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Minyanville's Market Recap: Short Coverings Fake Out, Markets Fall


Shorts fake out Bulls! Markets Fall. Recap the trading day!

What some thought was resiliency actually appeared to be short-coverings as stocks plunged in a downward spiral late in the trading day. The Dow ended down -167 points at 12861.47, S&P ended down -19.84 points at 1406.70, and the Nasdaq ended down -40.29 points at 2458.83.

Before the day began, heavy bearish sentiment flooded the wires. Asian stocks fell on fresh subprime concerns as Australia's Basis Capital told investors its hedge fund may have had losses of up to 80%. European shares were hit hard as well with financials coming under heavy pressure a day after ECB President Trichet said markets would return to normalcy. Read Professor Shedlock's article on the best in breed of the financials in Goldman: Deal Or No Deal?

The markets appeared to rally being in positive territory for much of the day. The Fed continued to inject liquidity into the markets, this time in a $7 bln repo. Consumer Prices also showed the smallest gain in months as gasoline and food prices slowed and the NY Empire State Index showed consistent health in manufacturing throughout the state.

In other news, crude oil rallied as traders were eyeing Tropical Storm Erin that formed in the Gulf of Mexico this morning threatening oil and gas facilities off the south Texas coast. Adding to the sentiment was a very bullish crude inventories figure that came in less than expected.

Late in the trading day however, a change in character was obvious. Professor Tantro posted on the Buzz and Banter, "Once the shorts were done covering for the day, the market fell faster than a falling safe…" Countrywide Financial (CFC) was also downgraded by a Merrill Lynch analyst citing liquidity concerns and "effective insolvency" if creditors forced liquidation. The stock fell by as much as 21%.

The selling pressure was mainly evident in the financials as Lehman Brothers (LEH) fell 3.9%, Goldman Sachs (GS) fell 2.8%, and Bear Stearns (BSC)down 2.7%. Read Toddo's Bulls Lose Their Grip on Today's Tape for another perspective of today's volatile market.

Below is just some of the idea flow on today's Buzz and Banter. Please note that stocks may appear on both bullish and bearish categories due to long and short term trades by our many Minyanville Professors.

Some Bullish trade or investment ideas: GS, DE, SPX, XLF, CHK, SUNW, GSS, YHOO

Some Bearish trade or investment ideas: CFC, AMAT, PEP, SPX, GS, LEH, MER, PCU, FCX

These are tough times even for the pros. Investors may want to heed Professor Reeves' advice in Play It Safe With CD's and Bonds. If you're the trader then have a look at Toddo's updated Ten Trading Commandents. Rest up for tomorrow, it should be another fun day!
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No positions in stocks mentioned.

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