Panic or not?

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.