After charging lower early in the session, the U.S. Stock Market staged a late day rally that carried it to over 1% gains nearly across the board. The lone exception was the Russell 2000, which ended with a far more modest gain.
The main focus early in the session was the continued problems faced by Lehman Brothers, which lost another 40% in value today, and is now over 90% below its 2007 highs. Later in the day it was reported that top executives at the firm are considering the sale of the entire company, rather than just pieces. Wall Street seemed to like that news, and that allowed the market to rally.
It is worth noting that the major averages are in the process of testing significant lows. Today could be a short term bottom, but there still does not appear to be the type of capitulation we would like to see to market a longer term bottom. Although the Dow was down as much as 150 points earlier in the day, we probably need to see it down at least 300 points, and then see a reversal that carries it up a few hundred points of that session low. Another issue is that the VIX closed at under 25 today. This indicator needs to rise to over 35 in order to mark a significant bottom.
In the future markets, commodities were generally lower again, led downward by Gold and Silver. Crude Oil was also lower, but due to the impending impact of Hurricane Ike on the Houston area refineries, gasoline was up a bit today. Crude Oil is getting perilously close to the $100 level, trading as low as $100.10 on the October contract, before closing just under $101. This is in the face of OPEC indicating a 500,000 barrel per day cut in production. I guess those folks have no interest in maintaining a strong global economy! Fortunately for us, most of the producers have no other source of income so they will likely produce above the quota in order to maintain their cash flow.
The Dollar continued its rise against most major currencies today, and Treasuries were steady to higher today, as yields dropped modestly.
Although I continue to believe that the foundation is being laid for a new bull market, as I have said before, some sort of major capitulation is likely needed before we can see the beginning of a new bull move. However, it is possible that a meandering bottom can be put in without this capitulation, but the new bull move should begin with a violent move to the upside.
Stay with the trends!
Scott Cole
www.bestdaytradingstocks.com
www.kungfutrader.com
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