Courtesy of John Nyaradi
Stock markets of the world tumbled this week as panic accelerated with each passing day.
Since global stock markets are now vastly oversold, a dead cat bounce would not be unexpected; however, we remain in the defensive mode and expect still lower prices ahead.
On My Wall Street Radar
The technical picture remains troubling.
Chart courtesy of www.stockcharts.com
In the Point and Figure chart above you can see how the S&P 500 took a dramatic plunge and is now some 60 points above the downside price objective of 1140, or still more than 4% to go. Just below that is the all important blue, bullish support line at 1120, which, if violated, would indicate the onset of what would very likely be a severe bear market.
Chart courtesy of www.stockcharts.com
In the more conventional chart of the S&P 500 above, we can see the “waterfall decline” of recent days and the RSI chart indicates a severely oversold market which is certainly due for a correction. However, quite ominously, the blue 50 Day Moving Average is sloping down towards the red 200 Day Moving Average, and should they cross, this would form the “death cross,” which is yet another confirmation of a new bear market.
The Economic View from 35,000 Feet
The economic news was truly shocking this week.
First and foremost on everyone’s list was the downgrade of the U.S. credit rating by Standard and Poor’s which diabolically came after the close of the markets on Friday.
In my view the timing of this announcement was both unnecessary and irresponsible, given the panic seen all week in global markets, and should set an interesting backdrop for the coming week, to say the least.
The downgrade was widely covered in the mainstream media but I think that a lot of people still don’t get how significant it was that Standard and Poor’s Dropped a Bomb on Friday.
Beyond that shock, European indexes suffered their steepest drops since 2008 and Spain and Italy continue plaguing the leaders of Europe who had to interrupt their traditional August vacation to participate in an emergency phone summit on Saturday to deal with the U.S. and ongoing European debt crisis.
In domestic stock markets, Friday saw a 400 point swing in the Dow and double normal option activity while the VIX, the “fear gauge,” is up approximately 100% in the last month.
When it rains, it pours as Fannie Mae lost a mere $29 Billion in the 2nd Quarter, double a year a go, and now it looks like it will need another $2+ billion bailout to stay afloat.
Banking woes continue across the board with Citi shedding 13% this month while Bank of America has become a microcap, trading at just $8 and change, down 34% in 12 months and 14% in the last month alone.
The European banks are sucking wind along with their American counterparts as Societe Generale is down 34% for the year and German giant Deutsche Bank is off 31% year over year.
If the financials are struggling, you can count on the rest of the market struggling, as well, because, after all, these companies have been designated as “too big to fail.”
Of course, you could always be Carlos Slim, the richest man in the world, who lost more than $6 Billion last week, although with a fortune of more than $60 Billion, you can’t really feel too sorry for the guy.
But the overriding concern is the continuing drumbeat of bad economic news as the ISM report, Consumer Spending, Personal Income and Factory Orders all pointed to a slowdown in the economy.
So is this going to be a double dip recession?
That’s the question of the day, and Russ Koesterich, iShares Global Chief Investment Strategist, offers a very thoughtful viewpoint in “Are We Heading Back To Recession?
What It All Means for Stock Market and ETF Investors
What it all means is pretty simple; more volatility, more danger and more opportunity for those who can be on the right side of these dynamic markets. As the old saying goes, “there’s always a bull market somewhere,” and significant dislocations like we’re currently seeing offer commensurately significant opportunity for those willing and able to pursue them.
The Business and Financial News Week Ahead
This will be another huge week coming up with the FOMC statement from Dr. Bernanke and his colleagues highlighting things on Tuesday and retail sales and consumer sentiment on Friday.
Markets are literally PRAYING that Dr. Ben will ride to the rescue, yet again, but I don’t think that’s in the cards for this week, at least. However, we can certainly expect that he’ll telegraph his intent to do SOMETHING, ANYTHING, to make the pain stop, although his options are now much more limited than they were a year ago when he launched QE2 at Jackson Hole.
Significant Upcoming Economic Reports and Activity
Tuesday: July NFIB Small Business Index, FOMC Statement
Wednesday: June Job Openings
Thursday: Initial Unemployment Claims, Continuing Claims
Friday: July Retail Sales, August Consumer Sales
ETF Spotlight
Leaders: (TLH) 20 Year Treasury (IAU) Gold
Laggards: (EWD) Sweden (EWI) Italy
Have a wonderful week ahead,
John
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