What Was THAT?!?
Heck of day, Bernie.
Choose your poison: Technical, Fundamental, Macro-Economic -- there's something for everyone in the recent market action:
Macro-Economic: FOMC minutes reveal the Fed is expecting weaker growth, worse employment, with inflation threatening to become more problematic the same day CrudeOil hits $134.
Fundamental: Funny thing about that Oil: Without it, SPX earnings would be the worst in decades.
Technical: Markets have made up about half of their peak to trough losses, from the October highs to the January/March lows. No coincidence either that the 200 Day moving averages were major resistance.
So what say ye? What is driving this market -- and what does this 2 day, 430 point drop mean? Is this a blip, ior something more significant?
~~~
What Say Ye?
Wednesday, May 21, 2008 | 08:15 PM | Permalink
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BR, it might be time to bring out that 750 S&P 500 call you had a few years back.
Posted by: Owner Earnings | May 21, 2008 8:19:19 PM
I'm just glad to see we're in a nice summer lull.
Posted by: brent | May 21, 2008 8:22:40 PM
This is as I figured with massive inflows into oil. My oil trade is sold.
I don't know how long oil will continue to go up but eventually it will tank and everything else will come with it.
When oil starts to go down other commodities will come with it and also the stock market. It will start off slowly and unnoticed and then it will get worse.
People will not understand why oil going down takes the market down. Then panic will eventually result. With no fed cuts to protect the market circuit breakers on the NYSE may get hit. It could also trend down moreso over the year than a complete panic. But one will certainly occur.
We have all signs of massive deflation to come and not many people see it. It will be the second depression for the US and the world.
We have had unproperly measured inflation over the last I dunno how many years. Costs have finally gone to a point which people can not afford or pass on.
Housing deflation is the first sign. If we really had inflation housing prices wouldn't be falling at the rate they are.
Posted by: John Borchers | May 21, 2008 8:27:41 PM
SPY 138 and EMA(409) support better hold here, or it could be "Look Out Below" IMO.
[daily close-up chart @ middle p. 6]
Thanks for a great site Barry.
Peter
Posted by: PeterR | May 21, 2008 8:29:08 PM
Here there be monsters!
Posted by: Boiled Frog | May 21, 2008 8:48:35 PM
While I was caught flat-footed on this liquidity driven rally which cost all my accumulated profits for this year, I think we have had a few key down days which say "rally over",trend now DOWN.Any rally with close over naz 2520 aborts the call.
Posted by: exjag | May 21, 2008 8:50:21 PM
I don't know how long oil will continue to go up but eventually it will tank and everything else will come with it.
It will be the other way around. The economy will continue to decline. The stock market will catch up (contrary to popular belief, the stock market is a lagging indicator during economic slow downs) to the declining economy and the stock market will go down. Finally, oil, and especially food, will catch up to the declining economy and the declining stock market and it too will go down.
Posted by: Owner Earnings | May 21, 2008 8:51:04 PM
Bah - I showed up to complain about e-bay and paypal but you deleted that post. You do realize that posts you deleted hang out there for a bit of time in the RSS caches of the internets right?
~~~
BR: I rescheduled that for tomorrow -- wanted to keep tonites chat timely. The permalink URL actually is still good.
If I delete it, the link, RSS cache would deliver you to a 404 page not found . . .
Posted by: tim | May 21, 2008 8:52:33 PM
The bank I use has cash flow problems.We get large chunks of cash out several times a week and they are having problems keeping large bills in.(own a pawnshop)(maybe 40k a week) I was told last week they ran out of 100 , 50 , and 20 by a teller. This has happen several times in the last 10 weeks. I was going to switch banks , but I think they are all in trouble .
Posted by: Chris Noyes | May 21, 2008 8:56:56 PM
As oil becomes as expensive to Americans as it has been to Europeans, America will be come more like Europe.
Those equity-derived products and services that adapt will go up, those things that can't, won't. Won'ts: surburbs, SUV's, cheap-power-driven manufacturing, toll road infrastructure, airlines, NASCAR, etc.
Also applies to lobbyists, legislators who derive their power from the same.
Posted by: VennData | May 21, 2008 9:03:42 PM
Try this fun currency converter to see how truly low we have sunk: http://futureboy.homeip.net/fsp/dollar.fsp
But damnit, Spock, I'm a doctor not a mathematician, so play with this your own bad selves.
The powers that be have inflated us to a point that the levels of the indices seem sooo much higher than they are...and they are in suckville as it is.
I think the good old USA is screwed big time and may have reached the event horizon. I've basically followed Jim Rogers for the last decade and own virtually nothing in the U.S. but my house. Gold, guns and groceries (plus Petrobras). The hole is too deep, the multinationals have begun the gutting process here, and the expansion has moved to the Orient; for the rest of the century. We are a nation and an empire in decline. The DOW dropped 400 some points in two days...so what? It's priced in worthless money anyway.
Posted by: Scott | May 21, 2008 9:08:15 PM
There is no panic in this selling.
I have been watching closely since April 21, and the Dow, Nas, and S&P have each had at least 4 distribution days + some days of simply churning. This is more organized, planned selling. Without a catalyst to set off a panic, we are more likely IMO to see more rangebound sideways churning in a 1000 point Dow range.
The problems with the financial system and the economy are massive and not easily or quickly solved. At the same time, without a Bear-Stearns-like catastrophe, there is no catalyst for a panic equity selloff.
With billions of losses still being hidden by rule 157 in level 3 assets, commercial real estate only now beginning to crater, and employment on a slow, steady decline, we are still in the process of the slowmotion train wreck - and we are more likely, when we do start down in earnest, to follow Japan's lead and grind down, down, down, and down.....as the problems in the U.S. are of the type that feed off one another in a downward spiral, very nasty and very hard to cure.
Hasn't anyone stopped to consider that the emergency rules used by the Fed to save Bear-Stearns have not been used since 1929-ish? Think there may be a reason for that? And that rescue job didn't turn out all that well, if memory serves....
According to von Mises, the end stage of a credit expansion bubble is the crack-up boom - when currency is eschewed in favor of hard assets - copper, lead, rice, canned goods...oil...while paper assets go begging...U.S. dollar, ABCP, municipal bonds, etc....
It appears we will now will get to find out if his theories hold.
Posted by: Winston Munn | May 21, 2008 9:09:38 PM
I'm guessing the 2nd half of 08 could be a bitch for commodities and stocks. Right now, my system is still on buy signal, so not going to 100% cash yet. Before getting too bearish, I always ask: What could go right? Oil falls, consumer doesn't fold, low interest rates begin to do their work, new administration comes in.. (that alone should improve people's mood).
Posted by: SteveC | May 21, 2008 9:14:14 PM
I hear you exjag, I hear you
Posted by: Mich(^IXIC1881) | May 21, 2008 9:18:13 PM
There will be continuing bad news on the economy, housing market... but the tons of liquidity waiting to jump back in the market when they think they see a bottom will keep volatility high. Higher, even.
I don't see a big drop - 10% over the next 6 months. Eventually we'll end up with higher PE ratios, as profits will suck. Just no where for the liquidity to go.
Posted by: flubber | May 21, 2008 9:25:38 PM
Actually, the markets have been trading irrational up until yesterday, and the last two days have represented a return to reality.
The Permabulls actually had a good chunk of the country believing that everything was hunky-dory, yet nothing could be further from the truth. I don't know how many times I heard different PermaFools on CNBC, suggest the Bear Stearns debacle was "the bottom". WTF? They actually believe that bullshit!
And to think, the WSJ, CNBC, Barrons etc, etc, etc ... were all out there telling people it was okay to get back in the water. Pimping the financials of all sectors ... talking up valuations and recovery. COME'ON!
New lows are coming ... not if, but when. AND, some of our most astute media outlets will lose a little more credibility.
Posted by: Donny | May 21, 2008 9:29:13 PM
It looks like they are doing the yearly selling in May and going away. I guess we'll see them in the fall again. I'm thinking that since we are getting quite a regular May occurrence this year that we might also see a dog days of summer panic too
Posted by: DavidB | May 21, 2008 9:38:32 PM
LCD monitor and VOIP prices are coming down, commuting prices are going up. What will happen to energy consumption if everyone who can telecommute starts doing it? I think some amazing statistics will emerge that indicate how elastic energy demand really is, at least at these prices. Why all of the bearish reversals in energy stocks today? Are we near the tipping point for the oil trade?
Posted by: JMH | May 21, 2008 9:39:17 PM
The FusionIQ "Daily Blog" fell silent today. Was the cast taking the day off, or waiting for market clarity before posting again?
Posted by: Chief Tomahawk | May 21, 2008 9:44:17 PM
The flood of liquidity is causing anything that was in the slightest uptrend to overshoot any reality. I agree with the deflation idea, but cash is seeking a home in a shrinking pool of alternatives.
Posted by: Joe Drake | May 21, 2008 10:08:14 PM
did people honestly think that all was well because stocks went up for 5 weeks? Its strange. We are only at 12,600 on DOW and already it feels like fear is about to surge. I guess $133 oil does that to traders.
Posted by: UrbanDigs | May 21, 2008 10:12:13 PM
The fallacy that the crunch for banks are over is now being proven to be just that, a deliberately orchestrated, self-serving fallacious spittoon of toxic lies and nonsense. Those that put on trades, you know, shills, are now eating those trades, unwinding them. Throw in the likelihood that foreign money is bailing, perhaps wising up to the charade and deliberate deception over here using them as patsies, they are perhaps finally getting tired of playing 3-card monte and are taking their purses home.
Posted by: Stuart | May 21, 2008 10:12:45 PM
Barry,
Remember Dow 7800?
It it still in the cards.
Posted by: andiron | May 21, 2008 10:30:00 PM
We may not go straight down from here, but a drop to S&P 1250 is likely.
In addition to the concerns for 2008, there’s also 2009 to think about. If Obama wins the election, all three of the following will rise next year:
(a) inflation, (b) taxes, and (c) the Fed funds rate.
(If McCain wins, we’ll get at least 2 out of the 3 next year).
Posted by: DL | May 21, 2008 10:47:49 PM
Interesting comment by Ron Insana on CNBC today. He said (essentially) that all we have to do is impose stricter regulations on the futures traders (of crude oil), and the price of oil around the world will plummet, and inflation will ease.
About a month ago, he said that most of the increase in agricultural commodity prices was due to the creation of commodity ETF’s and ETN’s, which push up futures prices of grains.
It’s that kind of perverse logic in the media that suggests much higher commodity prices ahead. (And the worse it gets, the more that the Fed will ultimately have to tighten).
Posted by: DL | May 21, 2008 10:55:36 PM
