Thursday, January 17, 2008
"Breathe, damn it, breathe!"
In an episode of CHiPs – an old TV show about California Highway Patrolmen – Francis "Ponch" Poncherello (played by Erik Estrada) pulls a drowning motorist out of a car that had careened into one of LA's water canals.
The victim is unconscious, and as Ponch is performing CPR, the camera zooms in tight on our hero's face. He shouts out "Breathe damn it, breathe!" Within seconds, the motorist is conscious.
Ponch saved the day.
So I tried that same technique this past Monday. The stock market was trading sharply lower. Shares of Merrill Lynch (MER) were trading lower as well. I stared intently at my quote screen and shouted out, "Breathe damn it, breathe!"
Yesterday, Merrill Lynch inhaled.
Even as the market opened lower yesterday morning, MER shares opened higher and rallied throughout most of the day. That's good news for the stock market – at least for the short term.
The stock market is viciously oversold. And it's logical to expect a bounce at some point. But we've been oversold for the past couple of weeks, and anyone betting on a bounce during that time is as underwater as the hapless motorist in the CHiPs episode.
Now, however, MER, which I consider a canary in the coal mine, is signaling that it might be okay to head back into the market.
I wouldn't stick around too long though. The major averages have suffered a lot of technical damage. Markets don't just shrug that off and reverse course. So any gains from here are going to be temporary.
However, given the powerful downside extension we've seen over the past few weeks, any snapback rally is likely to be equally as powerful.
If you're short stocks, then this might be a pretty good time to take some profits off the table. If you're long stocks and looking for a chance to get out of a few positions, then you'll soon have a good opportunity to do so.
And if you want to speculate and try to profit off of a bounce, then now is the time to make that bet.
At least the canary thinks so.
Best regards and good trading,
It's an official bull market in health care... Johnson & Johnson at new 52-week high.
Virtual banks love a credit crisis... Annaly and MFA Mortgage hit new highs on impending rate cuts.
European banks don't... UBS, Credit Suisse, and Deutsche Bank at new lows.