Friday, October 10, 2008

The Kirk Report

The Kirk Report

Critical Life Support

Posted: 10 Oct 2008 05:21 PM CDT

For better or worse, we just survived one of the the worst weeks in market history.

S&P 500: This Week

For the week, the S&P 500 crashed -18.20%, Dow -18.15%, the Nasdaq -15.30%, and the Russell 2000 -15.65%. And, the damage we saw is of historical proportions:

S&P 500: Long Term View

If the market were a hospital patient, he's now on critical life support, every emergency procedure and surgery has been performed, the last rites have already been read, and the family has been called in. True, miracle recoveries do happen all of the time. In fact, it is our nature to expect them as we should. But, like I've said, we all must face facts and realize that Mr. Market is down and currently in the fight of his life.

No doubt, people will be encouraged to see the intraday reversal attempts after the open and also in the final hour today, especially amid all of the bottom-calling, the market is a "coiled-spring," type chatter. We should continue to expect more of the same. Like the past several weeks, there's hope that something good will happen over the weekend (G7 will do something great, credit markets will magically get better, and happy days will return once again). Hopefully when traders return to work on Monday they won't go back to the same Monday sell mode as we've seen for the past three weeks.

With that said, I also suspect the bears are running a wee bit nervous down here after pulling down the enormous amount of profits they have this week. I've been there and whenever I've made a killing like they have so quickly and so easily over a very short period of time, I'd get nervous as well and take something off the table. That only makes sense. Easy come, as easy goes, so to speak.

While all of us would very much like to return to business as usual, unfortunately there's little reason to believe that will happen anytime soon. The best we can do is manage our risk, stay opportunistic, keep our emotions in control, and keep our eyes open for signs that the worst is really behind us. As long as you do that, you'll be fine no matter what comes our way next.

The Rubber Band Effect

Posted: 10 Oct 2008 10:58 AM CDT

Rubber Band
Although I don't normally turn on CNBC during the trading day, I made the mistake of doing so this morning. Frankly, I couldn't believe what I was hearing since so many people were making the call that we're near or at the bottom. Until today, I've pretty much isolated myself away from the media (which is what you have to do in highly emotionally driven markets) but I have to tell you that the hair on my neck raised when I heard those predictions.

Moreover, I spent some time this morning scanning some of the more popular financial websites and I'm seeing more of that same across the board. In fact, you even have "sell everything" Jim Cramer out this morning advising that "you must hold your nose and buy." As one who is looking to put cash to work amid the crash, I have to say that this wasn't exactly what I wanted to see on TV.

As difficult as it is to admit, at this point and time, we've seen absolutely no reason from the market itself to suggest that we're near or at a bottom. Every day this week we've come in with countless indicators suggesting that at least a bounce is imminent and everything that all of us have learned for many years clearly suggests so, but it simply hasn't materialized. Failure to rally here is important to both acknowledge and understand.

I've talked about this analogy before and I think it is more than appropriate to do so again. The market frequently operates like a rubber band. It gets too stretched (oversold or overbought) and we see a snap back. The more extreme the rubber band is stretched, the more extreme the subsequent bounce and sell off. We've seen this countless times over the years and have benefited tremendously from that as a result. In fact, I'd say that 90% of the money I've earned from the market in my career has been from positioning ahead of and playing these moves for all their worth.

The problem that we're dealing with now we've seen absolutely no significant snap back which now opens the door to the question that no one (even I) wants to face. Which is, to put it bluntly, has the rubber band (i.e. the market) finally been broken? And, if so, what does that mean for the future of the market and the economy?

To make the assumption that the market cannot break ever is making a giant leap of faith which is ok to do so long as you recognize the fact that you're making that leap all the same. In addition, to make the assumption that it will be a quick recovery to fix the rubber band (i.e. the market) is a tremendously tall assumption given what we're seeing right now. While I don't think that every company in America is going out of business and/or that we're at the first stage of the next Great Depression, the market itself hasn't told us anything different. At least not yet and, until that changes, we must at least recognize it.

Obviously, I don't have the answers, but I think I can at least identify the questions we should be asking ourselves during these darkest of days. Without the market proving that it can rally (even if only for just a day), how can we even start to say that a bottom is at hand unless we're simply making a leap of faith, based on experience, but not grounded by any evidence whatsoever?

Global Financial Chaos

Posted: 10 Oct 2008 08:07 AM CDT

Good morning. With stocks headed for their worst weekly drop since 1933, markets around the world are crashing.

Not only do we have trading halts in several countries, but those which are open are under significant sell pressure and are posting huge losses. Meanwhile, the U.S. government is considering new measures to restore confidence including insuring all bank deposits.

However, credit markets remain extremely tight, economic fears rule, and all in all, things could not look worse. In fact, that's probably also the only good news we have is that things couldn't look any worse that what we're seeing right here, right now. We have far more than just blood flowing in the streets....[READ]