Friday, November 21, 2008

Asian Markets Buck The Trend And Rally

The market is higher in early trading, following a strong showing from Asian markets overnight, which all rallied nicely. Today is options expiration, so I expect another volatile day. Let's just hope we don't see the same last hour selling that has surfaced the last couple of days.

Oil is getting a bounce, but now is hitting resistance around $50. The energy sector is leading the way so far, while financials are weak again.

The action in Citigroup (C) is hard to put into works. It has fallen roughly -60% this week alone, and now trades for less than $4. This is an amazing deterioration in share price, and demonstrates how volatile this market remains. Someone really needs to say something here, as the market will not like the lingering prospect of a huge financial concern like Citi in trouble.

Bank of New York (BK) said it will reduce its workforce by 4%. Honda said it is cutting production at factories. And auto makers are still hoping for a govt. bailout plan to get approved.

In earnings news, Dell topped estimates, as did HJ Heinz (HNZ). Ditto for Gap (GPS), which was a bit surprising given how poor retail sales have been.

The dollar is lower, which is helping commodities. And the Yen is lower too, although it rallied sharply yesterday afternoon and still needs to break its recent uptrend for the market to lift.

The 10-year yield is up slightly to 3.18%, after touching multi-decade lows earlier. And the VIX is down -5.2% to 76.7.

The market remains deeply oversold, and has been decimated by panic and forced selling. I think mutual fund and hedge fund redemptions are at the heart of the forced selling, which makes it difficult to gauge when they will cease.

Today I am bidding to sell the remaining shares of my ETF hedge that I have been holding. I still have outsized cash balances that I am holding, and the proceeds for these ETF sales will also go into cash for the time being.

I believe we are nearing a very sharp snapback rally, the timing of which will be difficult at best. But I think when it surfaces, stocks could bounce +10-20% in a matter of days. Sentiment is poor, but we have to continue to look for opportunities.

selling SDS


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