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I highly recommend the movie August Rush (about an orphaned musical prodigy's search for his parents, and the unfolding of his talents).
Like many good movies, it is well made, has a nice message and great soundtrack. What set it apart, for me, was the way they showed the genius, the beauty, and the simplicity of his gift.
It was inspiring and uplifting. A different way to say that is that it energized me to get back to my gifts.
I thought that the Fed jumped in at a very appropriate time, this time. Panic was everywhere.
Moreover, I like the fact that they have not simply been reducing rates. We're seeing a new form of global coordination with economic allies and novel approaches to serve as a catalyst for stable and growing markets. I know that is not a popular stance.
I don't know about you, but as these things happened, I sensed that a cascading series of bad events could take the market down much further than where we currently stand.
Sentiment has been so bearish and fear has been so pervasive, that
my sense is that people were looking for a reason to get out of the
Markets to avoid an apocalypse. Believe or not, that's the fuel needed
for the next big up-move in the market.
We've been seeing extraordinary levels of fear. It doesn't matter which
sentiment indicator you look at, we're seeing readings that have only
been seen at market bottoms of a significant degree. Yet, sentiment is a secondary indicator. Price is primary.
This brings me to another good sign in the markets this week. While I
would stop short of calling what happened in the broader markets
"capitulation" - in my opinion, capitulation-selling happened in many
of the financial stocks. Specifically, take a look at Lehman (LEH),
Goldman Sachs (GS), and MF Global (MF). Each of these stocks lost
incredible amounts of money and came back. This is a very good sign.
In my experience, big volatility (like we've seen recently) is followed by much smaller volatility. My sense is that as long as the line in the sand on the S&P holds, then we'll see an intermediate move upwards without too much scariness for the time being. That's going out on a limb because we're really not much different than where we were at the end of last week. Yet there is a difference, in the battle between bulls and bears, for the moment, it looks like the bulls have a little bit of momentum.
Despite Tuesday's huge rally, equities were mostly flat for the week, with the S&P 500 losing 0.4%. Nonetheless, it is a good sign that the Market held recent lows despite a flood of bad news and bearish sentiment.
There is a saying that "it is not the news that matters, it is the reaction to the news." Normally, I would have considered last week's performance by the Market to be quite bullish. However, we were faced with two big news items during the weekend.
First, Bear Stearns reached an agreement to sell itself to JPMorgan Chase for $2 a share in a stock-swap transaction. Second, the Fed announced two initiatives designed to bolster market liquidity and promote orderly market functioning.
In a bull market, these might be interpreted as bullish (or at least cause a bunch of short-covering). However, we are not in a bull market and I am waiting to see the "reaction" to this news. Expect to hear rumors of other banks in trouble too.
With regard to the sale of Bear, let's be clear, this was not a bailout; it was an orderly liquidation. For context, Bear's market value went from $20BB (in January, last year) to $3.5BB on Friday - and the sale to JPMorgan was at just $236MM (millions, not billions).
Remember, because of Good Friday, there are only four trading days this week. Also the FOMC meets on Tuesday, and will announce whether it will continue to cut interest rates. So, I'm expecting an interesting week.
I read information from dozens of websites every day. Some of it is necessary for my work (financial sites, news sources, etc.). Other sites give me ideas or inspiration. Still others are a diversion. Bottom-line, I was wasting a lot of time going to these sites (sometimes many times a day). That all changed when I found a tool that brings them all to me. The best News Reader that I've found is a free product called Feed Demon. It allows you to subscribe to the content from many websites and view it in an organized and convenient manner in one location.
Instead of going from website to website looking for interesting content, I subscribe to a website's RSS feed and the software does the rest for me. All new posts show up ready to read.
I've organized the feeds into categories of folders based on the way I think. So I have a folder for management ideas, marketing ideas, trading ideas, as well as new gadgets or finance.
Here are some of the sites I read most:
And there are a bunch more that I love. The point is, you can subscribe to any number of topics that interest you - and read related content when you want .
It makes doing research for my weekly commentary much easier and I find that it reduces the amount of time I spend randomly surfing the web because when I have time to look at information I can focus on the information that I want to see quickly, easily, and without distraction.
It is worth checking-out. Here is the link for FeedDemon's download.
This week had everything: gaps, market-moving comments and whipsaws. The Russell 2000 was down 3.8%, and the other US Equity Indices didn't fare much better. But, in my opinion, short-term movements here are simply noise.
Clearly the Markets are in short-term oversold conditions and toying with Support Levels. Still, the CBOE's Equity Put/Call Ratio hit the highest reading seen since February 2003. According to SentimenTrader readings like this often precede major intermediate-term lows in the market.
Longer-term charts might provide better context. Markets sank to 18-month lows on heavy selling. The S&P 500 Index closed at its lowest level of the year and is very close to breaking through support. In the chart below, the green line marks the trendline support since the year 1981.
As an aside, do you really think a trendline with so few touches since 1981 is really a market mover? It's possible that it "describes" what happened better than it "predicts" or "affects" what happens next.
The other major indexes also are sitting just above critical support areas. This will be an interesting week. Don't be surprised if prices shoot through a widely-watched technical level, only to reverse and head back the other way.
For a little extra credit, I saw an interesting chart on Bespoke's site. It shows all S&P 500 corrections of 10% or more since 1927. Each point on the scatter chart below represents the percent of the decline along with the number of days it lasted. So how does the current correction stack-up? Compared to historical corrections of 10% or more, while the current period has been longer than average, the declines have so far been milder.
I use a service called "Chart of the Day" - and as you might guess - they post one chart each day. I love preparing my own charts. But, I think the way I think. Sometimes, I get a new insight or perspective from how others see the market.
What follows is an example of a chart I wouldn't have thought of myself. The second chart provides a little context and contrast.
The Dow Priced in Gold: The Dow currently trades about 15% below its all-time record high. For some further perspective into how the stock market is actually performing, the chart below shows the Dow divided by the price of one ounce of gold.
This results in what is referred to as the Dow / Gold ratio or the cost of the Dow in ounces of gold. For example, it currently takes 12.9 ounces of gold to "buy the Dow." This is considerably less that the 44.8 ounces back in the year 1999. When priced in that other world currency (gold), the Dow is in the midst of a massive eight year bear market!
Gold versus the Dollar: Thanks in part to a large US trade deficit and a weak US economy, the US dollar continues to trend lower. For some perspective, the next chart illustrates the current trend in the US dollar (blue line) as well as that other world currency, gold (gray line). As this chart illustrates, the performance of the US dollar has varied inversely to that of gold since October 2005. It is worth noting that the US dollar is currently testing support.
Worden Blocks is a fun and useful tool. It is very easy to build and customize charts, indicators, and scans. Here is an example of something built with Blocks. It is a composite index of the five major US equity indices (Dow, S&P, Naz, Russell 2K, and MidCap). On the version I use, I also have a tool that shows the percent change from any date to any other date. I marked two of them on the chart below.
Who asked for the extra day in February anyway? Certainly not me. The week started great. Then investor confidence took another blow Friday as the S&P 500 declined by 2.7%; its worst day in a long time.
If you were watching, I don't have to tell you how bad it was late last week. Bottom Line: oversold market conditions and a fair amount of manipulation from the sidelines has not been sufficient to move the market out of the consolidation range of the last several weeks.
The whipsaw volatility seen the last few weeks worsened Thursday and Friday. After attempts early in the week to take the market up and beyond the contracting Triangle patterns found on most of the US equity indices, the selling on Friday brought us down to levels where the lower-range boundaries of the Triangles are now clearly threatened.
On the other hand, DecisionPoint had an interesting chart that may indicate we'll see a major low soon. It shows the percent of NYSE Stocks trading above their 200-day moving average.
Weekly Market Commentary from 3/28/08
This was an interesting week in the Markets. Most of the major indices broke above their 50-day moving averages, only to come back down.
It won't take much to throw a scare into the markets at this point in time. Consumer confidence and retail investor sentiment are both incredibly bearish - which is actually a bullish sign for most sophisticated investors.
The chart below shows a monthly view of the S&P 500 with an interesting look at RSI. I found it at Headline Charts, which is another blog I enjoy reading.
Posted at 12:22 AM in Market Commentary | Permalink | Comments (0) | TrackBack (0)
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