How Black Friday Affects the Market

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Every investor I know has the same dream.  Predicting the direction of the market.  Knowing if we’re heading higher or lower in the coming weeks or months.  Having that kind of knowledge would be very powerful.  Having that kind of knowledge would be very profitable.There’s two ways to judge the direction of the markets.The first is to use some form of technical analysis.  The second is to look at the fundamentals of the market.  I’ve been looking closely at the market and I think we’re near a bottom.Why?A few things are pushing me to that conclusion. Anyway, here’s the point.  There was a big drop that occurred in early October.  We had another big drop in November?  That could be an early sign of a bottom in the market.  It’s called a double bottom. Technical analysts will tell you it’s a signal.  A change in direction is expected.Here’s the other key that’s got me thinking we’re near a bottom… fundamental information.When I’m talking about fundamentals, I’m referring to how the market reacts to news and other information.  Just think about the news over the last year.  Most of its been bad, and the market traded lower.The first news about the credit crunch.  The hedge funds imploding because of CDOs.  The Bear Stearns collapse.  The Lehman Brothers bankruptcy.  Don’t forget AIG, Fannie Mae, Freddie Mac…In every case the market traded lower.But last week something changed.The federal government stepped in to save Citigroup (C), one of the largest banks in the world.  This wasn’t a friendly helping hand.  Here the government invested $20 billion dollars and agreed to guarantee another $306 billion worth of loans and commitments.Citigroup gave up warrants, stock, and agreed to cut the quarterly dividend.  And that’s just the beginning… so what happened to the markets?They traded higher for 4 days in a row.I’d expect this news to push markets lower.  Now we’re rallying off of the news of government rescue?  It’s not logical… and it’s a great sign we might be at a bottom.Now, about Black Friday.Today is Black Friday.  It sounds ominous, but it’s the number one shopping day of the year.  The day after Thanksgiving everyone heads to the malls to buy gifts for the holidays.  A huge portion of the holiday season sales occurs in this short 24 hour period.This is the day every retailer dreams of… but this year it’s a nightmare.Black Friday sales are going to be weak.  Consumer confidence is hovering around record lows.  The economy’s in recession.  People are losing their jobs.  Not exactly the time to be spending money.I’m expecting the retailers to announce horrible results.Sales on Black Friday are going to be down.  Retailers are going to comment on how bad the shopping environment is.  It’s all going to be bad news.  That’s going to lead to bigger discounts and eventually shrinking profits.It’s not good.That’s why today’s going to be so important.  We know the news is bad. The question is how will the market react?If the market crumbles on the news… watch out, we’re heading lower. However, if the market’s flat or trades up on the horrible news… it’s another signal the market’s at a bottom.This “signal” isn’t always perfect.  But this year, I’m watching it very closely.  Today’s news and the reaction of the market next week will determine the trend in the market.  I’m expecting a rally in the next few months

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