每日市场点评 --- January 23, 2008

This is the capitulation day we have long been waiting for. Both Dow and S&P had a 5% intra-day reversal and closed almost at the highest points of the day. More important, yesterday’s lows were retested and held. Many stocks experienced a 5% or even 10% rally from their intra-day lows and closed at their highest points with above-average volume. Indeed, it is a great day for bulls. The market started the day in a jittery mode as stock markets in Europe dropped on average 4 – 5% following ECB President Trichet’s comments that he is committed to fighting inflation while many investors had hoped that ECB would follow the US Fed to cut interest rates. Moreover, unwinding in yen carry trade was very active as many funds were forced to sell risky assets after receiving margin calls.

Market dropped immediately after the opening bell. At around noon time, Dow was down by more than 300 points and Nasdaq breached yesterday’s low. Many high beta stocks were hammered and were down 10% - 20%. Only financials and retailers were staying green. Actually if it were not the strong support from the financials, Dow would be down by more than 500 points. Then later in the afternoon, speculation that the government is going to bail out bond insurers triggered a big rally across the board, pushing Dow up by more than 600 points. Truly remarkable!

What should investors do from here? Especially for people including myself that have missed the boat (I was out for two hours in the afternoon and missed the big chuck of the rally)? First, avoid chasing stocks at this level. It is important to remember that it is not uncommon to get this kind of reversal in a bear market. But usually such reversals don’t last long. Second, it is important to pay attention to market leaders such as financials and home builders in this round of rally. How long the rally can continue will more or less depend on how long those sectors can keep moving higher. Third, patience, patience and patience. During a fast market such as now, it is very easy to forget this key trait that is definitely required for long term success. Keeping a clear mind on big picture is very important.