One-day panic sell-off -- or something more?
Heavy selling pressure on weak economic data is bringing back memories of the market decline of March through May. Will it last?
Stocks and other risky assets had an ugly, ugly day Thursday as traders reacted so a batch of poor economic data out of China, Germany and the United States, as well as to lingering disappointment over the Federal Reserve's decision to merely extend its existing $400 billion Operation Twist initiative by $267 billion.
With Europe under pressure and growth slowing here, Wall Street obviously wanted more. So is that it? Is June's rebound finished? Not quite.
The evidence suggests this is a typical test of overhead resistance. Trough to peak, the S&P 500 jumped nearly 8% from its low and crossed over its 50-day moving average. Yet investor sentiment has barely budged. In fact, newsletter writers (guys like me) have reached a level of indecision not seen since 1983 according to an analysis of Investor's Intelligence survey data.
Ancillary markets are telling the same story. Traders have piled into the U.S. dollar (a safe haven asset) and shorted the euro on a scale that exceeds the extremes reached back in 2010 in the midst of the panic over the first Greek bailout. Options traders are also very nervous: an analysis of put/call trading volumes suggests small, speculative traders have only been this fearful on one other occasion since the March 2009 bear market low. That was June 2010.
While confidence has been bombed out, technical data suggests bargain hunters are on the prowl. Market breadth, or the number of stocks participating to the upside, has steadily increased over the past few weeks. The NYSE McClellan Oscillator, which tracks breadth momentum, has reached levels not seen since last October. And cyclical, economically-sensitive stocks have solidly outperformed defensive, non-cyclical issues like consumer staples.
These are all good signs.
Today's sell-off is showing relatively narrow participation as trader focus mainly on the relatively narrow group of stocks that are declining. As I write this, 78% of NYSE stocks are declining. Yet some 91% of NYSE volume is to the downside. The relationship between these two is used to calculate what's known as the ARMs Index. And earlier today, it was showing its best performance since late December -- a day that, like now, featured a quick dramatic pullback at resistance levels.
What about the fundamentals? Well, we already knew the economy was in trouble. Confirmation of this will only put pressure on policymakers at the Federal Reserve, the European Central Bank, and in Germany to support additional pro-growth measures from cheaper credit to direct bond purchases and a relaxation of Greece's bailout obligations.
Much of Europe is already in recession, so it's not surprising that German manufacturing activity is stalling hard (lowest level in some three years) or China's export miracle is sputtering.
In the U.S., continued weakness will only open the door to more aggressive easing by the Federal Reserve -- as it promised in its policy statement yesterday. And in Europe, the European Central Bank is already softening its stance by agreeing to accept mortgage securities as collateral against bank lending -- a backdoor way to help prop up Spanish banks saddled with bad mortgage loans.
Even the Germans seem to be warming to the idea of using the eurozone's bailout funds to push down Spanish and Italian borrowing costs.
It's not a slam dunk. But for now, the risks seem balanced to the upside. To be safe, I'm cutting my precious metals exposure in the Edge Letter Sample Portfolio, for now. Once things settle, I'll be looking to add gold/silver positions back in on expectations of more aggressive central bank interventions. Highlights include a near 10% gain in Great Basin Gold (GBG), a 4.1% gain in Market Vector Junior Gold Miners (GDXJ), and a 3.6% gain in Global X Silver Miners (SIL).
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Control is being taken away finally. The middle class sheeple can't take it anymore. There spent. They have no money. They make enough to pay bills. That can't buy anything new, only used. They have family living with them. What do you expect. Housing is still sputtering. No one is hiring. People are overworked because of it.
Soon the millionaires and billionaires will turn on each other. The global czars are organizing and have been for awhile to create another pandemic or global fear of some kind.
Don't be fooled. Stick to your guns. Pay your bills, save your money, help each other out. "Ride the storm out..."
Well, let's see. How much money was robbed out of people's 401k's in 2008 and 2009?
Since then, the 401k contributions have been deposited in every pay day and people are finally crawling back to where they were. With their hearts full of hope.
Yep. The pig is fattened up once more. And now, time for another barn yard slaughter. It's deja vu all over again.
The markets are over rated and over priced!
When it comes down to it I bet half of these companies are just another Enron in the waiting.
How can these companies keep saying they are making money when no one has any money to purchase their goods in the first place?
It's just a big ponzi game and the FED has pumped a bunch of money into it to keep it afloat.!
I do believe Mr. Mirhaydari does not understand the complexitity of Europe. The Germans are going to kick those countries who are not carrying their weight into the sea. And who owns most of this debt-- France. It'll probably turn into an economic WW III. Nobody knows what will be left when this tidal wave passes. Running to U.S. Treasuries is about the dryest position, if you like the AA rating. There is no way the equity markets shouldbe anywhere near the pre-recession highs. I'd stay away from commodities. You got to think it's best to stay in dollars until this passes.
Anybody want to "SPECULATE" on what a gallon of gas will cost next week?
How long will the oil companies keep trying to line their pockets before they
will be forced to lower the price. It is still over $ 3.60 here in certral Indiana.
It is down $ 27.00 a barrel from its recent high. That is a 25% drop.
I'd say it should be headed for $ 3.25 or lower. Does anyone think it will
No, Money, No Job, can't make mortgage payment. Let the banks suck wind!!!
How much does one person need over a lifetime 1 million, 10 million, more? Why can't we see the big picture for all to have good jobs and wages that can have society working and enjoying life instead of struggling to keep up with the "Jones" and images as portrayed on TV in commercials for cars, houses, vacations that most people can't afford. As far as I know there are no replays. No one lives forever. Some of the legislature and laws that are being proposed you would think these people believe they will live forever!!. remember at the end were worth same.
Once the car buying slows down in the next year or sooner the **** will hit the fan.
Most people have replaced their 10 year old cars and then its over for GM and Ford.
Coudn't get a loan at a bank but the auto company gave me a car loan.
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