Is The Dow's Worst Yet To Come? by Sulaman Chaudhry
26/10/08 21:55
Actual article can be found here:
Markets around the world are feeling the pain of the credit crisis and the current recession. The Nikkei started its trading day Thursday down more than 7% ending down 2.5%. Not to mention that the Hang Seng index was down 4.2%, the S&P/ASX 200 was down 4.4%, and the Kospi was down 7.5%.
Today, it’s the same story for those markets.
* Nikkei down 9.6%
* Kospi down 11%
* MSCI Asia Pacific down 5.6%
* MSCI’s Asian Index down 8%
* FTSE 100 down 5.6%
* DAX down 5.1%
All of these indices are hitting record lows: prices set five year ago to prices set at their inceptions in most cases.
It is a fact that the global markets are interconnected.
The U.S. was the start of the housing and credit crises; however, it is currently rippling throughout the world. These foreign indices listed above are all starting to feel the pain of this global credit crisis as they are the tail wag to the dog. Does this mean that the foreign markets will recover last at the end of this recession? Perhaps – but this new global market is creating a cause for global initiatives. The Economic Summit meetings are filling up the agenda of world leaders as everyone attempts to find a solution to stave off the impacts of the worldwide recession and to prevent a global depression.
Not until the past two weeks have many people realized that this recession is affecting other countries and many still do not realize that the global outlook into late next year will be worse than expected. The U.S. market has not found its bottom at the low 8,000 levels. In my first article I wrote of the days ahead and how the first “-777 point day was the first of many similar days” and that days was “plural.” Since then, we have seen a continuous tug-o-war in the market, where each “pull” at the market has been triple digits. Expect the move that finds the bottom of this market to be large.
Many investors have been cheerleading stocks across the board that they are a buy – from a valuation standpoint – and yes, many stocks look appealing for long term investment since most major large cap stocks on the major indices currently have P/E ratios less than 10 on average and stock prices that are misrepresented by the oversold market, creating value in the long term. However, two factors are attributed to the high volatility creating 25 out of the last 27 session closes to be a result of triple digit movement.
The first – and fundamental – reason is that investors are confused where to value companies, now that the markets have fallen so sharply and consequently becoming way oversold. This creates a large range of prices for stocks across the board at which to be valued/bought and that is reducing confidence in the market as well as the prices. The day the markets have their strong rally will be a result of most investors buying into the market simultaneously and sequentially.
Another point related to fundamentals that I want to make about the rapid unpredictable movements in the market is the confusion between investors and analysts. The market has been falling so quickly over the past few weeks that many large corporations with low P/Es and other fundamental elements that point to growth and value have not been adjusted by analysts. This gap in communication creates a difference between actual value and where investors are guessing company stock prices; and until this issue is solved, the market will continue to move quickly and far on record high volatility.
The second – and technical – reason is that every stock, commodity, currency, index, etc. is currently poised at record and multi-year lows which are attracting many investors – institutional and individual – because of the long term value. Many day traders are taking advantage of record volatility and weakness in the markets.
In my last article, I also mentioned where I believed the DJIA was headed. I said that the DJIA was more than likely to fall through the 100 day moving average (MA) than bounce off of it, and that if it did break through that it would fall to the 200 day MA (which it did).
Let’s look at an updated chart of the DJIA from a chartist’s view:
This is a representation of the DJIA over 10 years from a monthly perspective. The stock is sitting just positioned on the 200 month MA – as stated in my previous article. Will this level hold? Only time will tell, but expect the volatility to continue as we search for a bottom. I would watch the market carefully to look for signs of this short term rally during the remainder of this week and into next week.
Here is another chart of the DJIA taken from a daily view of 100 days:
The symmetric triangle we’ve seen form over the past few days finally broke to the downside recently. This may not mean much too fundamental investors, but with regards to the short-term trend, this is somewhat bearish. That 8,000 point level is not very far away.
However, the DJIA is sitting on significant support currently; and therefore, I want to restate that the moves in the market during the next few days must be carefully watched because regardless of the direction, I believe the move will be significant to say the least.
The above analysis mainly pertains to shorter term trends. The long term trend is still down.
Markets around the world are feeling the pain of the credit crisis and the current recession. The Nikkei started its trading day Thursday down more than 7% ending down 2.5%. Not to mention that the Hang Seng index was down 4.2%, the S&P/ASX 200 was down 4.4%, and the Kospi was down 7.5%.
Today, it’s the same story for those markets.
* Nikkei down 9.6%
* Kospi down 11%
* MSCI Asia Pacific down 5.6%
* MSCI’s Asian Index down 8%
* FTSE 100 down 5.6%
* DAX down 5.1%
All of these indices are hitting record lows: prices set five year ago to prices set at their inceptions in most cases.
It is a fact that the global markets are interconnected.
The U.S. was the start of the housing and credit crises; however, it is currently rippling throughout the world. These foreign indices listed above are all starting to feel the pain of this global credit crisis as they are the tail wag to the dog. Does this mean that the foreign markets will recover last at the end of this recession? Perhaps – but this new global market is creating a cause for global initiatives. The Economic Summit meetings are filling up the agenda of world leaders as everyone attempts to find a solution to stave off the impacts of the worldwide recession and to prevent a global depression.
Not until the past two weeks have many people realized that this recession is affecting other countries and many still do not realize that the global outlook into late next year will be worse than expected. The U.S. market has not found its bottom at the low 8,000 levels. In my first article I wrote of the days ahead and how the first “-777 point day was the first of many similar days” and that days was “plural.” Since then, we have seen a continuous tug-o-war in the market, where each “pull” at the market has been triple digits. Expect the move that finds the bottom of this market to be large.
Many investors have been cheerleading stocks across the board that they are a buy – from a valuation standpoint – and yes, many stocks look appealing for long term investment since most major large cap stocks on the major indices currently have P/E ratios less than 10 on average and stock prices that are misrepresented by the oversold market, creating value in the long term. However, two factors are attributed to the high volatility creating 25 out of the last 27 session closes to be a result of triple digit movement.
The first – and fundamental – reason is that investors are confused where to value companies, now that the markets have fallen so sharply and consequently becoming way oversold. This creates a large range of prices for stocks across the board at which to be valued/bought and that is reducing confidence in the market as well as the prices. The day the markets have their strong rally will be a result of most investors buying into the market simultaneously and sequentially.
Another point related to fundamentals that I want to make about the rapid unpredictable movements in the market is the confusion between investors and analysts. The market has been falling so quickly over the past few weeks that many large corporations with low P/Es and other fundamental elements that point to growth and value have not been adjusted by analysts. This gap in communication creates a difference between actual value and where investors are guessing company stock prices; and until this issue is solved, the market will continue to move quickly and far on record high volatility.
The second – and technical – reason is that every stock, commodity, currency, index, etc. is currently poised at record and multi-year lows which are attracting many investors – institutional and individual – because of the long term value. Many day traders are taking advantage of record volatility and weakness in the markets.
In my last article, I also mentioned where I believed the DJIA was headed. I said that the DJIA was more than likely to fall through the 100 day moving average (MA) than bounce off of it, and that if it did break through that it would fall to the 200 day MA (which it did).
Let’s look at an updated chart of the DJIA from a chartist’s view:
This is a representation of the DJIA over 10 years from a monthly perspective. The stock is sitting just positioned on the 200 month MA – as stated in my previous article. Will this level hold? Only time will tell, but expect the volatility to continue as we search for a bottom. I would watch the market carefully to look for signs of this short term rally during the remainder of this week and into next week.
Here is another chart of the DJIA taken from a daily view of 100 days:
The symmetric triangle we’ve seen form over the past few days finally broke to the downside recently. This may not mean much too fundamental investors, but with regards to the short-term trend, this is somewhat bearish. That 8,000 point level is not very far away.
However, the DJIA is sitting on significant support currently; and therefore, I want to restate that the moves in the market during the next few days must be carefully watched because regardless of the direction, I believe the move will be significant to say the least.
The above analysis mainly pertains to shorter term trends. The long term trend is still down.
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Dazed and Confused? Let's Look At The Long-Term Trend: by Sulaman Chaudhry
03/10/08 10:02
Actual article can be found here:
What has been happening to the Economy as of late?
The past two weeks have accelerated the understanding of the US recession in the minds of Americans and general consumers, based on the bombardment in the news, local and national, of the “bailout plan.” It is a little disturbing that many people did not realize the importance of the financial issues casting a dark shadow on the entire US economy until the bailout plan was sent out all over news broadcasting networks.
This makes it clear that the markets are not properly responding to economic news, as it was seen last week when the 6th largest bank in the US, WaMu, failed over night and the DJIA was up nearly 150 points the next day; however, the failure to pass the bailout plan sent the market down 777 points last Monday.
This is the reality of the US market today.
It is more surprising that people did not foresee the market going down than it was surprising that the market went down 777 points. I expect to see more of these days through this year. Though, the market did create an almost 500 point bounce back the next day. Rally or largest dead cat bounce ever? Perhaps the latter.
It is true that the market will be affected again by whether or not the “bailout plan #2” passes, but it is clear that the ultimate result will be the same for the market. If the plan fails to pass through Congress, the market will fall and continue to do so. If the plan passes, the market will rally briefly on news alone, then resume to normal service after a few weeks (and a few more jobs reports). I will concede, however, that this is extremely important legislation because of the liquidity and flexibility it opens for the market in order for consumer confidence and economic growth to rise.
However, this legislation will only temporarily stop the markets from freezing. Parts of our market are on the timetable for destruction and this economic bailout is meant to be our almighty vanguard in the coming weeks, but much more help will be needed to stave off economic collapse. I believe this policy is only meant to act as a cushion for our economy’s long-term downward trend, a small speed bump on the path to what could be a very deep recession.
This doesn’t even take into account the fact that we are now a “global” economy and these market seizures have already been felt around the world in countries such as Singapore, Russia, the U.K., etc. With such a mass of bad credit leaking into the global markets, a much broader economic seizure is quite a possible result.
Let’s get a chartist’s view:
This is a representation of the DJIA over 10 years using monthly time frames. We are currently sitting on some nice support at that 11,000 level, after breaking through the 50-day moving average only very recently. However, the heavy selling we’ve seen over the past few months leads me to believe that it is not a question of whether we’ll break support here, but a question of when. Many investors claimed that -777 point day to be just terrifying. My view: I am more afraid of the market’s next moves to the downside– that’s plural.
Now let’s take a look at the S&P:
This is a representation of the S&P over 10 year using monthly time frames. We are currently sitting at support at that 1150 area on the S&P. We’ve had a clean break through the 50-day on heavy selling volume and now that 200-day looks to be within reach. Note that double toping formation on the S&P as well. And who said technical analysis isn’t useful?
Now let’s look at the Homebuilder Index:
This graph above illustrates the XHB since its inception. Resistance has been at this $23 level for some time now. Those who have traded the XHB from this level over the past few months would have done very well, as this area has been tested three times this year. I would look for that level to hold into the next few weeks, considering our current economic situation/recession.
The -777 point day seems to only be the start to bad days. The market faces a downward trend as the markets unravel or “deleverage” and there may not be a way around this steep cliff that we’ll most likely encounter sooner rather than later.
What has been happening to the Economy as of late?
The past two weeks have accelerated the understanding of the US recession in the minds of Americans and general consumers, based on the bombardment in the news, local and national, of the “bailout plan.” It is a little disturbing that many people did not realize the importance of the financial issues casting a dark shadow on the entire US economy until the bailout plan was sent out all over news broadcasting networks.
This makes it clear that the markets are not properly responding to economic news, as it was seen last week when the 6th largest bank in the US, WaMu, failed over night and the DJIA was up nearly 150 points the next day; however, the failure to pass the bailout plan sent the market down 777 points last Monday.
This is the reality of the US market today.
It is more surprising that people did not foresee the market going down than it was surprising that the market went down 777 points. I expect to see more of these days through this year. Though, the market did create an almost 500 point bounce back the next day. Rally or largest dead cat bounce ever? Perhaps the latter.
It is true that the market will be affected again by whether or not the “bailout plan #2” passes, but it is clear that the ultimate result will be the same for the market. If the plan fails to pass through Congress, the market will fall and continue to do so. If the plan passes, the market will rally briefly on news alone, then resume to normal service after a few weeks (and a few more jobs reports). I will concede, however, that this is extremely important legislation because of the liquidity and flexibility it opens for the market in order for consumer confidence and economic growth to rise.
However, this legislation will only temporarily stop the markets from freezing. Parts of our market are on the timetable for destruction and this economic bailout is meant to be our almighty vanguard in the coming weeks, but much more help will be needed to stave off economic collapse. I believe this policy is only meant to act as a cushion for our economy’s long-term downward trend, a small speed bump on the path to what could be a very deep recession.
This doesn’t even take into account the fact that we are now a “global” economy and these market seizures have already been felt around the world in countries such as Singapore, Russia, the U.K., etc. With such a mass of bad credit leaking into the global markets, a much broader economic seizure is quite a possible result.
Let’s get a chartist’s view:
This is a representation of the DJIA over 10 years using monthly time frames. We are currently sitting on some nice support at that 11,000 level, after breaking through the 50-day moving average only very recently. However, the heavy selling we’ve seen over the past few months leads me to believe that it is not a question of whether we’ll break support here, but a question of when. Many investors claimed that -777 point day to be just terrifying. My view: I am more afraid of the market’s next moves to the downside– that’s plural.
Now let’s take a look at the S&P:
This is a representation of the S&P over 10 year using monthly time frames. We are currently sitting at support at that 1150 area on the S&P. We’ve had a clean break through the 50-day on heavy selling volume and now that 200-day looks to be within reach. Note that double toping formation on the S&P as well. And who said technical analysis isn’t useful?
Now let’s look at the Homebuilder Index:
This graph above illustrates the XHB since its inception. Resistance has been at this $23 level for some time now. Those who have traded the XHB from this level over the past few months would have done very well, as this area has been tested three times this year. I would look for that level to hold into the next few weeks, considering our current economic situation/recession.
The -777 point day seems to only be the start to bad days. The market faces a downward trend as the markets unravel or “deleverage” and there may not be a way around this steep cliff that we’ll most likely encounter sooner rather than later.