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Welcome to
"StockBreakthroughs Newsletter"
March 22, 2008.
Market Recap
The financial crisis continued one more time on Monday as the 5th largest financial institution of the U.S. Bear Stearns (BSC) lost 83.97% of it's share value in one day gapping right down to a meager $4.81 after it had already fallen out of the sky by $27.94 on March 14, 2008.
Source: www.bigcharts.com
Technically speaking, such huge drops are called Slammers. A Gap is a break between prices on a chart that occurs when the price of a stock makes a sharp move up or down with no trading occurring in between. Gaps can be created by factors such as regular buying or selling pressure, earnings announcements, a change in an analyst's outlook or any other type of news release.
Source: www.bigcharts.com
The one you see with BSC is a typical Breakaway Gap. A Breakaway Gap represents a gap in the movement of a stock price supported by levels of high volume which can also be seen on the chart.
At the beginning of the year BSC still closed at $83.30. On October 5, 2007 BSC shares
were still trading at $131.58. Now this is a huge loss for a company. Losing over 95%
in 5 months is a total disaster for any company.
After initial tripple digit losses the Dow Jones just made it into the green by gaining
21,16 little points. The Nasdaq closed down 35,48 points (-1.6%) and so did the S&P losing 11,54 points (-0.9%). The European indices got hit worse. The German DAX closed down 269.6 points making it a 4,18% loss and the British FTSE dropped 217,30 points making it a -3,86%
loss which is a lot for these indices.
On Tuesday though, things reversed and stocks lasted skyward, with the Dow rocketing to its fourth-largest point gain ever (+420.41) after earnings from Goldman Sachs Group and Lehman Brothers Holdings Inc. proved better than expected and a rate cut by the Federal Reserve of 75 basis points down to 2.5%. This is the sixth rate cut in a row.The last time or two the markets liked the cuts but only enough for buying spurts and not true rallies. The question here is if this action has been enough to finally overcome the negativity in the Market in a meaningful and lasting way.
But again, big deal, because on Wednesday the markets continued going about their usual craze! The Dow dropped 293 points wiping out more than 50% of the previous days gain. Yippy! Good going Wall Street! Why did you bother buying stocks on Tuesday in the first place???
The Nasdaq followed it's footsteps losing 58.30 points with copycat S&P shedding 32.32 points. All this was due to the FED's inflation warning knocking wind out of commodities
that also closed sharply lower!
Right now, whatever the FED seems to be doing does not have the usual medium to long-term impact it had in the past when it dropped interest rates. The action of the FED in the last 6 months were all just short-lived. The markets go euphoric for a trading session just to ruin the party the next day.
But then again Wall Street, why did you bother selling on Wednesday when you went on a buying frenzy again on Thursday making up for almost all the losses of the previous session?
This just shows one more time, as so often, that 90% of all trading is based on psychology and very often totally irrationl and senseless panic decisions! But it also shows how touchy jittery the market still is over the credit crisis.
The Dow ended on Thursday at 12,361.32, a gain of 261.66 points or 2.2% on the day. For the week, the Dow rose 3.4%. The technology-laden Nasdaq rose 48.15 points on the day to close at 2,258.11, a 2.2% rise for the day and a 2.1% gain on the week. The broader S&P 500 gained 31.09 points on Thursday to close at 1,329.51, a 2.4% gain. For the week, the S&P was up 3.2%.
As tantalizing as it may be, the quick switch to a bullish stance on the basis of one day of trading is not prudent. Don't worry about missing out on a few hundred DOW points by being cautions. If this is indeed the bottom of the market we will have plenty of time to take advantage.
Yours in Successful Trading,
Ricky Schmidt
Information, charts or examples contained in this lesson are for illustrational and educational purposes only. They should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer at: