Next stop mortgage backed bonds… Market conitnues to slide

I stated my expectations in my last blog that the market would continue it’s slide down. So far apart from brief rips in the NYSE and S&P futures (and other US markets) followed by profit taking action, not much is happening and we are slowing sliding down. Investors seem overly cautious in entering the ring and are waiting until there is a more clear direction on the economy. The S&P went down to 1,324.89 with the Dow at 12,136.86 ( 0.90% lower). From a day trading point of view lack of action and liquidity often makes it difficult to make good profit and the search is always on for stocks with movement and good ranges.

Today the financials took a decent hit with Citi Group (C) closing below 26 (it was 29 something a few days back!) and might just go back to its low of 24-25 if the market continues to slide (the range before the fed cut interest rates). According to an analyst on CNBC today, the financials account for almost 40% of the action on the major US markets. In my opinion the fact that they are in such a bad shape and overly cautious will likely have a negative impact on NYSE and other Stock markets in the coming weeks. The main worry for today seemed to be primarily focused on the mortgage backed bonds and investment firms are duly in the process of lowering their ratings on companies such as MBIA. It still isn’t clear whether we are going to be in a recession in the near future but the market is definitely taking a beating and the economy needs to resolve several issues before we can expect a bounce back.

Now for some Good news… the government stimulus package seems to be coming through and the FED have clearly indicated that they are willing to fight the recession beast. We may expect some more interest rates cut in the near future as the Feds help stabilize the economy. Where the market bottom is, that cannot be answered accurately but stock such as Citi group hitting the 24ish range seem like an attractive buy for the longer term (the stock was well above $55 same time almost a year back). The Arabs swimming in their recent oil wealth certainly seem intent on buying a stake in Citi and I wouldn’t be surprised if another round of investments comes in on Financials such as JP Morgan, Citi, Goldman etc. if the market continues to decline.

For us daytraders, it’s not easy times to trade (depends on the stock and strategy we use ofcourse) but money is still being made on the right stocks driven by momentum and big plays. Speaking of nice opening/closing plays Pepsi (PEP) had nice rip of almost 3 dollars on Thursday. Hopefully you guys were in on the action. Cheers

- Danial Jameel (www.daytraderlog.com)