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Fear on Wall Street

When will the selling end?

A question many will ask but nobody knows for sure. The Standard & Poor’s 500 index closed today at 752.44 breaking through levels not seen since 1997.  You could just feel the fear based on the intensity of selling and the increase in volume. As short term intra-day traders, we can not analyze all the news that Wall Street has to decipher. In fact, the amount of negative news hitting the news wires has done nothing but to put more panic into the american people. Every time Henry Paulson (  United States Treasury Secretary) gives another speech, the market sells off 300 points. Any time any politician gets on tv, the market tanks.

We are in a trading environment where we can not listen to the news and interpret it. Instead we must understand the market psychology. There is fear. Lots of fear. This means that there will be people selling! Selling their stockat every opportunity they have. We must use our charts to tell us when we may come into resistance, but until we do, we must assume that we will sell off.

Occasionally, we have rallies. These rallies will be nothing more than a few bottom feeders who feel that we have finally bottomed out. This buying will than create the short sellers to start to cover their positions which will then create more buyers. (usually the longer term investors who once again don”t want to miss out, which then creates the shorts to cover their positions. Until we cross over the 20 period moving average on the dow and hold those levels, it is just another bear market rally.

We have sold off almost 50% on the dow from the all time highs, so my feeling is we are closer to a bottom, however, the negative sentiment will not get better overnight. my belief is that once President Elect Obama gets into office, sentiment will get a bit better.  a new voice with a new vision will at least give the american people the hope that we ae not in a doomes day scenario, which again will create these bear market rallies.

The bottom line is that the recent market volatility will not disappear anytime soon. There will be those ebbs and flows. For us short term traders we must follow the intra-day order flow, however, we must realize that we are in a recession and that means the psychology of the people, is negative which will ultimately cause more selling, every time we get a rally.



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