Market Commentary

The market is weak right now.  How do I know?  Aside from the near-audible moan of the world's collective unconscious, price going down is a pretty good primary indicator.  Kidding aside, other indicators are worth looking at here too.  One of them is the NYSE High-Low line. 

The following chart shows this market breadth indicator.  It is calculated at
the end of each day by taking the number of NYSE stocks making New 52-week
Highs and subtracting the number of stocks making New
52-week Lows. What is important to notice is the shape of the line – up is strong (or
bullish), down is weak (or bearish).  Sometimes a picture is worth a
thousand words. 

You can view updated versions of this chart anytime on StockCharts.com at this link.

Advice For the Markets: Stop It!

So, what should the markets do next?  At this point, humor seems appropriate. I saw this clip of Bob Newhart from Mad TV, last week, and it made me laugh.

Sometimes laughter is the best medicine.

This was a big week for questions (and not so much for answers).  The Market is good at that.

For example, did we just witness another successful retest of recent market lows, or are we just at the bottom again? 

Are you surprised that GM's share price is at lows not seen since 1943?  If not, were you surprised they wanted in on the Bail-out too?  How surprised were you that the Bail-out isn't proceeding as planned?  Do you wonder whether Depression Economics is returning? 

Many people believe that the finance sector is an early indicator for the market in general. This was a tough week for finance sector stocks. Yet, many stocks in that sector made spike bottoms.  This is something I am watching.

Still, volatility remains high, and I take that as a sign of bear markets.  In the chart below, which shows the S&P 500 Index, the green line represents the index itself; and the red line shows the daily percent change in that Index, illustrating how volatility has increased recently.

(via Investment Postcards)

The Cloud Hanging Over the Markets:

People look for scapegoats During market troughs.  One of the first places they are looking now is the hedge fund industry.  What follows is a Wordle "word cloud" created from the text of the Congressional hearings held last week.

I loaded the text of the hearings to the site; so, Click this link to play with this Word Cloud.

Ultimately, the markets are having a tough time world-wide.  If you are standing in the rain, you are going to get wet.  Well, it rained a lot this year.  Take a look at this chart that shows the distribution of yearly returns in the US.  Hint: look at the bottom left of the graphic to find this year.

(hat-tip to Howard Lindzon)

With markets performing so poorly here, and world-wide, It is not surprising that the demand for gold is rising in China or Saudi Arabia.

This was a big week for questions (and not so much for answers).  The Market is good at that.

For example, did we just witness another successful retest of recent market lows, or are we just at the bottom again? 

Are you surprised that GM's share price is at lows not seen since 1943?  If not, were you surprised they wanted in on the Bail-out too?  How surprised were you that the Bail-out isn't proceeding as planned?  Do you wonder whether Depression Economics is returning? 

Many people believe that the finance sector is an early indicator for the market in general. This was a tough week for finance sector stocks. Yet, many stocks in that sector made spike bottoms.  This is something I am watching.

Still, volatility remains high, and I take that as a sign of bear markets.  In the chart below, which shows the S&P 500 Index, the green line represents the index itself; and the red line shows the daily percent change in that Index, illustrating how volatility has increased recently.

(via Investment Postcards)

The Cloud Hanging Over the Markets:

People look for scapegoats During market troughs.  One of the first places they are looking now is the hedge fund industry.  What follows is a Wordle "word cloud" created from the text of the Congressional hearings held last week.

I loaded the text of the hearings to the site; so, Click this link to play with this Word Cloud.

Ultimately, the markets are having a tough time world-wide.  If you are standing in the rain, you are going to get wet.  Well, it rained a lot this year.  Take a look at this chart that shows the distribution of yearly returns in the US.  Hint: look at the bottom left of the graphic to find this year.

(hat-tip to Howard Lindzon)

With markets performing so poorly here, and world-wide, It is not surprising that the demand for gold is rising in China or Saudi Arabia.

October was the worst month for the S&P 500 since October 1987.  The current bear market, which made its most recent low this past Monday,
is now the fourth longest decline in the S&P 500 without a 20%
rally (on a closing basis). Besides the 1973/1974 bear market, the only
other times this has occurred was during the 1929-era Depression.

But that doesn't tell the whole story. It was a month that witnessed the second worst week ever, as well as one of the best.  It had two days where the S&P 500 was up more than 10%; along with one of the market's worst ten days ever too.  To sum it all up, "Volatility" was the word of the month.

In terms of daily moves, the S&P 500 had only three trading days in October where the one-day change was less than 1%. Looking back over the last 50 trading days, the average daily change in the S&P 500 has been a move of 3%.   Unfortunately for the bulls, most of those moves were down. Historically, the only period where the average daily move in the S&P 500 has been higher was during the Depression.

The volatility affected traders significantly.  If you summed the intra-day zig-zags, the daily range has been much higher. This put many trading models into unseen territory.

Barry Ritholtz put together a list showing just how bad October was.  I enjoyed it, and think it is worth the click; here is a link to that post on the Big Picture.

October was the worst month for the S&P 500 since October 1987.  The current bear market, which made its most recent low this past Monday,
is now the fourth longest decline in the S&P 500 without a 20%
rally (on a closing basis). Besides the 1973/1974 bear market, the only
other times this has occurred was during the 1929-era Depression.

But that doesn't tell the whole story. It was a month that witnessed the second worst week ever, as well as one of the best.  It had two days where the S&P 500 was up more than 10%; along with one of the market's worst ten days ever too.  To sum it all up, "Volatility" was the word of the month.

In terms of daily moves, the S&P 500 had only three trading days in October where the one-day change was less than 1%. Looking back over the last 50 trading days, the average daily change in the S&P 500 has been a move of 3%.   Unfortunately for the bulls, most of those moves were down. Historically, the only period where the average daily move in the S&P 500 has been higher was during the Depression.

The volatility affected traders significantly.  If you summed the intra-day zig-zags, the daily range has been much higher. This put many trading models into unseen territory.

Barry Ritholtz put together a list showing just how bad October was.  I enjoyed it, and think it is worth the click; here is a link to that post on the Big Picture.

It has been another strong week for fear, greed and volatility.  Earnings season is here, and we are seeing large moves in both directions.

There continues to be unprecedented global cooperation in the wake of the financial crisis.  The world seems to understand that it has to "snooze" the alarms until after the US election. The French have asked for a series of global summits to deal with the global financial crisis, with the first to begin after the U.S. election — and the last and most important to be held after inauguration day.

Stratfor claims that this shows two things. The first is how flexible many international crises are. They can wait for changes in political leadership. The second is how important the United States remains. If the United States had lost its leadership role, French President Nicolas Sarkozy would not have gone to Washington to get the Americans to agree to a summit. The rest of the world could proceed by itself. Most likely, that isn’t going to happen. The Europeans and Asians meeting by themselves would not be in a position to make any decisions. For that, the Americans need to be there. And since the Americans won’t have a new leader until February, the world financial crisis will just have to wait until then. My point?  It would be prudent to expect fear, greed and volatility to continue.

Looking at this daily chart of markets for the past few weeks, I'm struck by this seeming randomness. It almost looks like there's no pattern.

It is as if Jackson Pollock threw paint on our trading monitor and we mistook it for a chart. This utter lack of pattern might be an incredibly clear statement by the market. It says: "Danger, there is no edge here."

The strange thing about markets, though, is that what doesn't make sense from one perspective – may make a lot of sense from another.  For example, here is a daily chart of the same S&P 500 Index, only showing a much longer window of time.

Hopefully that long-term support line (just below 800) holds.

It has been another strong week for fear, greed and volatility.  Earnings season is here, and we are seeing large moves in both directions.

There continues to be unprecedented global cooperation in the wake of the financial crisis.  The world seems to understand that it has to "snooze" the alarms until after the US election. The French have asked for a series of global summits to deal with the global financial crisis, with the first to begin after the U.S. election — and the last and most important to be held after inauguration day.

Stratfor claims that this shows two things. The first is how flexible many international crises are. They can wait for changes in political leadership. The second is how important the United States remains. If the United States had lost its leadership role, French President Nicolas Sarkozy would not have gone to Washington to get the Americans to agree to a summit. The rest of the world could proceed by itself. Most likely, that isn’t going to happen. The Europeans and Asians meeting by themselves would not be in a position to make any decisions. For that, the Americans need to be there. And since the Americans won’t have a new leader until February, the world financial crisis will just have to wait until then. My point?  It would be prudent to expect fear, greed and volatility to continue.

Looking at this daily chart of markets for the past few weeks, I'm struck by this seeming randomness. It almost looks like there's no pattern.

It is as if Jackson Pollock threw paint on our trading monitor and we mistook it for a chart. This utter lack of pattern might be an incredibly clear statement by the market. It says: "Danger, there is no edge here."

The strange thing about markets, though, is that what doesn't make sense from one perspective – may make a lot of sense from another.  For example, here is a daily chart of the same S&P 500 Index, only showing a much longer window of time.

Hopefully that long-term support line (just below 800) holds.

The markets gained some ground this week, at least from a point perspective. It's so tempting to want to believe that the worst is over because of some of the rallies we've seen since late last week.

It is possible that last week marked a major bottom. However the market is certainly not trading normally. So I'm not convinced.  The volatility we're seeing is unprecedented.

Just this past week we had days with 10% – 15% swings inside the day. In fact, over the past 10 days the Dow had intraday swings of almost 85% of its total point value. We also saw the largest single day loss in the
S&P ever (9%) as well as one of the biggest gaining days ever. My point is simple, fear and greed are still operating in extreme levels.

Stress Metaphor and the Markets:

A lecturer, when explaining stress management to an audience, raised a glass of water and asked 'How heavy is this glass of water?' Answers called out ranged from 8 to 20 ounces. The lecturer replied, 'The absolute weight doesn't matter. It depends on how long you try to hold it.

'If I hold it for a minute, that's not a problem.
'If I hold it for an hour, I'll have an ache in my right arm.
'If I hold it for a day, you'll have to call an ambulance.

'In each case, it's the same weight; but the longer I hold it, the heavier it becomes.'

He continued, 'And that's the way it is with stress management. If we carry our burdens all the time, sooner or later, as the burden becomes increasingly heavy, we won't be able to carry on.'

'As with the glass of water, you have to put it down for a while and rest before holding it again. When we're refreshed, we can carry on with the burden.

How does this apply to the stress and the volatility hanging over the heads of market participants? The potential recovery is in a fragile state simply because people are stressed and tired; and I don't think it won't take much to trigger another bout of fear and greed.