The issue confronting investors ahead of the weekend is whether it's time to buy following the tumble in the stock market this week, or to lighten up on positions. Have investors suffered enough pain and panic for the market to mark a bottom? Thus far, during the Friday session, the answer as been 'No'.
"First," says Andrew Bekoff, chief investment strategist at Printz Capial Management, "yesterday's lows if tested need to hold."
The Dow Jones Industrial Average slid to a more than 400 point decline to 13,335 intraday before finishing 311.5 points lower to 13,473.
"Then," says Bekoff, "you'll want to keep a close eye on the Volatility Index which put in new highs for the year yesterday."
The Volatility Index, also known as the VIX , at one point was up nearly 30%- a level not seen since the last market tumble in late February - as fear began to grip the market.
"What I like about the VIX's action yesterday is that it managed to put in a large reversal from a high of over 23 to a finish at 20.74," Bekoff said. "If the VIX can fall below 20 that would signal a better chance for a rebound and give the market some comfort."
McMillan Analysis President Larry McMillan is in agreement, calling yesterday's VIX activity "almost a spike-peak buy signal."
But McMillan also says "when the damage is this great, we'd expect to see another retest of the Thursday lows at 1465."
McMillan is referring to slide in the S&P 500 to the 1465 level Thursday. It then climbed back to a 1482 finish, or a 2.3% decline.
Bekoff says traders are keeping a wary eye on credit market conditions. The indices continue to show severe distress in the mortgage market and tightening conditions in the corporate credit markets.
The Markit ABX BBB-07-02, which gauges the condition of the lowest quality mortgages issued in the first half of this year, slid to 40-cents on the dollar, while the AAA 07-02 fell to 95.
The LCDX, a gauge of high yield corporate debt markets, fell to 93, with the spread widening to about 350 basis points.
Printz's Bekoff says a market bottom scenario would be reinforced if investors become so worried about systemic conditions that rampant speculation enters the market about a move to cut rates by the Federal Reserve.
"That hasn't happened yet, but if rumors surfaced of a coming emergency meeting by the Fed to cut rates, that would be a sign of a bottom," says Bekoff, though he adds, "if they actually do cut that would have the negative connotation the problems are a lot more serious."
The December 2008 Fed Funds futures rallied 17 basis points Thursday meaning the money market is pricing in a half-point of rate cuts in 2008. Bekoff says, "clearly that’s a whipsaw reaction to the credit situation. Is it just a knee jerk, or something more sinister? We just don't know yet".
Wendy's has been upgraded to a Market Perform from an Underperform at Wachovia which cites the value of Wendy's shares.
Hambrecht likes shares of McAfee. It has upgraded shares of the software maker to Buy from Hold with a $42 target.
After stronger than expected results Thursday, Merrill Lynch has upgraded Ford from Sell to Neutral.
Think Equity has lifted its price target on Crocs from $56 to $72 a share and maintains a Buy.