Archive through March 03, 2008

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deanrosario

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Post Number: 1353
Registered: 11-2002

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Friday, February 29, 2008 - 03:40 pm:

Yet again, the buyers refused to let the market (XJO) fall to 5500 or below.

I observed pretty strong & committed buying - virtually one-way traffic upwards - in the last hour of trading from the intraday support of around 5530ish.

Of course, today is the last trading day of February so one wonders how much of this afternoon's recovery could be attributed to "window dressing".

Window dressing is a deliberate strategy of price manipulation where the price of a security is increased significantly at the end of the trading day, in particular at month and quarter ends.

The basic motivation for window dressing is for fund managers to increase the price of securities in which their funds have relatively high exposure, in order to improve the performance of their funds under management, since fund performance is often measured using the month-end closing prices.

(Ref: http://www.cmcrc.com/about/news/press/021001.html)

Regardless, significant damage was done in the morning and the market failed to even recover 50% of the day's fall.

"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

"Hope is a dangerous thing. Hope can drive a man insane." Ellis Boyd "Red" Redding, played by Morgan Freeman, in 'The Shawshank Redemption'.

rdumas

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Post Number: 1164
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Friday, February 29, 2008 - 04:12 pm:

Hi Dean,

It would appear that we are now in a trading channel (refer to the channel defined by the blue lines) in the XJO moving sideways with a bias towards the bottom of the channel.

There has been a bit of upwards movement in the TMF and RSI both of which have now turned down.

The S&P500 has also been trading in a channel but with an ascending channel within that broader channel. It will be interesting to see if these channels remain in play tonight.

I find the correspondence between the two indexes amazing considering the reasonably good fundamentals for the Australian economy and the pathetic fundamentals of the US economy, the latter becoming a complete basket case. I would suggest for any parents with kids in school that they should take up Chinese as their second language.

ody

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Registered: 10-2006

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Friday, February 29, 2008 - 06:03 pm:

Footnote to Rudy's post on banks

I think one must indeed conclude that there is no formal guarantee of any kind that depositors would necessarily be bailed out by either a State government or the Commonwealth. However, I think the fact that Victoria did bail out DEPOSITORS in the case of the Pyramid Building Society shows how wary politicians are of not being seen to help bona fide depositors.

Pyramid was far removed from being a bank - and in principle a good deal more dangerous. I think what the governments of Australia would do in the event of failure is throw shareholders of publicly listed companies to the wolves, but protect depositors if at all possible. The major point would be that one invests in a bank AS A COMPANY totally at one's own risk, but that a DEPOSIT in a bank is something that an ordinary person should be able to count on as "safe": it is placed in the bank's trust and ought to be properly protected by it.

A great deal would moreover depend on the KIND of institution involved. Certainly investors have lost money - even fairly recently - by investing what they thought were safe "deposits" in places where they should not, because those organisations were offering higher rates but were in no sense bona fide and actually playing very dangerous games. On the positive side, however, something like Savings and Loans (a major credit union) is governed by exactly the same legal rules as a bank; it has consistently attracted very strong ratings as one of the best financial institutions in the country; and, although not a bank, is not likely, as an institution that exists for its membership, to seek the kind of risky exposure that a bank might.

For myself, I have our money invested in three quite different institutions, but I am not going to recommend them! This is an area where I think each person should do his/her own work. I did mention to some correspondents that, although there are no guarantees, I would personally feel that in general an Australian bank would probably not have to let its depositors down, and also that those who hold on-line accounts with e.g. ING ought to be safe. I would for myself avoid all American institutions, however.

It IS a worry, though probably more theoretical than practical. That is why I have chosen three different places; but I must confess I do not lose sleep over the issue. After all, what can one really do as an absolutely safe alternative? Malcolm Fraser recommended putting money under one's bed, but I don't feel drawn to that scenario.

Incidentally, those worried that the A$ may not stay high for ever (and it won't, as it is intrinsically fairly volatile) could think about e.g. the Euro as a reasonable alternative for at least SOME money: its rate is usually fairly steady. The US$ should DEFINITELY be avoided, and not be "bought" on the assumption that it has reached its nadir. Indeed, I think the US is so to speak "an accident waiting to happen" and would in all respects as much as possible avoid financial exposure to it. Management of financial affairs by e.g. the Fed seems to me manifestly unsafe, and huge problems are building up in a country which refuses to administer proper medicine to itself and seeks all sorts of supposed "remedies" which on the whole make problems worse, such as ongoing cutting of interest rates while inflation is building up. All sorts of financial deals can be carried out in the US which involve huge risks and huge sums and which are not properly supervised by any rules or authorities. For that matter, avoid, in Australia, such things as CFDs - not soundly based.

starboard_tack

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Post Number: 360
Registered: 04-2003

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Friday, February 29, 2008 - 09:22 pm:

OUT OF THE BERNANKE MOUTH!

From the Bloomberg article below:

"Fed Chairman Ben S. Bernanke said yesterday he expects some small banks to fail and the unemployment rate to rise."

http://www.bloomberg.com/apps/news?pid=20601009&sid=aHTH_5uPSjrg&refer=bonds

"The pessimist complains about the wind;
The optimist expects it to change;
The realist adjusts the sails."

deanrosario

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Saturday, March 01, 2008 - 07:13 am:

There was certainly no "window dressing" on US markets last night so Rudy, I reckon we'll finally break out of that trading channel that's formed during February.

March XJO futures suggest the XJO will smash through the recent support at Monday's opening bell.

What happens after the opening is anyone's guess.

Will there be blind panic that catapults us towards 2008 lows, or will our resolute bulls hunt for perceived bargains?

Either way there should be lots of opportunities for the daytrader.

ody

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Saturday, March 01, 2008 - 09:01 am:

WALL STREET IN MAJOR CRASH

Yes, Dean and Rudy, a negative breakout, after weeks of delay, now looks a certainty. I attach the latest report from CNN, and while we have seen many bad ones, this is possibly exceptional in there seemingly being NOTHING positive in it. So bad a day, and so much bad news, all at once, is certain to impact global share markets, which themselves have not been exactly a joy either. As Rudy said yesterday, the US at present looks like becoming a basket case.

The next week will bring further news, but with the mindset now developing - solidly bearish - most news, even anything that at some other time might be seen as bullish, is likely to be seen negatively: either as a sign of weaker growth, or of inflation. In short: belief in "stagflation" is growing - a poisonous combination. Bernanke is probably going for the "soft" option (as usual) of a further rate cut, though even he admits that his room is now very limited because it will further encourage inflation. So the lolly that the US has been sucking on has now almost been swallowed, and it is difficult to see what further sweetener can be offered to combat the stark and harsh development that will now hit this utterly spoiled and self-indulgent nation.

To think that our market will not also go down on Monday (and likely enough after) would probably be naive. It won't probably all happen in a straight line, for there will be the counter move of "value buyers", but for the most part the direction is at the very least not up, will be mostly down, with modifications in the opposite direction. The market had reached a point where it needed to choose: a true positive rally never looked plausible at a time like this, and the alternative carries far more conviction.

What is REALLY needed, particularly in the US, is a big PURGE of poison. All the bad news ought to come out, crashingly, so that we know as soon as possible just how bad it is going to be, and thus what to do - also about positive moves for the future. They cannot be taken with all sorts of uncertainties and threats over our heads. Let's hope that the truth will now come out.

See CNN's report:

http://money.cnn.com/data/markets/

rdumas

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Post Number: 1165
Registered: 11-2006

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Saturday, March 01, 2008 - 10:44 am:

MARKET WRAP

‘Wall Street plummets on poor economic data’, ‘Dow Jones down 2.5%, S&P500 down 2.7%’, ‘US consumers’ mood in February signals recession’, ‘Ambac bailout hits significant snag’………these are just some of the headlines that have caused massive falls in the US indices overnight.

S&P500

The S&P500 last night bounced off support at 1325 which was set back on the 5th May 2006. This fall occurred on high volume sending an ominous warning to investors about the S&P500's ability to remain above this strong support level. Should it crash through this level then a blood bath is guaranteed.

Bernanke continues to suggest that the US economy is not slipping into recession in spite of all the signs showing the contrary view. This coming week is filled with economic data releases in the US and it will be difficult for investors to avoid being confronted with the obvious facts of an ailing economy. For that reason I can't see the 1325 level holding.

All Ordinaries

As indicated in my post yesterday our All Ordinaries has been trading in a sideways travelling channel between 5603 and 5922 since late January 2008. There is no doubt that the All Ordinaries will crash through the bottom of the channel on Monday based on the lead from Wall Street and the shape of the ADRS on the NY Stock Exchange.

I can't think of too many occasions when Wall Street has had a drop the size of last night's which didn't continue on for several days. On this basis one would have to think that the All Ordinaries will head for a retest of our January low.

Yesterday the PEG value for the market was 1.33. During the recent turmoil in the market the PEG value did go down to 1.27 which is around 4.5% below its current value. Should we repeat the value of 1.27 then we would expect the All Ordinaries to go down to 5419 which is still above the January low.

rdumas

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Post Number: 1166
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Saturday, March 01, 2008 - 01:55 pm:

MARKET TARGET PONDERINGS

A post by Perler59 on another thread suggests a possibility that the XAO may drop down to around the 4800 level. Whilst there are a large number of strong support levels between the current level and that level Perler59's suggested target level is a real possibility.

First of all we still need to retest the January 2008 low of 5222 which will be a pretty significant event by itself. One target support level that it would have to break first is 5318 which was established on the 11th May 2006 (blue line).

Perler59's suggested level finds a strong support level at 4807 which was established on the 14th June 2006. Note that the total range of our bull run which started on the 14th March 2003 at 2687 and topped on 1st November 2007 at 6873 gave us a range of 4186 points. 50% of that figure (a significant Fibonacci level) gives us a retracement of 2093 points which takes us down to 4780 (or close enough to Perler's 4800 level) which is shown by the green line. This also represents a drop from the market top of 30.5% which certainly is not beyond the realms of the possible.

deanrosario

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Saturday, March 01, 2008 - 02:27 pm:

Hi Rudy

When pondering likely targets I think it's worth referring to Mr Fibonacci's magic ratios.

And, the levels also seem to correspond well with support and resistance levels.

ody

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Saturday, March 01, 2008 - 04:20 pm:

OVERVIEW FROM GREG PEEL (FNARENA)

Herewith an informative account (free to all) of what has been happening, just recently, to trigger off the current fall in the US (and unavoidably elsewhere), with all sorts of recent bits of news and gory details, and analysis as to why things are shaping up so badly and look poor as we go into next week. This concentrates more on the underlying fundamentals than T/A, though the latter is not neglected, but mainly considered for the short term only, with inevitable weakness predicted.

A very good article indeed. Informative, non-sensationalist, and sensible.
------------------------------------------------------------
The Overnight Report: Muni Market Meltdown
FN Arena News - March 01 2008

By Greg Peel

Up by the stairs and down by the elevator - after a week of tentative gains Wall Street gave it all back on Friday as a wave of bad news hit the markets. If you want to make it sound really disastrous, it was the worst leap day on Wall Street since the nineteenth century, but in nominal terms that 's a bit sensationalist.

Friday saw a meltdown in the municipal bond market. The subprime mortgage crisis which the bulls called a storm in a tea cup last July has spread from CDOs into all asset-backed securities, private equity debt, all non-prime mortgages, corporate debt, credit default securities, bond insurance, and now municipal bonds. There are trillions of dollars of municipal bonds on issue in the US, and the asset class is considered in many cases to be second only to US Treasuries in terms of capital security.

Municipal bonds are issued at state and local level in the US to finance capital projects such as infrastructure or utilities. You might, for example, buy a New York State water & sewerage muni bond. Muni bonds came into the credit crisis frame in February as it became clear the big US monoline insurers, which insure everything from munis to CDOs, were under threat of losing their AAA ratings which would, in turn, cause the bonds insured to lose their AAA ratings and spark a massive sell-off. Government agencies and banks are currently in a race against time to come up with rescue packages for these insurers in order to avoid this disaster. It is the CDOs in insurers' portfolios that would trigger the downgrades. Munis would be collateral damage, if you pardon the pun.

But information is instantaneously discounted in financial markets and risk adjustments made accordingly. Under real threat of a potential sell-off, muni bond credit spreads have blown out meaning prices have already tumbled, if not yet crashed. But Friday saw the end of the month and that means margin calls. Many hedge funds have long been playing the long munis/short Treasuries spread as means of picking up a few basis points on the spread. That trade has now gone awry, and hedge funds were forced on Friday to unwind positions to try to make good on margins. The muni market took a big dive.

US Treasury yields had been ticking back up last week as inflation concerns blew out the long end and the possibility of the Fed suspending its rate cuts drove up the short end. But while we began the week with the two-years over 2% and the ten-years over 4%, a rush of buying in the last couple of sessions has seen the two-year yield fall to 1.65% - the lowest since the 2002 recession - and the ten-years to 3.5%. Money has flowed back into Treasuries as the Fed has made it clear another rate cut is coming and everything else has imploded in the meantime, including munis. And including stocks.

The Dow closed down 315 points or 2.5%. The S&P lost 2.6% and the Nasdaq 2.7%. After four consecutive down-months Wall Street was hoping earlier in the week February would break the run, but now it hasn't. Many traders have suggested Wall Street would need to retest the January lows before it could meaningfully begin a rally. The close last night was 12,266 - 296 points shy of that low in the Dow.

It wasn't a case of what was the bad news on Wall Street on Friday, it was a case of what wasn't. The session began with the news the Chicago purchasing managers' index fell to 44.5 in January, down from 51.5 in December. Economists were expecting a reading of 49.7. The index is based on 50 being the neutral point, and as such a number below 50 is recessive.

The Reuters/Michigan University consumer confidence measure for February fell to 70.8, down from 78.4 in January. This is the lowest measure in sixteen years, and represents a 30% fall in confidence from January 2007. Survey directors said falls off such magnitude have always preceded recessions, and noted the number of households reporting financial distress in February was greater than in any time in the depths of the 1991 recession.

Conversely, consumer spending rose by 0.4% in January against an expectation of only a 0.2% gain. A silver lining? No way. Inflation also rose 0.4% in January, meaning the increase in consumer spending was not a volume increase, but simply a price increase. Spending was thus actually flat.

A bagel seller interviewed on CNBC on Friday (bagels are the staple diet of cosmopolitan Americans) noted that last year he was paying US$12 for a bag of wheat. On his latest price enquiry he was offered US$68.

And the corporate news didn't get any better. Financial insurance giant and Dow component AIG announced a loss of US$5.3bn in the fourth quarter - much worse than analysts were expecting - blamed on mortgage security and credit default swap write-downs. AIG shares lost 7%.

News emerged the rescue package for monoline insurer Ambac, which was expected to be sealed during the week, was rejected by the ratings agencies as insufficient to prevent a downgrade from AAA. It's back to the drawing board for the banks involved.

UBS analysts issued a report suggesting total credit market write-downs would reach US$600bn. Only US$160bn has been written down to date.

The tech sector has attempted to be an oasis of stable offshore earnings and defensive quality to date, but Dell reported last night profits from computer sales had fallen 5% year-on-year in the fourth quarter. The market reacted by sending Dell's shares down 6%, and the Nasdaq was dragged down in sympathy. Or is that empathy?

Do we need to hear anymore?

The US dollar rose slightly against the European currencies last night, possibly reflecting Treasury buying, but fell heavily once more against the yen. At 103.7 yen this is the lowest level for the dollar in three years, and the dollar index again ticked down to a new low. This conspired to spark a rapid turnaround in the Aussie dollar's surge (yen buying implies carry trade unwinding), following on from preliminary GDP data which showed the Australian economy had slowed from 4.3% to 3.9% annual growth in the December quarter. The Aussie fell US1.76c in 24 hours to US$0.9312.

Gold rose slightly on Friday - up US$3.50 to US$973.60/oz.

Oil finally took a breather on Friday, but not before registering a new intraday high over US$103/bbl as news came in of a pipeline shut-down in Ecuador. Any little thing is going to send oil flying at the moment, but weak economic news finally gave some cause for profit-taking and oil fell US75c to US$101.84/bbl. The fall in the oil price also sparked selling in Exxon and Chevron, as if the Dow needed any more help in falling.

Base metals decided also to take a breather, as the buying frenzy gave way to profit-taking on the weak economic news in the US. Metals fell 1-2% with the exception of recent star nickel, which added another 1.5%.

The fall on Wall Street was accompanied by high volume - much higher than the average volume on the previous up-days. Despite the fact the muni crunch was put down to end of month margin calls, one trader commented that the end of month, and the fact it was a Friday, probably saved the Dow from falling over 500 points as speculators would have been less eager to increase short positions over the weekend and into March.

The SPI Overnight fell 144 points to 5420. This closing level implies that Monday will see the ASX 200 open below the significant support level at 5500. Friday's trade saw yet another attempt by the short side to push the index through this barrier, but like so many times in the past two weeks the strategy failed, and buyers turned the market around. Technicians suggest that a break of 5500 will see a sharp move to 5300, which on Friday's physical close is 272 points away. The January low is 5186.

hilarius

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Saturday, March 01, 2008 - 05:18 pm:

Ody has been right all along, if not always concise

Rudy and Dean have provided charts and comments of great clarity

Well Done

Colin Twiggs has been consistently right with charts of great clarity and succinct and accurate comments in his Diary

When you all ring the bottom bell together I will be most interested

Hilarius

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

ody

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Saturday, March 01, 2008 - 09:04 pm:

OPPOSING MOVES WITHIN OUR MARKET

I have just read with great interest Colin's material about the contrary moves of e.g. BHP (which one might consider an "archetypal" resources stock) and the rest of the market.

It is clear to me why I was attracted to BHP, RIO, and