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HenryTo
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 Posted: Sat Aug 04, 2007 12:23 pm Post subject: |
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Here is my take on it:
1) Keep in mind that the S&P is only about 2.5% below its 200-day MA. Oversold yes, but nowhere near oversold when compared to September 2001, July 2002, or October 2002, when the S&P 500 declined to approximately 21%, 26%, and 23% below its 200 DMA, respectively.
2) Secondly, the 5% or washout/capitulation one-day decline usually comes either out of the blue in the middle of a general stock market rally (e.g. February 27, 2007) or right at the end of a general decline. Barring a 1929/1987 scenario, a 5% one-day decline - almost by definition - should mean an end to this current market decline. Also by definition, this probably means it won't happen on Monday, as I have a feeling that we will just get a general market grind down for at least a few more weeks, and then a washout right at the end. Note: There are no set rules with this, it is just what generally occurs given the interaction of general human nature and the financial markets.
3) When Citigroup failed to syndicate the necessary funds to complete the UAL buyout in October 1989, the DJIA endured a 7% one-day decline. I am waiting for similar news (I don't believe investors have fully unwind the LBO premium yet) and using the 7% UAL-induced decline as a proxy.
4) For those buying individual stocks, there is no hurry to get back into the market yet, as - barring an October 1998 scenario when the Fed surprisingly eased - bargains will continue to appear in the stock market for weeks after the bottom of a decline. We saw that last year when a great number of stocks were still a great buy in late August 2006 even though the market indices had already bottomed in mid June. Note: I agree with rffrydr, the Fed isn't going to ease with the DJIA still above 13,000 (and with the ECRI WLI still at very high readings), and it certainly isn't going to ease with the ECB and the BoE still in hiking mode, given the weakness of the U.S. Dollar.
5) Because of the reasonable valuations, I am looking for the bull market in U.S. stocks to continue after this latest correction. Of course, a lot of this will hinge on the solvency of many private equity portfolios in the coming weeks. I still need to study the potential impact of this but let me know if any of you have any ideas on how this could potentially affect general unemployment readings (I need something quantifiable, preferably in spreadsheet format).
Best regards,
Henry |
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rffrydr
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Location: Sunny California
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| Posted: Sat Aug 04, 2007 11:30 am Post subject: |
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It's funny how the '06 bottom makes it into this grand pantheon. Of what economic consequence was it? Next-to-none. Symptom of indexing--symtom of greed driven by fear.
I'm looking for these stats to stretch greater than summer '06. Minimum. That's when I'll look for the bounce and that day may just be Fed Wednesday. Are we still buying on a 5% puke-day, Master H. 
I hesitate because I think the Fed is happy to play Hard Ball for awhile. What terrified Cramer? Bernanke is an academic. Horror of horrors! Don't think he like the "cut of that jib."
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dash
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Joined: 12 Apr 2005
Posts: 488
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| Posted: Sat Aug 04, 2007 10:57 am Post subject: |
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| Quote: | | Though the techs WILL betray you at major turning points we ignore them at our peril. |
Two last points from me on this:
In terms of breadth, looking at the S&P500 new lows from 2001 to present, new lows hit 58 last week. That level has only been matched or exceeded a few times: September 2001, July 2002, October 2002, July 2006. Clearly the July '02 to October '02 period marked the bottom of the bear market, and July '06 the bottom of last years drop. The high we reached in September 2001 did not mark the ultimate bottom, but the S&P still rallied about 18% from the low it formed at that time, before sliding further into the ultimate low.
In terms of sentiment, the CBOE Put/Call 10DMA closed at 1.26, its second highest reading ever, after March 2007. |
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rffrydr
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| Posted: Fri Aug 03, 2007 9:54 pm Post subject: |
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1973, right about when "The Nam" became "The Quagmire."
Thanks for the updates, Dash. Though the techs WILL betray you at major turning points we ignore them at our peril. Keep 'em coming.
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dash
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Joined: 12 Apr 2005
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| Posted: Fri Aug 03, 2007 6:45 pm Post subject: |
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| Quote: | | Check the Yen to Dollar ratio today. Brutal. |
Yes, though we did get a few divergences today: SPX and COMPQ closed below Thursday's low, but Dollar/Yen, new high - new low differential and the McClellan Oscillator all made higher lows, and the VIX made a lower high.
% stocks above 200DMA has finally dropped to last Summer's low for large cap, small caps and Nasdaq alike.
Just about any breadth indicator you want to look at has hit very oversold levels, and the Summation Index is within spitting distance of its '06 low. Here's a list from Decision Point:
http://www.decisionpoint.com/ChartSpotliteFiles/070803_bottom.html
It's another make or break test for this bull, or as Carl Swenlin says:
| Quote: | | Another thing to consider is that the bears could be right about new bear market just beginning. If this is the case, oversold readings are extremely dangerous and can actually signal the likelihood of even more severe declines. To reiterate, oversold in a bull market means a bottom is near, but in a bear market it means "look out below!" |
The Barnes Index dropped to 46 today. Can a bear market start with this level of valuations? It did in 1973. |
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nodoodahs
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| Posted: Fri Aug 03, 2007 3:46 pm Post subject: |
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I sit corrected.
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rffrydr
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nodoodahs
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| Posted: Fri Aug 03, 2007 2:06 pm Post subject: |
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Check the Yen to Dollar ratio today. Brutal.
Unless someone had to buy Yen today based on the Subprime news, I would say that today was another carry trade event.
Any thoughts?
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose. |
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HenryTo
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Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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| Posted: Fri Aug 03, 2007 12:34 pm Post subject: |
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| Thanks for the article. Tackling the Yen carry trade will also provide immense motiviation for the Chinese revalue the Renminbi - not just from an economic standpoint but from a "face saving" standpoint as well. |
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rffrydr
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rffrydr
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| Posted: Wed Jul 11, 2007 4:34 pm Post subject: |
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Korea and Japan will talk tightening tonight.
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HenryTo
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HenryTo
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Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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| Posted: Mon Jul 02, 2007 11:25 am Post subject: |
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| BTW, rffrydr, when it comes to trading, you are definitely much more of a "master" than me! |
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HenryTo
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Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
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| Posted: Mon Jul 02, 2007 11:24 am Post subject: |
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Amazing, not even this latest ISM manufacturing index could convince them to buy U.S. assets here:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ah8Y1aBcni9U&refer=home
From a technical standpoint, the USD has broken severely on the downside, but that could be a function of the low volume as much as anything else. There is always an excuse, eh? |
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rffrydr
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