February 23rd, 2008

Ambac and S&P Whipsaws

“NEW YORK (AP) — Wall Street staged a dramatic turnaround Friday, shooting higher in the last half-hour of trading after word that a bailout plan for troubled bond insurer Ambac Financial could be announced next week. The major indexes were narrowly mixed following a week of choppy trading.

CNBC reported shortly before the closing bell that a plan to help shore up the finances of Ambac Financial Group Inc. could be announced Monday or Tuesday.”

So should a rumor about a government bond insurer’s possible bailout change my view of where the market is headed over the next several months? I wish it were that easy.

It’s days like today …. or should I say closing hours like today’s … cause you do doubt yourself and challenge your self-confidence. It’s the heat of moment that requires self-discipline and will power.

All of the fundamentals that have spooked the market for the past six months haven’t been cured by this rumor’s announcement. Actually, it might be considered irresponsible to broadcast an unverified story like this a half-hour before the market closes for the week …. all in the name of ratings and one egotistical reporter’s “inside information”.

Only time will tell. My Market Timing Indicator (MTI) continues to converge towards a significant cross-over of the 180-day moving average below the 300-day. As reported last week, there have been 51 instances of this configuration over the past 44 years and the S&P has experienced declines after each cross-over; some included major bear markets.

As I said a week ago, “Unless there’s a significant recovery of 6% to 1450 during the next two weeks which doesn’t seem likely, history says we’ll be entering an new extended, step downward leg of this bear market.”

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