Based upon the talking heads I am hearing and the articles I am reading the general market sentiment has, not surprisingly, shifted dramatically back into the bearish mode.
In fact the tone seems to be one of near depression and 'surrender to events" which are bad and "going to get worse".
Let's not lose focus. Remember, these are the same folks that were telling us all how wonderful things were back in mid-July. Then, starting around August 4th and building to a crescendo about a week ago (after the fact), they were full of cautionary advise. In fact I heard Jim Cramer tell viewers on more than one occasion that they should sell if they "can't stand the pain". What kind of professional advice is that? He actually told people to act emotionally and sell into the panic. How did that advise measure up by last Friday after the market had rallied for three days?
And then as the 3-day, 800 point rally reached its peak last Friday we were treated to another change in tone. Basically, the storyline went: "while we aren't completely out of the woods yet the rebound shows why investors should not panic nor lose sight of their overall investment objectives".
Now the experts, such as on CNBC and Bloomberg television and as found on the internet, greet us with repeated claims of (paraphrasing): "I told you all not to trust this rally". This is usually then followed by the speaker or writer informing us rubes how he/she knew all along the rally would not last (one week ago the line was that they knew the decline wouldn't last).
I can only repeat that, especially regarding the business television offerings, the main goal of these shows is not to provide advice but to grab ratings by being entertaining. Regarding the business TV channels have you noticed:
- The "segments" generally are only minutes in length.
- They include the talking head taking extended time to ask a question (they love to hear themselves talk).
- They very often tend to not allow the guest to provide an in depth answer ("too boring, we're losing audience").
- The constantly shifting, high-speed, rapid-fire nature of the production.
Oh, and while they seem to love dire events such as the "Debt Ceiling Crisis" (good for ratings) and in my opinion definitely hype things up, it's never so bad that they aren't able to cut to commercial.
It is going to be ugly today. And with this being an options expiration week the volatility and decline could continue tomorrow.
That said we need to look to the future for the next phase. A re-test of last week's lows was to be expected. In fact, a review of the past roughly 80 years of market movement at times similar to last week’s revealed that a major rally without a re-test of the lows (a "W" type bottom) was an exceedingly rare event.
This is not to say that there are not problems in the world; there are. But the markets tend to discount the most recently perceived future. For today, that means discounting European bank problems. The latest news is that an un-named European bank borrowed €500 million overnight from the E.C.B. at a rate of more than 1% when the interbank rate was 0.25% or less. The implication and rumor is that this is Europe's "Lehman Event", as the assumption is that said bank must be in trouble if they couldn't borrow from another bank. And all the players run with this and pound the stocks.
And boy for those watching CNBC did we just see a revealing moment. I just heard Jim Cramer blow up when he was called out regarding his fear mongering. WOW! So now he reveals that his statements are colored by how he was taken to task for being wrong 3 years ago regarding Bear Stearns. Could he be overcompensating? Maybe.
So as this drop unfolds let's remain as unemotional and as coldly objective as possible. It just may be that this is the move to the "second low" which completes a bottom and sets up a more sustained advance.
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