主题：10/01/2008 Market View -- 宁子

THURSDAY

September certainly lived up to its reputation as the worst month for the market and it saved the best for last. Now we see if October lives up to its rep as the month the market's selloffs bottom.

DJ30 is trying to put in a double bottom over the 2004 highs. The market internals were extreme. Sentiment is extreme. Violent point swings. Issues are being eliminated in the form of financial institutions that failed or were taken out. It all adds up at least to the process of bottoming.

Now you look to see what stocks break higher out of solid bases. Some have been doing so such as the leading financials. At the same time we look for the indices to provide a follow through sometime from Friday to Tuesday, i.e. another big upside move on strong volume and with good breadth. That sets the foundation for a new sustained rally. Of course the market has to produce leaders to pave the way or else the follow through will not morph into a sustained new bull run.

The indicators all suggest a bottom trying to bounce to a new rally though leadership is a bit thin. The wildcard, the thing that clouds the picture, is the bailout band aid. Maybe it works to put the bottom in; the financials will certainly like it. On the other hand, the government is spending all its potential economic rescue money on buying worthless mortgages and won't have any to stimulate the economy if the credit freeze leads to a recession as some data suggest. That is what made this bailout so difficult because many feel it is not the solution that addresses all of the problems that we have in front of us.

As always it is incumbent upon us to watch for a follow through and watch what the leaders in financials (always an important leadership group in any recovery), homebuilders (early cycle), biotech/medical (defensive yet growth) do. We have several on the report, have bought some, and if they make strong breakouts we will add some more.

At the same time the indices are at the nascent stages of trying to turn the selling into a significant advance while in patterns that are best described as downtrends. A lot can upset the cart along the way to a follow through. The House still has to pass the bill the Senate just passed. The market would rally on the bailout passage by the House, but then we see if the market then prices in a recession or continues the breakout. We have looked at some downside positions on the indices, but we will have to wait now and see the House decision. We expect that to pass, lead to a bounce, and then the real reckoning begins. That is when we will look at more downside on the indices. There are individual stocks, however, that still look ripe to fall regardless of the overall market, and we will look at those.

Basically for now we look for strong stocks ready to break higher and lead a follow through move. As noted above, the leadership ranks are still thin and a rally needs plenty of growth stocks to lead it. If more stocks don't step up that casts doubt upon any follow through and we just have to keep on our toes in the event there is a stall in the indices and a volume turn lower. The indicators suggest a bottom is trying to make the market turn but it has to be backed up with high quality stocks. Just keep that in mind as the market makes a run at a new rally following the bailout passage. With the House still to vote as late as Friday morning (along with the jobs report), Thursday could be a wait and see session.