It’s a funny day to ask which way isn’t it?
Everyone thinks the only way is down. Yesterday afternoon we were joking that down is the new up but, as I mentioned in the wrap-up, we may be making mountains out of mole-hills at this point. When you start hearing that we are falling to 2004 levels, wiping out 3 years of market growth, when you see stocks dropping the most in a single day since 9/11, you have to at least raise an eyebrow when everyone on television starts telling you to pack your bags and move to a cave.
The sky fell in Asia last night, or at least the Hang Seng did, as it dove 1,386 points (5.4%) while the Nikkei dropped 486 points (3.4%) and was saved by the closing bell from falling further and is resting at the 10% line from Thursday’s open. Japan’s Central Bank cut estimates for 2008 in 4 of 9 "regions" citing a substantial drop in housing investment and pressure from high oil prices and rising raw material costs.
Europe is NOT off by that much, with the three major indices bouning off their lows, hopefully resting back above the 5% line for their week. For the year, there is still a very sharp contrast between the DAX (still up 12%) and the FTSE and CAC40 (down 4%) and, as we discussed when reviewing the Big Chart, it is all up to the DAX to hold 7,500 (now 7,489!) if we are to have any hope of a global recovery.
I am often surprised by the market’s ability to be surprised by things we have been discussing for over a year and to see the "shock" expressed as banks reveal sub-prime losses and this sudden fear of the recession we’ve been in since the fall is even dumber than usual. To the extent that there is still "smart" money out there, it surely must have priced this in during the first 20% drop in the XLF (now down 30%) – this second 20% leg down seems like a bit much with the average component still outperforming 2006 numbers.
Of course we might have said the same thing about the XHB when they dropped 33% and seemed to hold it in ’06, yet here the builders are, down an average of 66% from their 2006 highs. Just wait until the XLE gets on this track – THAT will shock the markets!
Bill McLaren posted a nice chart on the S&P this morning that provides a close-up of Tom’s downside view of the index and we can rely on this downtrending line to tell us whether we are holding a steep downward pattern or whether we can get at least a brief respite, like we did in late November:
I love the line marked "Obvious" just above 1,370. Obviously we are very, very screwed if we fail that level and we could get pretty darn close on this morning’s open so let’s all join hands and pray that the sky isn’t really falling just yet and we can make a stand here, even without the Federal calvalry riding to the rescue.
IN PROGRESS
