Spare Change

"Brother, can you spare a dime--or two? Actually, can you spare another $30 billion?" - AIG.

Wow, AIG announced a loss of $61.7 Billion last quarter, for a total loss of almost $100 Billion last year, both record highs in American financial history.

The market is so numb to bad news, it "only" dropped a couple percentage points overseas. While I've always believed the market is headed below 6,000--and it is opening below 7,000 this morning after the bad news, it has fallen so sharply in the last 3 weeks that market conditions are extremely oversold. A snapback rally here wouldn't surprise me (I know some of you think I'm REALLY crazy now), but alas, any rallies for the next several YEARS will be violent but short-lived, as we have not reached our secular low water level yet.

Remember: as a contrarian, you want to do the exact OPPOSITE of what everyone else is doing. However, as an investor, bear market forces are too strong to jump back in. Stay on the sidelines for a couple years--do nothing until we have confirmation of a bottom. As a swing trader, this temporary oversold condition may look tempting, but be careful--no need to catch a falling knife--it could cut you. In other words, even though technical analysis suggests an oversold equities market, sometimes fundamentals out-trump technicals. You can try to play the bounce, but conditions are still extremely perilous. Some high-quality stocks may seem cheap, but they could get cheaper. And many stocks may just get trashed due to lack of liquidity and credit.