Date: 03.04.07
Time: 09:35pm
Investors Fear Possible "Black Monday"Greetings Shark Investors:
It was another ugly day for the market Friday as a flurry of selling in the final hour caused each of the major indices to close at, or very near, the lows of the day. Overall about three stocks declined for every one that gained, and none of the major sectors finished in the green. Although the blame for the sell-off will be placed on such nefarious catalysts as the unwinding of the Yen carry trade -- where investors borrow yen at a low interest rate and invest those funds in higher yielding international assets -- or worries that the sub-prime mortgage debacle may be migrating into the prime mortgage industry, the greater likelihood is that market players were simply worried about carrying too much exposure into the weekend.
Obviously, investors’ nerves are frayed, and the possibility of a 1987-style “Black Monday” crash is in the back of their minds. However, even though the technicals are obviously atrocious and key upward trendlines and support levels have been demolished,
the chances of such an occurrence at this point are actually quite low. In fact, the intense selling and negativity we saw during the week actually sets up a pretty good
possibility of a short-term bounce.
Still, we aren’t saying that being heavily long here is a good bet, but at the same time, short positions carry some heavy risk. It is at points just like this where the differences between the money managers and small investors are really brought to light. After a sudden and sharp pullback like we’ve seen, the big money is quick to buy. For them, this makes sense since they have many millions of dollar to put to work and have to do so in a slow and incremental manner.
For most individual investors, however, this approach is much less effective. Rather than trying to call a bottom, individuals are much better served by waiting until any stocks that might be on the proverbial shopping list have settled into a base and shown clear signs of turning back up. There isn’t an adage about trying to catch a falling knife for nothing. Stocks that are going straight down have a nasty little habit of continuing their descent even if there is no fundamental reason for the drop.
The bottom line here is that, even though market pundits will say that there have been no fundamental changes to the economy, that the worst is over, and that we are facing a tremendous buying opportunity, there has been absolutely no demonstrative reason yet to make that leap of faith.
Make the market prove that the worst is over.
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