September 29th, 2008

The Verdict’s In: Passage Was Already Baked In

As debate went forward on TARP, bailout or whatever they call it, last Wednesday I asked whether the market had priced in passage of the bill in Congress. Most of you sided with my wife and said there would be a sharp, quick but short bounce this morning. On the other side, I wrote:

The market now assumes passage, passage is priced into current market levels and actual passage will be anti-climatic. The principal outcome, in my opinion, will be continued downward trend because the economic reality will be viewed negatively rather than positively. The focus will shifting away from “we’re going to do this but only discuss how” to “we’re going to do this but with what disruptions and at what cost”.

So far this morning, it seems I was correct. The market is again approaching that crucial — let me repeat, a crucial — support level at 1130 which, if broken, means a strong likelihood that the market will work its way down to the next targeted support level of 1040 for another 10% decline from here.

Its next would then likely be at the next possible support trendline, as outlined in “Where is Strongest Supporting Trendline” on Wednesday, September 17 (click here for that chart). For your information, the Index did hit the first potential supporting trendline the next day with an intra-day low of 1133.50 before violently rebounding to an intra-day high of 1265.12 the following Monday, last week.

It may take the remainder of this week of retesting the 1130 support before the market participants decide that it’s safe to test the waters or to continue trying to find a safer ground (if anyone knows of such a place, please let us all in on it!).

Subscribe below or click here to learn more about help for navigating turbulent markets.