Tomorrow marks the long awaited Facebook initial public offering. Will it make a difference to the overall negative tenor of the market? After today's 1.5% decline, the S&P is down over 8% since the correction started on April 2nd. As we mentioned in our March 27 newsletter, "Which do you think more likely - another 10% rise or a 10% correction? We would guess a correction." Unfortunately, our comments now look timely and prescient as we are nearing that 10% mark. The market is very oversold and due for a bounce of some sort. With options expiration tomorrow and the excitement generated by the Facebook IPO, the bulls may get their long awaited reprieve. Much technical damage has been done over the last few weeks with multiple levels of support broken. It will take much more than a one or two day rally to overcome the damage done. When the bounce comes (and it will at some point), the move may be explosive and create all kinds of buzz on CNBC and the other financial networks. However, the true test will be how the market acts once the initial flurry of buying (or short covering) has run its course. That should happen within a few days and then we will see if the downtrend that started 45 days ago has more to go to the downside.
There are many reasons to be cautious now and we have significantly lightened up our portfolios over the last few days and weeks. We are currently raising cash and waiting for the next buying opportunity when the odds are in our favor. As our sell stops are hit, we will continue to liquidate positions until this market stabilizes.
Welcome to the extended version of the BAM Market Note. We are not bloggers by nature but have had clients and friends inquire about our thoughts on the market in between our newsletters. The number and content of posts will likely be determined by the conditions of the markets and the interests of our readers. We would greatly appreciate your feedback and comments.
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