The Market Slide is Accelerating
Aug 9, 2011
Posted by Jody Eisenman | Filed under Uncategorized
On Friday, I spoke to a friend of mine who has been a trader for a while. His thoughts were that as bad as the market was last week, it was going to get much worse. I’m beginning to think he was right. Today, the DJIA fell 634 points. The S & P lost 80, and the NASDAQ lost an incredible 175. EVERY SINGLE STOCK IN THE DJIA AND THE S & P DECLINED TODAY! Although the downgrade of the US debt precipitated this, treasuries were actually one of the only safe havens today. This was the sixth largest decline ever, and volume on the NYSE was the fourth highest in history. A bad combination of slowing growth, high unemployment and European debt issues has sent investors heading for the hills. To understand the European situation, here is something I wrote in May 2010: http://www.jodyeisenman.com/2010/05/1931credit-anstalt-2010greece/
In many ways, this could be worse than 2008, as the Fed really doesn’t have many bullets left. QE2 has obviously failed, and there is no real talk of QE3. Besides, treasury rates are plunging, so why buy more bonds? The Fed Funds rate is virtually zero. All the spending by the government has not stimulated the economy, and in any case, Obama will never get a new spending plan past the Republicans. Speaking of Obama, he went on national TV this afternoon and said very little of substance. After his speech, the markets just continued their decline. It is apparent that “buy on the dip” has transformed to “sell every rally”. In addition, the market looks horrible on a technical basis, where very few stocks look enticing on a chart. As I wrote this about 10:30 pm, the Asian markets are getting crushed, and the S & P futures are indicating a further decline of 25-30 points. Gold is soaring, and is currently over $1700/ounce. Although pretty much everything was falling, the banks really led the decline, with BAC dropping 20%. Virtually every money center bank is now trading at a 2 year low. Is there a bottom somewhere?
Well, there is, but I couldn’t tell you where that point is. As interest rates decline and stock prices drop, you will eventually get to a point where investors will begin to buy high quality stocks if only for the dividends. As I stated last week, we are really short term oversold. However, as we have seen in early 2009, markets can stay oversold for a lot longer than most people can imagine. Meanwhile, the VIX has now soared to 48, an increase of 50% just today! I expect the volatility to continue for at least the near future.
