You Call That a Bounce?
22nd January 2008
A funny thing happened on the way to the Dow opening down 500 points today. Uncle Ben decided that he did not want today’s title to be ‘Panic on Wall Street’, so he and the boys cut interest rates by 75 basis points. It only took about an hour for the market to get 75% of that back, which interestingly enough is where it ended the day. Day traders that faded the gap down could have easily booked some great profits and still made a noon tee time on the golf course. Now if you could only do something about the weather, that would have worked too, but I digress.
Today looked eerily like August 16th, 2007. The VIX was back at 37.5 and the talking heads on CNBC were wondering how far down the market was going to go.
This time though, the market headed north right out of the gate. It didn’t really stop until reaching the break even point (OK, the Dow and S&P 500 didn’t quite make it, but the Nasdaq and Russell 2000 were actually positive for a few minutes).
Unlike the bounce in August, this one did not hold. The market ended up giving back 25% of its rebound. Could the recovery continue? Sure, but it does not look like a very strong rally.
We’ve got to a lot more positive signals before putting this bear to rest.
- JD