Government finally step in

9/18/08

Today's action is not 100% similar to what I guess from yesterday post. But it did turn around sharply higher because US is about to create an agency to absorb the bad debts of all financial firms. In addition, SEC new short sell rule is in effect and it might even bad short sell too. Well, at this rate of emergency, there is no rational way to save the financial system. Let's off the fundamental talk right now.
Technically, Dow/S&P/Nasdaq are posted bullish engulfing candlestick pattern which is a reversal pattern. Heavy volume & VIX spike high into 42. All are must to have as a technical bottom. However, due to this extreme bearishness & financial conditions, need to see follow thru friday and Monday action to 100% confirm the lows of today is bottom. It is because tomorrow is quadruple options expire day and it surely will post high volatility.
Back to the fundamental, if US government really create an agency to help buy those "garbage debt", it surely will deepen our national debt level in huge margin and eventually it will also increase the likelihood of downgrade of our national bonds rating. It will bring our US value significant down again relative to other county's currency. Also, the real problem is in the national housing market. No one knows when is the bottom. What if the price of housing keep dropping, it is still driving US economy down for damn sure. All in all, the short term picture may look good but long term is still in trouble. Personally, if this does work out in some degree, market might have big good rally for election purpose that people with hope. But, next year, it has greater chance the market will rebuild the bear trend. Or, if this does not work,this relief package effect will be short lived and market will fall like a rock again. Let's see how this weekend turn out.