Everyone is looking for a bottom. The problem is that the street is busy trying to figure out who has the energy derivative old maid and is not focused on bidding up the market but instead they are interested in protecting themselves from counter party risk. This commodity disaster has wiped out trillions behind the curtain and someone big is in tremendous pain. The TED spread blew out in the month of December tipping us off to the fact that all was not well within our banking system. If this market can’t get its sea legs here then we are likely headed a lot lower. When we do find out who has the old maid we hopefully put in a durable trading bottom. In my humble opinion any rallies should be sold until the dead body of the financial institution (or institutions) floats to the surface. Could we get rallies here? Sure…but I trust nothing until the purging. Usually once the news is out we usually get a relief rally. We rallied in 98 on the LTCM bailout news, and in 2008 on the bankruptcy news of Bear Sterns. However, I don’t think it will be The Bottom but a short covering rally for several weeks to a few months before more pain and despair.
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