Or should we say "where there's smoke, people get fired?"
In a previous post, I wrote that surprises happen in the direction of the trend. Of course, someone gave me a cyber "duh" essentially saying that's why its called a trend.
Well, that's not quite right but the point is that as long as the trend in any stock, sector or stock is solidly to the downside we can expect more bad news to surface. The Enron scandal broke literally months AFTER the stock broke down and shed multiple dozens of percent of its value.
As for when it's done, the market looks into the future and knows when the coast is clear. We know when the market knows because the trend eases and a basing, or repairing, pattern begins to form.
Remember, the market is not trading on the news today but what the news will be tomorrow. No, not the exact news that a CEO steps down or that the entire derivatives portfolio has been purged but the general news that the worst is over. Somebody always knows something and acts on it no matter how hard the SEC comes down on insider trading. And somebody sees when that first somebody takes action.
Explain rallies into "whisper numbers" any other way.
Either people are guessing or they know something. And that something may even be legal but it is not distributed to the general public.
But back to the topic at hand - the trend in the financials was super down and still is. And there has been no capitulation yet, either, so mark my words, a major bank, broker (gee which one could that be?) or insurance company is going to fail. I won't say a credit card company like Visa or MasterCard is on the same boat because why? Their trends are not spiralling into Hades. Capital One is also arguably OK, solely based on the trend and what the market thinks of the whole thing.
Don't forget the free technical analysis offer in the previous blog post. What have you got to lose? It's free!