies should be used to reduce risk.

- BA

In his first comments in awhile, Ben Bernacke says that more rate cuts are on the way. The market got a spike off of the comments but are struggling to hold on to those gains at the moment. If the Dow can’t hold these gains, then nothing will save this market. The interest rate curve went from flatter to stronger off of the comments. - BA

The Dow dipped a couple of points below its August low around 2 o’clock today when somebody rang the bell and told all of the short sellers to get out of the pool. Just like the lifeguard planned it, the market hit a floor at the August lows and bounced off like a super ball (do they still make those?). OK, nothing like it did on August 16th, 2007, but it was on higher volume than yesterday. Thats got to count for something. For the record, the S&P 500 and the Nasdaq bounced without reaching their August intraday lows. I’m just glad I took a profit on the Bear Put Diagonal Spread I was using as a hedge before heading to lunch. One key indicator that this may only be a bounce is the level of the VIX, which only reached 26 today. It climbed to 31 back in November, and 37.5 on that wildly volatile day back in August.

Keep your eyes open for an opportunity to play the downside of this market once again. And if you get a second chance, lighten up on those long stock positions remaining in your portfolios.

- JD

Capital Preservation The market was spooked today by rumors of Countrywide Financial declaring bankruptcy. With the market taking out recent lows, investors and traders alike should be preserving capital at this point. Any rallies should be used to get out of positions, preferably put purchases.

The Dow is making new lows here. This is the worst start to a year for themarket in over 80 years!

The Bears are Feasting

Today was ugly all around. Dow finished down 240. This is fresh territory for the market. Will the fed come to the rescue? The only thing that will give us a temporary reprieve is an inter-meeting rate cut.

Subprime Slime

Anything related to mortgages and CDO’s got taken to the proverbial woodshed today. Financials like C and BAC, brokers like JPM, MS and GS, Bond Insurer’s like ABK and MBI-all down big. By the way congrats to BAC, they have to be down way over a cool billion on their convertible preferred investment in Countrywide-and it only took a few months. Annualize That!

- BA

The Dow and S&P 500 both went down to touch the support levels I wrote about after Friday’s close. After bouncing up and down all day they managed to close slightly ahead, but did not give us any indication which direction they were headed next. I will stay with my current bearish attitude until such time as the market does something to indicate its ready to turn around. - JD

After the terrible employment number this morning, the market is taking it on the chin with the Dow down 2% and the Nasdaq taking the brunt of the selling, down almost 4%. Non-farm payrolls came in with a weaker than expected 18k and the jobless rate jumped to 5%. In Interest rate land, shorter maturities are leading the rally with the curve steepening. Multiple firms are coming out with calls for the fed funds rate. Goldman and JP Morgan are saying that the fed will cut rates by .50 basis points when they meet in a few weeks.

The writing is on the wall……

- BA

It did not take long for that trading range I wrote about on Wednesday to disintegrate. The Nasdaq Composite, the one Index that had been bucking the downtrend, joined the Dow and S&P 500 as it came crashing through its 200 day moving average to confirm that this market may be in for more than just a correction. While the next level of support for the Nasdaq is 2450, the S&P 500 is 1400, and the Dow is 12750, don’t be surprised if these oversold markets bounce before testing these levels. Keep your eyes open for the next “lower high” to lighten up on any long positions you may have remaining.

- JD