RealMoney Silver - Due For a Bounce, But Then What?

Due For a Bounce, But Then What?
By Rev Shark
RealMoney.com Contributor
1/4/2008 8:29 AM EST

I firmly believe that any man's finest hour, the greatest fulfillment of all that he holds dear, is the moment when he has worked his heart out in a good cause and lies exhausted on the field of battle -- victorious.
-- Vince Lombardi

As 2008 begins to unfold, it has been a very difficult battle -- poor economic news and worries about a possible recession have sapped positive sentiment. Although seasonality is supportive of the upside and the market is oversold enough to support a bounce, we have been unable to gain any upside traction in recent days. Every time we seem to be gaining a little momentum, the selling picks up and pushes us back down.

The problem is that there just isn't much optimism out there right now. There is talk that the market is "cheap" -- which I question -- but positive news and catalysts are certainly lacking. We still have plenty of unknowns in the housing and debt markets, and concerns about inflation are growing, especially with oil hitting $100 a barrel.

In this sort of environment, the bulls will typically point to widespread negativity as support for the idea that the sellers are washed out and we are ready for a bounce. No one really seems to believe that negativity is so extreme that it can support a lasting bounce. There is talk that we are due for some upside, but even the bulls seem to have little faith that a bounce will last. Few seem to believe that we can move back toward highs and get a lasting uptrend going again.

The market is lacking confidence in the Fed. More rate cuts are expected, but that hasn't been enough to comfort buyers. The worry about the inability of the Fed to help matters is becoming even worse as the dollar continues to weaken and inflationary signs grow.

The Fed's primary tool is providing liquidity through rate cuts, but that has the downside of boosting inflation and hurting the dollar. That leaves little flexibility for Ben Bernanke and his crew.

The other big negative out there is that the charts of the major indices are downright ugly. None of the major indices has yet to break below the lows we hit in November, but we are getting close and the situation looks precarious. I suspect we'll bounce soon but after that I'm very concerned that we are going to crack that support

All the major indices also have the makings of "head-and-shoulders" tops, and a break below the November lows will complete the pattern. It is very hard to be longer-term bullish with this poor overall technical health in the major indices.

The key to making money right now is to stay short term and play bounces but don't expect them to last. There are pockets of action and we are due for some short-term relief, but it is going to be tough going in the intermediate term unless we get some very surprising turns in the economic news.

Jobs numbers are coming up and that may give us some action, but look for volatility to stay high.

James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.

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