Tuesday, June 06, 2006

Learning my lesson

Last Saturday I said "Despite my bearish views over the medium to long term, the near term is heading up if I have to hazard a guess." It was a post about the irrationality of markets no less! I can only hope my readers took my longer term views to heart more than that haphazard guess.

The 70 point rally in the Dow around 3:30 pm made the end results look much better than what it might have been. Nonetheless, the inability for the market to muster a sustained bounce is very worrisome. Jeff Saut of Raymond James reiterated his call for a 17-25 session selling stampede (check the podcast) which according to him was interrupted by the brief rally following the Enron verdict. Meanwhile, I have been eyeing a more severe downside. As stated over a week ago, I have been drawing parallel to September 2000 where the S&P declined in three legs: a) a quick initial 80 point drop; b) a 12-14 session consolidation around the 200 dma which ultimately failed to hold, followed by c) another drop of approximately 80 poins. The current decline featured a quick, 60 point drop from 1326.7 to around 1265 which was 13 trading days ago. The S&P bounced up to 1290 but all it managed was to fall back to near the lows without the oversold condition. I’ve learned my lesson so I won’t make any predictions here. But for the bulls’ sake, 1245 better hold, otherwise 1185 becomes a real possibility if September 2000 offers any guidance.

Good luck and be safe!