Another Card from the Dealer

Put your helmet on as we watch the next few cards the dealer deals.

With Asian markets falling hard post the U.S. market slide Friday, it's reasonable to expect a rough open for the U.S. markets whether or not Asian markets close well. An impressive intraday rebound in Asia would certainly be constructive; nevertheless, 4% plus slides in developed market indexes are also certain to inject doubt that any type of bottom may be imminent.

After the bounce we saw on Wednesday, Thursday and Friday morning, one should expect some retracement. How substantial and vigorous that might be may or may not have the implications market pundits are likely to posit. Given the substantial fear in the market, bearish technicals and negative headlines; it makes sense in my opinion to expect action more typical of a bearish continuation pattern (ie. heavy volume, seller dictated action) which puts the recent lows in jeopardy.

With the U.S., Japan, and Europe seemingly on the fast track to recession, markets are apt to begin questioning how China and a few others could buck the trend. Although no key market questions are likely to be resolved anytime soon, we do get a lot of economic data this week. New home sales, Durable Good Orders, Advance GDP, FOMC's Policy Statement, Chicago PMI, ISM and Payroll data all get released this week. Volatility is sure to remain elevated through Friday.

For better or worse, the big question then becomes whether or not recent lows hold. For clues on that score, I suggest we watch the action in individual names rather than the Dow, Nasdaq or the S&P500 as I'd expect a rather bifurcated market - one in which the financials, and techs pullback hard initially, and eventually hold recent lows, while cyclicals and those viewed as most levered to global growth take it on the chin.

This is not going to be an easy week to trade whether you are bullish or bearish. While all the madness ensues, I'll be observing how the market plays the economic hand its dealt and double checking my shopping list as I prepare to go all in. If you're holding bad cards, I again suggest you fold quickly and look to play better cards.