In the most random and violent tape that I've seen in my twenty five years in this business, even your writer is pretty much speechless. And for those of you who know me, that's really saying something. In spite of being deeply oversold on a time basis, stocks have continued lower in relentless fashion.
A word on market lexicon here, the terms : Overbought, and Oversold, are terms usually used to refer to the notion that prices have gone too far too fast. There is no hard and fast rule on these things, in fact there are a number of different statistics that people use to try to determine maximum overbought/oversold levels. The idea of course being that markets seldom move in the same direction in an uninterrupted fashion for very long.
If you've ever looked at a stock chart, you have seen the very clear ebb and flow of prices. As it pertains to our current situation, the term of the day is OVERSOLD. Major market averages have dropped every week for the past six weeks, a highly unusual occurrence. Even throughout the waterfall decline witnessed this past spring, the market only managed four consecutive weeks of decline.
Market commentators and FG's have been calling for a rally for the past two weeks based on this extreme oversold condition. I will admit that the market IS oversold, but I don't discern any real panic or fear in the market. It could be that on top of being oversold we need to see a real scary day or two before the market can mount a descent rally. Now I am not calling for this, but it is important to look to history here : As counterintuitive as it might seem, market crashes have always occurred from extremely oversold levels, not from overbought ones..
Even after a decline of some 15% in the last eight weeks, this remains the scariest market I have ever seen. Ever.There were a couple of big news items over this past weekend, one highly talked about, and one seemingly ignored. After having stated only last Thursday that "financial institutions must be allowed to fail", followed by Fridays statement that "our primary focus is supporting Fannie Mae and Freddie Mac in their current form", over the weekend the Treasury Secretary announced a government bailout of both institutions.
As I implied in the title of this piece, you need a program to follow the action. Now the most recent numbers show that combined, Freddie and Fannie own or guarantee $5 trillion worth of mortgages, that's trillion with a "T" or $5,000,000,000,000.00. Even if the unrecoverable amount of default is only 5%, that's a cool $250 billion. I would expect the Greenback to soften up some on this continued nationalisation of the American financial system.
The second bit of news that seems to have gone unnoticed is the third largest bank failure in US history. On Friday afternoon, the FDIC seized IndyMAC Bancorp. I should not think that this will be a one off. After having rallied a bit better than 1% this morning on the news of the Government bailout of Fannie and Freddie, stocks have surrendered those gains and moved to new lows for this bear market.
I read a great line that goes well with Don's first axiom. "I would rather be out of the market wishing I was in, than in the market wishing I was out." Even with the oversold nature of the market here, I am much to big a coward to venture into stocks at this time.
In my opinion, near term risk remains as high as I have ever seen it. As I think this will be a particularly violent week in the markets, I will attempt to get more thoughts out on the situation as it develops.
Be well, and as always in the words of that most wise free market libertarian Mr. Spock 'live long, and prosper"
A word on market lexicon here, the terms : Overbought, and Oversold, are terms usually used to refer to the notion that prices have gone too far too fast. There is no hard and fast rule on these things, in fact there are a number of different statistics that people use to try to determine maximum overbought/oversold levels. The idea of course being that markets seldom move in the same direction in an uninterrupted fashion for very long.
If you've ever looked at a stock chart, you have seen the very clear ebb and flow of prices. As it pertains to our current situation, the term of the day is OVERSOLD. Major market averages have dropped every week for the past six weeks, a highly unusual occurrence. Even throughout the waterfall decline witnessed this past spring, the market only managed four consecutive weeks of decline.
Market commentators and FG's have been calling for a rally for the past two weeks based on this extreme oversold condition. I will admit that the market IS oversold, but I don't discern any real panic or fear in the market. It could be that on top of being oversold we need to see a real scary day or two before the market can mount a descent rally. Now I am not calling for this, but it is important to look to history here : As counterintuitive as it might seem, market crashes have always occurred from extremely oversold levels, not from overbought ones..
Even after a decline of some 15% in the last eight weeks, this remains the scariest market I have ever seen. Ever.There were a couple of big news items over this past weekend, one highly talked about, and one seemingly ignored. After having stated only last Thursday that "financial institutions must be allowed to fail", followed by Fridays statement that "our primary focus is supporting Fannie Mae and Freddie Mac in their current form", over the weekend the Treasury Secretary announced a government bailout of both institutions.
As I implied in the title of this piece, you need a program to follow the action. Now the most recent numbers show that combined, Freddie and Fannie own or guarantee $5 trillion worth of mortgages, that's trillion with a "T" or $5,000,000,000,000.00. Even if the unrecoverable amount of default is only 5%, that's a cool $250 billion. I would expect the Greenback to soften up some on this continued nationalisation of the American financial system.
The second bit of news that seems to have gone unnoticed is the third largest bank failure in US history. On Friday afternoon, the FDIC seized IndyMAC Bancorp. I should not think that this will be a one off. After having rallied a bit better than 1% this morning on the news of the Government bailout of Fannie and Freddie, stocks have surrendered those gains and moved to new lows for this bear market.
I read a great line that goes well with Don's first axiom. "I would rather be out of the market wishing I was in, than in the market wishing I was out." Even with the oversold nature of the market here, I am much to big a coward to venture into stocks at this time.
In my opinion, near term risk remains as high as I have ever seen it. As I think this will be a particularly violent week in the markets, I will attempt to get more thoughts out on the situation as it develops.
Be well, and as always in the words of that most wise free market libertarian Mr. Spock 'live long, and prosper"
