Today the Dow saw a 777 point decline, the largest point decline in history after the congress failed to pass a bill that was essentially "guaranteed" to pass and help attempt to stabilize markets and quell fears in the market. On a further note the Nasdaq saw over a 9% decline down 199 points, which I was unfortunately long the Q's but got out well before the lows.Everyone in the industry from pundits to professional traders seem to say this is the worst market they have ever seen and that these are "unprecedented times". Unprecedented times indeed. This has been a trying time for myself as a trader still trying to learn as well as try and balance studying for my CFA level 1 test. In hindsight, the best thing to do would have been to sit out this time and let things settle out. As Jeff says, "everyone in a bear market loses, it just depends on how much." Still, there have been many valuable lessons learned in this market and I have managed to at least survive. I am determined more than ever to succeed especially knowing that easier market times are around the corner. That is not to say I think this bill is going to solve all the problems of the market, however the market operates on group think psychology that needs to be calmed. People need to gain confidence in US markets again.
There are some things to know coming out of this that I will be watching and looking to invest in going forward once we have some more certainty and resolution that the market seems to look for as evidenced by the stock market but more so by the credit markets. Those banks that come out of this successfully will be in great positions, US Bancorp, WellsFargo, Bank of America, JP Morgan and now Citigroup with its aquisition of Wachovia. These will be the leading banks and essentially the only major banks going forward that should see some significant growth. Goldman Sachs can never be counted out as well with their change over to a bank holding company. So, in the short term those select financial stocks could see some decent upside. My other sector is the homebuilders. The homebuilders have held up fairly well in the face of the sell off and once this bill eventually passes, which I think will happen, they will benefit. The XHB is a diversified way to get in here, or you can choose individual stocks such as Meritage homes or Centex.
I am cautious on getting into anything consumer related that isn't something like the consumer staple stocks. The global slowdown is still very much a factor in this market even with a bailout however it will make some very good companies going forward very attractive if you are looking to hold long term such as AAPL.
The last aspect that we learn from today and that I learned again is that nothing is ever a certainty and we cannot rely on politicians. This bill was basically supposed to be passed and everything indicated that it would pass, which I took as a bullish sign for stocks. I was overly long going into this so I suffered and gave up all previous gains I had and they turned into significant losses. This is obviously a big lesson to learn even though this is not a usual market action of losing 7% it would have been smart to lighten positions going into the weekend because you truly never know what will happen and how slimy politicians will try to cling to their positions and not stick their neck out because they want to keep their position of power.
Long story short, I found it somewhat amusing to observe action today and have been a part of history. I will live to trade and invest another day and will move forward with more insight and caution and more reinforcement of following rules.
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