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Monday 10/22, a pivotal day for the markets

By Mike ⋅ October 21, 2007 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

After Friday’s unrelenting and steady sell off, I don’t see what could push the markets up. The current sentiment is negative, and bad news is bad news once again with recession on the minds of everyone on the street. Personally I think we’re in for a serious and prolonged recession which will spread to the rest of the global markets. Many people believe that the rest of the world is insulated from whatever the U.S. goes through since there is still strong growth in some other markets (e.g., China), but I think they forget that the U.S. is the largest consumer for global supply of almost everything. If the U.S. falls, the rest of the world will start falling like dominoes and we’re in for some serious pain. Gold standard anyone?

Anyone who shorted just about anything and held, ended the day with some nice gains. Even Google was feeling the heat Friday and sold off to end at the lows of it’s trading day, although still up. One stock I would keep my eye on for Monday is Caterpillar (CAT). It was one of the stocks that pushed the industrials down with a point and a half move down late in the day and bounced off a strong support level at 73. I’ll be looking to short this if it breaks that level on Monday.

Another group of stocks I’m very negative on are the mortgage insurers such as PMI, MBI, and RDN. Even though they have been selling off for more than a week and many at 52 week lows, I still believe they can go down much further. Keep them on your radar. I’m fond of shorting Citigroup these days and I’ll be looking to do it again on Monday. I’ve been asked a few times if it’s a good time to bottom pick C, and I’ve responded that if you’re trying to catch a falling knife you’re in for a load of hurt. This thing could go to 40 and probably lower by next year so try to remember that you’re risking a huge amount for a probable small gain. The trend is your friend in this instance. I’ve also been very negative on Merril Lynch and I’ll be looking for a short entry here also.

Asian markets are getting crushed today following the tumble on Wall Street Friday. We should see a gap down in NY followed by a recovery and some steady selling throughout the rest of the day, but don’t hold me to it. This market can change at a moments notice. I hope everyone’s rested up and ready for some action. Get enough sleep and get that morning cup of joe tomorrow and stay focused. Watch for my morning call tomorrow.