On October 10th, SPX hit a low of 840 intra-day but rallied strongly on high volume to end the day about 60pts higher than the intra-day low. I believed that Friday marked a short-term to intermediate term bottom. Monday saw follow-through of the momentum from Friday with SPX surging double digits. We gave back almost all of the gains from Friday’s low to Monday’s apex very quickly (intraday Thursday). Note the VIX made a new high on Thursday topping 80 (pricing in 5+% daily swings in SPX) In all seriousness, I don’t like the tape being painted by the market here. With that said, the 10/10 840 low was only a short-term low as looking at the technicals, the probability of the market being in a corrective phase of a downward move is very high. This isn’t your daddy’s bear market. Anybody that is trying to pick a bottom here is going to get slaughtered in my opinion. Further, anybody that is trying to pick a bottom here does not truly understand the forces at play in the credit markets. There is a solid justifiable reason(s) to stay out of the market. The Treasury and the Fed are powerless to the forces at hand. I look for the SPX to break the 840 low in the next two weeks, first targeting the 768 low set in 2002 and then 650-670. At any juncture, the stock market is about supply and demand. Supply and demand dynamics dominate more often than fundamentals. It is clear that supply is much greater than demand right now. Further, some people continue to say there is value in the market; I agree on some individual company names, but not on the market as a whole. In nasty bear markets, and I believe the current one is and will get nastier, stocks bottom at a P/E between 7-10. We are no where near that currently and the “E” in my opinion is going to get smaller and smaller the next several quarters. People that have gotten this cycle correct forecast SPX earnings to bottom between $50-$55. Let’s use $55 in this example. $55 * 7 or $55 * 10 gives us a range of 385 - 550 for SPX to eventually bottom. I’m not predicting this range to become reality this year, but next year we may see these cataclysmic figures.
Wow, that’s totally depressing if it were to come true. While it might be a great buying opportunity and DCA, it would also mean that we’re trapped in a deflationary cycle, similar to Japan. One thing I’m trying to wrap my head around is the Treasury issuance coming down the pike. The front-end of the T-bill market is the next bubble. Once everyone figures out that they need to be earning something with a 1 handle, bills/notes are going to sell off. Then, one the yield curve steepens and really screws the consumer (credit cards, auto loans, mortgages, etc.). I’ve been saying that the winner of the election may wish to have taken a pass, as the economic climate may prevent any sort of agenda from being passed. Cheers!
Are you the one selling all those stocks to Warren Buffett?
<> LOL…that’s right. Someone is buying!
The FT has a good piece regarding the recession: http://www.ft.com/cms/s/0/232eb4de-9e20-11dd-bdde-000077b07658.html?nclick_check=1 But, capital markets tend to recover far ahead of the general economy. So if the SPX is headed towards the $55 range, we can expect a DOOOOOZY of a recession soon thereafter.
we are definitely going t wee lower lows… that’s not even a question.
Not tomorrow! Nikei and World indexes are up a good bit it looks like.
Joe Mazzella leaned forward and pored over the stock data blinking on the computer screen in front of him. With a few minutes to go before the markets opened on Wall Street, the trader psyched himself up for another wild ride. He described the frantic pace his colleagues have seen the past few weeks as “going like the hammers of hell.” Fast-paced markets with huge swings have become commonplace - but that doesn’t mean traders aren’t anxious. Mazzella, a trader with Knight Capital Group, shifted uneasily in his chair. Last week, the Dow had ended an eight-day losing streak that had sliced 2,400 points from its value, and Monday it surged a record 936. Tuesday was a relatively mild day, with the blue chips falling just 76. Now, with trading about to begin Wednesday, it looked like another bad day was at hand. Just seconds before opening bell, the noise level in Knight’s Jersey City, N.J., trading room ramped up, with traders barking last-minute orders over loudspeakers. When the bell sounded, it was met by something unexpected - silence. “That’s scary, it’s too quiet in here,” said Mazzella, a managing director at Knight Capital. “Nobody knows what to do in these kind of markets, nobody is ready to sell or buy and we’re all just sitting here watching.” “What’s humbling is that you could be the best trader, best investor, or best analyst in the world, and this market will still bring you to your knees,” Mazzella said. Robert Competiello, another trader, commented to a passer-by that some days have been like “juggling knives while balancing on an egg.” “We need a rally, I’m telling you, buddy,” Mazzella told another trader on the telephone as the Dow dropped 500 points. That rally never came. The market swung back and forth in the final hour of trading before giving in to a stream of selling in the last minutes. At Knight, the day began to wind down as it began, with traders screaming out orders before the final bell - which left the Dow down 733, its second-largest point drop. “We just cut to the low like a knife through butter,” Competiello said as the closing bell sounded
“Are you the one selling all those stocks to Warren Buffett?” I find it pretty damn suspect that during a week that the media is reporting record outflows out of asset classes, Warren Buffet appears in an OpEd piece declaring that he’s buying stocks. Sorry I’m just not a buyer when I can read between the lines.
No news = Up for markets. Next major thing will be when Fed will meet
Nike, By chance, do you work at the swoosh, or just named after the Greek?
cfa_gremlin Wrote: ------------------------------------------------------- > “Are you the one selling all those stocks to > Warren Buffett?” > > I find it pretty damn suspect that during a week > that the media is reporting record outflows out of > asset classes, Warren Buffet appears in an OpEd > piece declaring that he’s buying stocks. > > Sorry I’m just not a buyer when I can read between > the lines. Buffett’s personal liquid wealth is about $500M (the rest is in BRK stock pledged to charity). He said he was putting part of that (and potentially all of it) into US Stocks. Do you really expect that to show up in fund flows information?
So today I wake up, tune to Bloomberg, and see SPX futures limit down. Yikes! Cash opens at 9:30 and for 5 minutes I see NO bids on my screens. Suddenly, a miracle happens, the market gets some legs. Hmmm. My 6th sense tells me the powers that be want this decline to be as orderly as possible. With that said, I stand by my original post that we break the 840 low from October 10th this week coming up. VIX made another record high today opening up north of 90. I expect 768 to be hit and serve as some temporary resistance with the next levels of 650-700 being hit in the “capitulation of hell” price action that will signify a wash out intermediate low. You will see VIX north of 100. When I see this, I’m going balls deep long.
I agree with your prognosis 100 percent gremlin but how long do you plan to stay long for after that? For a few months or for a real long term? What companies?
I’m going to stay long for several months or until the massive “bear market” rally peters out. Technical analysis along with credit deflation (that I foresee) point to a deep and long bear market in stocks and credit. Stocks won’t turn until you see corporate investment grade credit spreads decrease. Right now there is no primary corporate (or sovereign) bond market. It remains shut as no one is willing to lend. No credit creation = no commerce = no economy = no value in stocks. Everybody is talking about de-leveraging when in reality they should be talking about defaulting/removing debt because that is exactly what’s going on and will continue to go on. There is some de-leveraging going on, BUT for the most part it’s being shifted over to the Fed. Remember that the Fed cannot take on infinite leverage without consequences just as firms or households cannot. The end result is the same. Will something blow up? MOSDEF. Please note that if credit markets don’t unlock if/when we do reach 650-700 on SPX, my longs will have a tight stop on them as we may continue to crash. Since my long play is not for the “real long-term” I’m going to keep it simple and go on margin with 2x index funds like SSO and QLD for example.
I would not be worrying about corporate spreads and I wouldn’t worry to much about the US, that is the least of our problems. We are very soon going to come to grips with the fact that there is no global lender of last resort. Russia is screwed, Argentina is screwed, and at least a dozen other small European countries are in danger of collapsing. The IMF is impotent and will need to get funding from somewhere to help save these economies. This will have a swift and immediate negative impact on countries like Austria, Sweden, and Germany. I have been saying that the center of gravity of this debacle is in Europe and I believe this is still the case. We are now faced with the systematic failure of entire countries. Iceland is going to see a 10% or greater contraction in GDP, which is the threshold for depression. And keep an eye on Asia, China’s GDP could slip further in a heart beat. I would keep your stops VERY tight.
55 dollar earnings on the s&P is overly bearish - that would be like 45% decrease year over year. I dont think that is a possibility given falling commodity prices, while revs are falling so are raw costs. 7 multiple is too low given the deflationary environment - heck in 1974 at the bottom it traded at 7times and inflation was much much higher. With that said, i believe stocks which are currently trading around 11 times forward earnings in a low inflation environment are very cheap. I believe that it is the stocks that are broken and not the companies…expect us to find a bottom here - somewhere between 800-50
Something to think about. The strong dollar is going to negatively impact earnings, maybe 20% of S&P companies will see the hit. Stock buybacks which have boosted EPS growth are off the table too. Interest costs are rising across the board for all companies that need to roll debt. Combine these factors with the cyclical decline we are about to face and the overly-bearish 55 number seems a little more plausible. A lot hinges on the Financial sector estimates along with energy.
“I would not be worrying about corporate spreads and I wouldn’t worry to much about the US, that is the least of our problems. We are very soon going to come to grips with the fact that there is no global lender of last resort.” Well - I’m in the U.S. and IG corporate spreads are the appropriate data to be looking at to see how severe this problem is/can get. Hence, my statement in my previous post of “will something blow up? MOSDEF.” I’m in the early stages of betting on a severe U.S. treasury market dislocation. Got TLT puts? “Russia is screwed, Argentina is screwed, and at least a dozen other small European countries are in danger of collapsing.” I wouldn’t put Russia in the same category as Argentina. Argentina just pulled a highly unorthodox move of nationalizing pension plans. The govt called the move a “bailout.” It’s beyond ludicrous. The citizens of that country continue to get screwed beyond belief. Russia on the other hand still has over $500 billion of FX reserves to help its state-owned and private companies refinance or pay-off short-term liabilities and finance a likely 2009 current account deficit should commodity prices continue to go down. In 2009, Russia’s financing will amount to $150 billion while they currently have more than $500 billion FX reserves. That leaves over $350 billion to meet outflows from local equity and corporate markets and speculative outflows. Unless you get bank runs in Russia I think the country gets through this mess. The possibility of bank runs is the reason why S&P put its rating on watch negative. “Stock buybacks which have boosted EPS growth are off the table too.” Stock buybacks wouldn’t reassure investors anyway. This is another fraudulent way of manufacturing a stock to look cheap. Just like increasing earnings by marking-to-market the decreased value of company liabilities. So let me ask, we are ok with marking-to-market liabilities in this environment but not assets? Chris Cox, I hope you burn in hell you incompetent SOB. “With that said, i believe stocks which are currently trading around 11 times forward earnings” Where did you get the forward earnings estimates? Wall Street sell-side?
This isn’t a trading site, this is an analyst site. Why don’t you post, with your charts, on a trading site/blog?