I apologize for the prolonged absence. So much has happened since my last post, so let’s get to it.
As I suspected, the broad market was pushed to down beyond the November lows as the banks continued to weigh on the major averages. But something started to happen at the end of last week and this pat Monday. The DOW, S&P 500 and the NASDAQ were still dropping, but the financials were no longer falling. In fact, many were increasing, even as the DOW dropped over 1% on Monday.
For instance, look at GE. This stock was following C into the low single digits. But on the 5th and 6th of March GE was flat while the DOW lost about 400 points. WFC, BAC and other banks were also flat. The names that have been killing the market for months were stabilizing as the rest of the market continued to fall. Two days later the market gained 5% .
This is the way the market has acted about 5 or 6 times since the current bear market started in late 2007. The banks initiate everything. They fall first and drag the rest of the market lower. Once the financials can stabilize as the commoditiey and technology names fall, we usually see a large rally that can extend for week. The DOW advanced 20% from the November lows (7,500 to 9,000).
Can we get a similar type move? Yes. Does it mean that the bear market is over. No. We should see a lot of short covering in the coming weeks. Be patient when looking for shorting opportunities. Let the market prop of the insurance companies and casino stocks before they inevitably drop again.
