Jack Walker

Saut: When Stocks Ignore Bad News, That's Good News

Jeffrey,

We wrote yesterday about the market’s reaction to the bad news. We would like to add it in further support of your article.

Last Friday’s equity market trading reminded us of this old Wall Street saying,

“The market bottom is defined when it stops going down on bad news.”

Recall last October the equity markets were still going down on what should have been considered good news with respect to the actions that were being taken by the Treasury and Federal Reserve to rescue the credit markets and the financial sector.

While there could be many explanations why the equity markets ended the day higher and not lower on the bad news, including short covering on the widely expected bad employment report. We also wonder if there is another possible answer like the one raised by Richard Russell last October when he said:

"Bear declines end in only one way -- in exhaustion."

Has most of the selling been done and could we be near the exhaustion point? Friday’s market action raises this possibility.


Jack