ZAY Blog

Shares of Citigroup has down 36% at 9:15am EST due to the news of government boosting its stack by converting preferred shares to common shares. S&P futures down 2.1%.

Be ready for a rough day ahead!

I am not sure how many short-term traders were fooled by the market today, but I confess I am one of them, and paid a pretty hefty price for it.

All was set to rise this morning, when the market initially opened. After all, we’ve had some pretty positive news from the Federal Reserve regarding the bank nationalization process, and the momentum from the spike yesterday seems to remain.

Things start to be ugly after about one and a half hour after the market opened, and after almost everyone was thinking that S&P was well on it’s way to 790, if not even test the 800 points level.

Within an hour, the S&P gave up all its gains for the day and finally fell to red two hours later.

Most of the major financial news attribute such a day to the decline in the health sector, which is, most of the time,perhaps one of the most insignificant and stable sector in the S&P index.

However, to me, that is just the market taking back some of the over-zealous buying activities after a day of insanity.

The evidence that the market could no long sustain its gains was pretty evident in the last half an hour of trading on Wednesday, with a 15 points drop.

Unfortunately, the market was still largely in the mood of celebration and S&P futures were traded higher even up to the minute before the market  opened today.

However, for those who were taking a long position today, there is really not a lot to worry about, the market is likely to regain some of the losses today, although without any good news, the chances of hit 800 tomorrow is not quite likely.

For the next couple of days, expect some huge volatility like what happened today. At least till the market start to find a new direction, stay put if you do not want to take huge risk, or keep a close eye to your tick charts if you want to minimize your loss.

The market was a little hesitant towards going up this morning, and I was a little worried because the consumer confidence and home prices data did not look so good. Consumer confidence was the key for economic recovery, which has plunged to the lowest since 1967, when the index was first measured while home prices had the largest drop in 21 years.

However, all fears seems to have erased  and the market bounced back fairly quickly after the Chairman of Federal Reserve, Ben S Bernanke, testified in congress that the recession could end as early as this year.

“Could”, of course, means there may be a “could-not”, but any assuring remarks from the government is something that investors are definitely hope to hear.

S&P ended up bouncing back to above 750 points, which is something that I feared it would stay below or drop further for a while.

However, the question remains:”are we there yet?”

Frankly speaking, I would pay someone 1000 bucks if he could convince me we are definitely at the bottom, and it is a good time to buy some oil while short on gold, a typical bull-market strategy.

The reality is, there are still questions remain to be cleared before the market advance further.

AIG is still in talk with the government to try to spend more money in reviving what was once a giant in the insurance industry (or perhaps spend those money on more luxury holiday resorts).

Citigroup, although far from collapse, remain unclear of the direction that it is heading to in the next couple of months.

Finally, the automakers are talking about merger, but whether they could survive to the day merger happens remains to be a huge question mark.

On top of that, we still have to face the reality that the general public are still in fear of what is going on.

The remarks made by Bernanke, to me, is more like a defibrillator to the economy – the heart will beat for a second or two regardless of who the defibrillator is applied to, live or dead.

However, whether it is the magic pill of revival remains to be seen.

I was literally watched with fear and frustration today as S&P slide down below 750 in the afternoon, and dropped 1% in the final hour of trading.

The last time S&P went this low was in 1997, almost 12 years ago, during Asian financial crisis.

What was really scary to me, this time, is that the market is not reacting based on any news.

In fact, there was news that US government was considering purchase some of the shares of Citigroup, which resulted in a 20% rise in C today.

Not so long ago, Obama just signed the stimulus package into law.

Even before the market was opened today, I bet some institutional investors did not see such a bad day. After all, the S&P futures were going up in the Asian market, and the Dow Jones index went up by more than 70 points in the first half an hour.

This is an indicator that rather than selling out of panic, investors are actually losing confidence on the government in solving the current problems, which means unlike what happened last November, when huge selling pressure built up after the collapse of Lehman Brothers, and quickly disappeared after the US Congress announced the bailout plan for the automakers, the current downward trend may persist for a while.

Furthermore, earlier today, the market was still trying to stay above the support level, only to loss that late in the afternoon with large trading volume. This is usually a sign that the downward trend will continue further.

The next couple of days will be crucial in determining the fate of the stock market for at least the next year or so. If the market continued to slump, there is a reason to believe that we may still be far from the bottom, and be even further from the recovery point.

Until then, I would hold on to cash positions and sit tight.