Market Update

The financial crisis is now hitting Asia and Europe with the same ferocity as it did the U.S. There have been several bank mergers (collapses) in Europe over the weekend. In addition, one major Asain-related Hedge Fund went under, and a major Real Estate Holding company is getting bailed out. Central Banks and similar organizations around the globe are coming in and bailing out troubled financial institutions all over the world. In a word, it's a mess.

The major indexes are seeing some ugly chart damage, but there's still room to drop. Unfortunately, the big U.S. government bailout was filled with so much pork and special interest that came to light in the past week, that when Big Money started to realize the potential negative long-term ramifications of the bill, it created a degree of uncertainty in the market. If you take the bailout package and list all the short-term positives and then stack that side by side with the long-term negatives, the net result could actually be somewhat bearish for capitalism. Another way to look at this is that the bill could have made a bullish impact of about 8-10 on the Richter scale, but instead it now may only be about a 2-3, and could possibly even become a slight negative short-term.

All you have to do is see how Big Money reacted to the news of the passage of the bill in the House of Representatives on Friday to get a feel for what Smart Money thinks. The Dow had a reversal of almost 450 points to the downside on Friday after the news announcement.

The greatest irony in all of this, and the biggest revelation of ongoing political incompetence, is the fact that one of the very reasons the bailout was rushed to Capital Hill in the first place was to save the Financial Markets along with the Financial System. We heard all kinds of end-of-the-world outcries from political representatives about the necessity of the bailout to save the markets and save the system. If the bailout didn't happen, the political intelligentsia was predicting the end of all life as we know it. So the bailout happens and the market dumps 450 points! The very thing the intervention was designed for was to prevent a collapse, and as soon as the bailout passed, the market dumped. I don't know how you get any more clarity on just how much incompetence with have in Congress than that.....

Even though the markets have another level they could drop to, and even though we have too much incompetence from our political leadership, I'm still optimistic about our country and our markets. America and its people are resilient, hard-working, innovative, and capable. I think we will pull through this eventually, but I also think we are in for more volatility in the next 1-2 months. I said that I anticipated a topping out process on the $VIX to last 2-3 months, and that plays right into the rest of the year. We have earnings warning season next week, followed by earnings season. We have more economic data in the next two months to sort through. We have the Fed at the end of the month, and we have the election rhetoric and then the elections in the next month or so. That doesn't even include the continued unwinding of the mess in the worldwide financial system. I will stand by my forecast of a 2-3 month topping pattern in the $VIX instead of a quick spike and a new bull market next week.

As for trading, I will keep taking it one day at a time. I'm keeping my directional trades to short swings, and I won't hold full positions overnight, unless it's a clear setup on the stock and the market. I will post some stocks to watch in the next few days, but I'm more focused on quick swing trades on the DIA, SPY, QQQQ, and IWM as much as anything right now.